DenationalizationEBC.lyx

#LyX 2.2 created this file. For more info see http://www.lyx.org/
\lyxformat 474
\begin_document
\begin_header
\textclass book
\begin_preamble
\usepackage{bookmark}

\usepackage[authordate,natbib,backend=biber]{biblatex-chicago}

\usepackage[toc]{glossaries}
\glossarystyle{altlistgroup}

% add the bibliography file (linux location)
\addbibresource{~/LaTeX/bibliography.bib} 

\input{glossaries.tex}

\makeglossaries

\let\nomenclature\gls
\end_preamble
\options a5paper
\use_default_options true
\begin_modules
biblatex
\end_modules
\maintain_unincluded_children false
\language american
\language_package default
\inputencoding auto
\fontencoding global
\font_roman default
\font_sans default
\font_typewriter default
\font_math auto
\font_default_family default
\use_non_tex_fonts false
\font_sc false
\font_osf false
\font_sf_scale 100
\font_tt_scale 100
\graphics default
\default_output_format pdf5
\output_sync 0
\bibtex_command biber
\index_command default
\float_placement h
\paperfontsize default
\spacing single
\use_hyperref true
\pdf_title "Economics of Bitcoin and Cryptocurrenies"
\pdf_author "Bastiaan Quast"
\pdf_keywords "bitcoin, cryptocurrencies, economics"
\pdf_bookmarks true
\pdf_bookmarksnumbered false
\pdf_bookmarksopen false
\pdf_bookmarksopenlevel 1
\pdf_breaklinks false
\pdf_pdfborder true
\pdf_colorlinks false
\pdf_backref false
\pdf_pdfusetitle true
\papersize default
\use_geometry false
\use_package amsmath 1
\use_package amssymb 1
\use_package cancel 1
\use_package esint 1
\use_package mathdots 1
\use_package mathtools 1
\use_package mhchem 1
\use_package stackrel 1
\use_package stmaryrd 1
\use_package undertilde 1
\cite_engine natbib
\cite_engine_type authoryear
\biblio_style plain
\use_bibtopic false
\use_indices false
\paperorientation portrait
\suppress_date false
\justification true
\use_refstyle 1
\index Index
\shortcut idx
\color #008000
\end_index
\secnumdepth 0
\tocdepth 1
\paragraph_separation indent
\paragraph_indentation default
\quotes_language english
\papercolumns 1
\papersides 1
\paperpagestyle default
\tracking_changes false
\output_changes false
\html_math_output 0
\html_css_as_file 0
\html_be_strict false
\end_header

\begin_body

\begin_layout Chapter
Cryptocurrency competition: Hayek's Paradise
\end_layout

\begin_layout Standard
\begin_inset CommandInset label
LatexCommand label
name "chap:denationalization"

\end_inset


\end_layout

\begin_layout Standard
Bitcoin first become popular in several underground movements.
 As such it has been hauled as a major innovation in a self-identified movement
 know as 
\begin_inset CommandInset nomenclature
LatexCommand nomenclature
symbol "crypto-anarchism"
description " "

\end_inset

.
 The main idea behind 
\begin_inset CommandInset nomenclature
LatexCommand nomenclature
symbol "crypto-anarchism"
description " "

\end_inset

 is that 
\begin_inset CommandInset nomenclature
LatexCommand nomenclature
symbol "cryptography"
description " "

\end_inset

 empowers individuals to protect themselves from harmfull government medelling.
 It is not suprising that many of the economic principles on which 
\begin_inset CommandInset nomenclature
LatexCommand nomenclature
symbol "Bitcoin"
description " "

\end_inset

 is based, are commonly identified with government weary schools of thought
 is economic academia, such as the Austrian School and Monetary Economics.
 
