Hygro
soundcloud.com/hygro/
Is this like an “if you can’t beat em, join em” response to their international drug gang problem?
I cannot get my head around this Lighting-Network thing. Does it actually work in the absence of trust, or do you need to trust someone who trusts someone .... who trusts someone who is willing to make an on-chain transaction (and pay the transaction fee)?That's just El Salvador's bitcoin reserve as of now since they are implementing the Lighting-Network-based Chivo Wallet
Which do you think will be the strong currency, bitcoin or USD?US dollar will still be legal tender in El Salvador as well (and theoretically speaking the Salvadoran Colón is legal tender as well, even though I don't think anybody uses it anymore) so we might see things like Gresham's law largely affecting bitcoin's circulation in the country, specially in the beginning.
You certainly can't take a look at their current 400 BTC reserve and conclude that that is all and that El Salvador is just a drop of water in the bitcoin ocean. You've got to take a look at the bigger picture first.
Angry protests, technological glitches and a plummet in value marked the first day of El Salvador adopting Bitcoin as legal tender.
The price of Bitcoin on Tuesday crashed to its lowest in nearly a month, falling from $52,000 (£37,730) to under $43,000 at one point.
An opposition politician said the fall caused one of Latin America's poorest countries to lose $3m.
I wasn't kidding about wondering the connection to the cocaine trade and the ability to sneak money around but...It's a tiny nation of 6.8 mil people. It will always be a drop of water. Again, bitcoin daily trading volume today is 65 billion dollars. That is more than twice Republic of El Salvador annual GDP traded every day. That allows me to reasonably conclude about it being insignificant influence on the most traded crypto in the world.
I wonder why they chose bitcoin though.. The oldest, thus the most architecturally unsound crypto, with insane tx cost and faint prospect of competing with more modern variants, which provide everything faster and cheaper, especially in retail use, as is the case under discussion. I guess the president of Salvador just did what that Californian bank told him to.
I wonder why they chose bitcoin though..
I cannot get my head around this Lighting-Network thing. Does it actually work in the absence of trust, or do you need to trust someone who trusts someone .... who trusts someone who is willing to make an on-chain transaction (and pay the transaction fee)?
Bitcoin is also deflationary; there will only ever be a certain amount in existence. Something like that also makes economists wet
Is this sarcasm?
If there are any academically trained economists in Bukele's staff they probably advised him against adopting any cryptocurrency as legal tender. My wild guess is that Bukele is getting a cut from the bitcoins drug criminals now get to launder more easily.
I am sure it is technically correct, but I do not understand and I have no reason to believe that the ordinary El Salvador will understand it.
The first and most straighforward reason why deflation is regarding to be bad is that it makes people put off expenditures. When you expect a couch or some appliance to be cheaper x time from now, you may be more inclined to delay buying it. This may suppress demand.
A second, nastier reason concerns wages. They're commonly observed to be 'sticky': they may stagnate, but they will rarely fall (in nominal terms), probably because workers are hostile to cuts. It's for this reason that unemployment rises during recessions: as there's only limited adjustment to the price of labour, firms instead use less of it. There is however some adjustment because of inflation: when wages are flat in nominal terms, but when there's inflation, real wages will stil fall. When there's deflation, labour becomes only becomes more expensive.
The third reason, the one that truly dreads central bankers, involves interest rates. During recession it necessary to lower interest rates in order to stimulate demand and get output back up. Interest rates can only so far however (used to be zero, turns it can fall below that, but CBs aren't eager to find out how far), but much like inflation helps real wages fall, it also helps to push down real interest rates, even get them negative. When you've got deflation however, you can cut interest rates all the way to 0 and still have positive interest rates. Worse, you could have a situation where real interest rates are so high, they push down economic activity and prices even more, serving to yet further increase real interest rates. In the early 30s real interest had actually increased by almost 10% by 1932 compared to 1929 because of deflation (although nominal rates had fallen far too little as well, deflation well exceeded it). This is a deflation trap and seen to be single biggest cause of the Great Depression.
@warpus
I was mostly reacting to your claim that deflation makes economists wet. I assure that's not true, notwithstanding your detailed understanding of Salvadorean politicians' thoughts and discussions with advisors. I actually made a post in the business thread not so long ago about why economists don't like deflation, so let me quote that:
The third reason, the one that truly dreads central bankers, involves interest rates. During recession it necessary to lower interest rates in order to stimulate demand and get output back up. Interest rates can only so far however (used to be zero, turns it can fall below that, but CBs aren't eager to find out how far), but much like inflation helps real wages fall, it also helps to push down real interest rates, even get them negative. When you've got deflation however, you can cut interest rates all the way to 0 and still have positive interest rates. Worse, you could have a situation where real interest rates are so high, they push down economic activity and prices even more, serving to yet further increase real interest rates. In the early 30s real interest had actually increased by almost 10% by 1932 compared to 1929 because of deflation (although nominal rates had fallen far too little as well, deflation well exceeded it). This is a deflation trap and seen to be single biggest cause of the Great Depression.
A second, nastier reason concerns wages. They're commonly observed to be 'sticky': they may stagnate, but they will rarely fall (in nominal terms), probably because workers are hostile to cuts. It's for this reason that unemployment rises during recessions: as there's only limited adjustment to the price of labour, firms instead use less of it. There is however some adjustment because of inflation: when wages are flat in nominal terms, but when there's inflation, real wages will stil fall. When there's deflation, labour becomes only becomes more expensive.
The first and most straighforward reason why deflation is regarding to be bad is that it makes people put off expenditures. When you expect a couch or some appliance to be cheaper x time from now, you may be more inclined to delay buying it. This may suppress demand.
Gold as a currency can be deflationary. But it's very hard to say that an ephemeral asset is. This might be a 'not even wrong' kinda thing. It's true that bitcoin has a restricted supply, but 'deflationary' (in the sense you're using it) means that it will be able to buy an increasing amount of stuff over time. You might even mean that it causes the ability to increase purchasing power. There's no real reason it would, because that's a function of its price which will be set by demand. In the year 2222 CE, we might find out that we need 50 bitcoins to buy a tulip bulb.
All the arguments for deflation being bad are either based on correlation rather than causation, or prioritising the wrong things.