How Dogecoin changed my perspective on cryptocurrency
Here we have more evidence of the miraculous ability of crypto currencies to turn unassuming computer programmers into economics experts. Let's take a look at some choice quotes.There’s no inherent reason that a piece of paper has a certain amount of value. There is a subjective reason, though: namely, that a large enough number of people agree that USD is a worthwhile commodity. They believe that for a number of reasons, including that our Army will go off and fucking kill anybody who threatens to break the spell that makes everyone agree that USD are worth your time to accept.That's a bunch of needlessly cynical and completely ignorant bullshit. We don't use the army to convince people to use dollars. That's quackery. People use dollars because the value is relatively stable, most goods for sale in the U.S. and exported from the U.S. are priced in dollars, people in the U.S. pay their taxes in dollars, oil tends to be priced in dollars internationally, foreign countries hold lots of dollars as reserves, in the U.S. you can have a bank account denominated in dollars that will retain it's value up to $250,000 even if the bank blows up(!), and so on. All of these are reasons people use dollars. It isn't something that's done at the point of a gun.Everyone agrees that dollars are worth something, and we trade them all the time. They’re really easy to trade. I don’t know of any coffee shop near me that takes Euros, so even though 1€ is “worth more” than $1 USD, the Euro note I have in my backpack is basically useless for me to get some coffee. Economists call this property ‘liquidity,’ and it basically means ‘how easy is it for me to get what I want with this commodity.’Stop calling currencies commodities. Currencies aren't like some weird subset of commodities. The reason Euro isn't useful in the U.S. is because there are no good reasons for it to be useful. I can't pay my taxes in Euros. Almost nothing for sale here is priced in Euros. If I try to deposit Euros in my dollar denominated bank account I will get a shitty FX rate from the bank. There is a lot of obvious friction involved in using things other than USD as a currency in the U.S. It has nothing to do with "liquidity."Imagine a “Dogecoin VISA”, a credit card where I hold a balance in DOGE.Great idea! Ok so now a bank has given me a certain amount of dogecoin denominated credit. Presumably that is backed up by dogecoin denominated savings accounts or whatever. People give their dogecoins to the bank and the bank lends the dogecoins to me. I spend my full line of credit but I can't pay it back. Suppose there are a bunch of crappy dogecoin debtors out there and none of us can pay back our dogecoin denominated debt. Now suppose the banks depositors get wind of the situation and all try to withdraw their deposits at once. Classic bank run. Depositors are all fucked because there is no FDIC insurance for dogecoins.* TWTR -> USD -> BTC -> DOGE -> MYCOMPANY *You lose money at every step along the way. You pay the spread for every transaction, and if banks get involved, you can probably expected to get fucked in all sorts of mysterious ways by the FX desk at some point too.