\end_layout

\begin_layout Standard
In a 
\color red
1999 interview
\color inherit
, Milton Friedman, the key proponent of Monetary Economics gave an interview
 to the tax-payers association of America in which he says:
\end_layout

\begin_layout Quotation

\color red
The one thing that is missing -but will be invented very soon- is a reliable
 anonymous online e-cash
\end_layout

\begin_layout Standard
If we consider the cryptocurrency space as a whole we seem to approach the
 'Decentralization of Money' as descibed by 
\color red
Friedrich Hayek (1976)
\color inherit
.
 Hayek describes a situation in which currencies are no longer owned by
 governments, but in stead are owned by private companies.
 In this transnational currency space, the most currency or currencies most
 favorable to consumers would be adopted strongest and would become dominant.
 The situation of there being several competing cryptocurrencies in comes
 very close to the system as invisioned by Hayek.
 It also addresses some of the key critisisms of this vision, as raised
 for example by Milton Friedman...
\end_layout

\begin_layout Standard

\color red
PERHAPS A DISCUSSION OF GRESHAMS LAW IN THIS CRYPTOCURRENCY COMPETITION
\end_layout

\begin_layout Standard
Although Hayek firmly believed in the self-regulating currency market, the
 market itself was made up of self-serving firms which owned and controlled
 the currencies.
 Cryptocurrencies go a step further, in making the currencies self-regulating
 and making only the individuals currency holders self-serving actors.
\end_layout

\begin_layout Section
Faith in Markets
\end_layout

\begin_layout Standard
It is clear from the discussion of Hayek's view that denationalization of
 money relies on a highly effective market order.
 This seems problematic in several ways.
 Firstly, as history has shown, the fact that banks (which would be the
 issuers of currencies) have long run interest in acting in a certain way,
 does not lead to the decision makers acting in such a fashion, rather than
 in their own (short-run) interests, much the same as Hayek feels the government
 acts.
 
\begin_inset CommandInset citation
LatexCommand citet
before "p. 48"
key "hayek1978denationalization"

\end_inset

 compares the faith in currency issuers to the faith commonly invested in
 banks (in the absense of a deposit quaranty system).
\end_layout

\begin_layout Quote
The kind of trust on which private money would rest would not be very different
 from the trust on which today all private banking rests (or in the United
 States rested before the governmental deposit insurance scheme!).
 People today trust that a bank, to preserve its business, will arrange
 its affairs so that it will at all times be able to exchange demand deposits
 for cash, although they know that banks do not have enough cash to do so
 if everyone exercised his right to demand instant payment at the same time.
\end_layout

\begin_layout Standard
It is easy to see how this situation is less than ideal, yes people have
 put their money in banks, but only for lack of alternatives.
 The system is generally considered problematic.
 Hence the the rise of deposit insurances schemes, such as the one mentioned
 in the above quote.
\end_layout

\begin_layout Standard
Secondly, if a market for currencies is formed, the social capacity to come
 with any number of currencies is limited.
 This would thus lead to a situation where a relatively small number of
 currencies coexist, a situation of oligarchy would thus arise, rather then
 a effect market.
 Indeed Hayek expects this himself 
\begin_inset CommandInset citation
LatexCommand citep
before "p. 43"
key "hayek1978denationalization"

\end_inset

:
\end_layout

\begin_layout Quote
With variable exchange rates, however, the inferior quality money would
 be valued at a lower rate and, particularly if it threatened to fall further
 in value, people would try to get rid of it as quickly as possible.
 The selection process would go on towards whatever they regarded as the
 best sort of money among those issued by the various agencies, and it would
 rapidly drive out money found inconvenient or worthless.
\end_layout

\begin_layout Standard
If the selection process continues until only the best remains, it is inevitable
 that substantial market power is attained by these select few parties which
 control these currencies.
\end_layout

\begin_layout Standard
In recent years, there have been many economic insights into how, under
 a situation of information asymetry, market efficiency does not hold (STIGLITZ).
 In a sitution where several dominant currencies have a lot of market power,
 it would not be hard to conceive of a situation where these companies could
 utilize their information advantage to extract rents from the public.
 We can now see how a cryptocurrency would fit this idea even more than
 a privately owned currency.
 All information about the currency is always recorded in the public ledger,
 and directly accessible on the internet.
\end_layout

\end_body
\end_document