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Why is Bitcoin misunderstood: hierarchical vs. decentralised structure of society

MoneyLab Conference - Amsterdam 22. 3. 2014Peter !urda

http://www.economicsofbitcoin.comsurda@economicsofbitcoin.com

@PeterSurda

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Euro example

!"monetary independence from political interference and price stability, has, to all intents and!Otmar Issing, 1999 (board of directors Bundesbank, chief economist of ECB)

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ESM Treaty (2012), Article 32

1.The ESM, its property, funding and assets, wherever located and by whomsoever held, shall2.The property, funding and assets of the ESM shall, wherever located and by whomsoever h

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Interdependence in monetary hierarchy

!Discretionary monetary policy-Controlling economic activity

-Large chunk of financing the governments!Privileged vs. unprivileged class

-Barriers to entry!Counterfeiting

!Operating a bank without a license-ESM officials are immune from prosecution

!Security through access control

!These depend on each other and if you loosen one, it will collapse

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Economic problems with hierarchies

!Economic calculation argument-Without market prices for capital goods, consumer needs can't be satisfied

!Principal-agent problem-Adds a new stakeholder

-Regulations means they can take away your stuff. Be careful what you wish for!!Concentrated benefits / dispersed costs

-This is why there lobbyists emerge

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Bitcoin is decentralised

!Protocol!Property rights transfer, auditing and certification can happen without a trustedthird party

-Trust in authority is replaced with trust in computation, so anyone can have access-You can delegate partial authority, so you don't need to fully trust the agent

-You can mathematically prove what happened!More efficient, more secure, anyone has full access to global financial system

-Unbanked (emerging markets, teenagers, oppressed, people with bad credit rating or poli!Avoids systemic risk specific to hierarchies

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Some misconceptions #1

!There are no chargebacks-Allows practically any contractual arrangement

-It is actually the current system that allows the banks to interfere in arrangements between!Out of thin air

-Production costs since the beginning adjust to market price-Just like any other commodity

!You need to trust exchanges-Most based on hierarchical models-Decentralised exchanges being developed

-Greg Maxwell's proposal for proof of reserves

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Some misconceptions #2

!Early adopters privileged-When a person with money meets a person with experience, the person with the experien

-Harvey MacKay

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Do we need a central bank?

!What if something goes wrong?!Not a new argument (e.g. currency school vs. banking school in 19th century)

!Not specific to money: I think there is a problem, so let's put someone in charge.!Why not replace central banks with computers: Friedman, Selgin proposed, and altcoins are tr

-State would lose financing-Central banks would lose power and prestige

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Thank you

!http://www.economicsofbitcoin.com!surda@economicsofbitcoin.com

!@PeterSurda