On the Practicalities of Counterfeit-Proof Physical Bitcoins 121
fsterman writes "What do you get when you cross physical one-way-functions, a distributed and secure datastore, with physical Bitcoins? A viable alternative currency for micro-nations and dictatorships with hyper-inflation." Whatever your thoughts on bitcoin, it's interesting to think about the infrastructure and production cost of the tokens we use as money more generally.
Production cost (Score:5, Interesting)
Dictatorships with hyper-inflation (Score:5, Interesting)
Imagine a digital currency in the form of news articles posted on a website. This currency can be minted out at will by the benevolent dictator who runs the site. As in all healthy economies, currency has been supplied at a rate that matches demand in order to keep the economy stable. On the weekends, for example, demand typically has gone down. Thus, the weekend currency supply typically has been reduced to match.
Imagine, though, that the dictator enacts a new policy that makes The People mad. Grumbling and other political unrest ensue. Noticing this, the dictator tells himself, "The People are revolting." So, he dictator issues a soothing message. That works to some extent but ultimately isn't completely effective, primarily because he doesn't explicitly reverse the unwelcome policy; worse, if one reads his statement carefully, it actually states that the unwelcome policy will remain. Still, the dictator finds The People revolting.
So, in order to distract The People and make them feel richer, the benevolent dictator who runs the site suddenly begins minting out lots of new currency on the weekend. Notably, weekend demand has not increased but has actually decreased due to disruption of the economy caused by the new policy. Yet supply goes through the roof.
As in all such cases where supply of a currency greatly outpaces demand, hyperinflation results. The currency is inevitably devalued. Of course, The People notice this. Rather than feeling richer, hyperinflation makes them feel even poorer, and, ironically, actually contributes to the economic disruption that the benevolent dictator was hoping to ameliorate. The People begin to question the benevolence of their beloved dictator even further.
The dictator soon recognizes the hyperinflation he has created, and realizes that minting out currency is the cause of it. (As Milton Friedman said, "Inflation is always and everywhere a monetary phenomenon.") Yet he keeps minting out currency. Worse, he stubbornly sticks to the bad policy that caused his whole little economy to spiral out of control.
After all, what's the use of being a dictator if you aren't always right?
Re:Production cost (Score:4, Interesting)
In the case of pennies and nickels, this has nothing to do with the actual cost to make them so much as their inherent value in metal content.
Yes, melting down pennies to sell for scrap breaks the law. Now look at a random handful of pennies and see how many you can find that predate 1982 (when they went from pure copper to mostly zinc). If you don't think we have people scrapping them for copper, I have a bridge to sell you.
The same thing happened in 1964 when our dimes-and-up stopped containing any silver (nickels always used copper/nickel, except during WWII) . Although you'll occasionally (rarely!) get lucky and find one mixed in with your change, pre-1964 change has effectively ceased to exist in circulation.
That said, as far as I can tell the whole "costs more to make" arguments counts as just a rationalization. People hate pennies, and just want them gone. This has nothing to do with value or cost or the phase of the moon - Even in my youth, a few decades ago, a penny would only buy you a single piece of the crappiest candy. Today, even that crappy candy costs a quarter. So why the hell do we keep creating a coin that only has use in the aggregate? Ditch the worthless lump of zinc and stick with coins that have actual buying power.
People do two things with pennies - Kids thrown them in jars in the closet, and old ladies tie up the checkout line trying to make exact change. Factoid of the day: If you saw a parking lot covered in "free" pennies (say one per square foot), you would need to pick one up every five seconds just to make minimum wage. By comparison, doing crappy agricultural piecework like strawberry harvesting, if you could work at that same rate, you'd make 21x as much for the same type of effort.