Catch and Release

@stefdvb

My name is Stefan and this is my personal blog. I'm interested in almost everything so the topics will vary.

@stefdvb Guestbook

The key question of cryptoeconomics

I've been following the rise of blockchain and cryptocurrencies with excitement over the last few months. Trying to understand the building blocks of blockchain has proved challenging, but at this point I feel like I have a decent, though still fairly abstract understanding of it. However, there is an issue I have with most major cryptocurrencies, and I can't seem to find a satisfying answer to it from the blockchain community.

Here's my question: What exactly is the benefit of having a hard limit on the number of coins that can be created for any given crypto currency?

For some reason almost everyone in the community seems obsessed with preventing price (economic) inflation, even though inflation hasn't been a problem in Western economies in decades (we can even see the opposite problem in Europe, with the European Central Bank struggling to stimulate it).

But it's not just inflation concerns, as it seems there's a key misunderstanding about how human economies operate. Here's the thing: credit and debt are older concepts than hard money. Much more than barter or physical currencies, humans operate on the basis of credit and debt, and we've been doing this throughout history. This is wonderfully explained in David Graeber's book Debt: The first 5,000 years. And guess what - credit and debt don't have hard limits, as they are limited only by our capability to do useful work and create economic output.

If we want our economies to grow (this is a whole other can of worms I don't want to open now), then in my opinion having a hard currency system is self-defeating. The gold standard proved to be a massive failure, as every time there was an economic crisis it had to be cancelled or altered. Moreover, a growing economy requires a growing money supply - I don't think I've ever seen an example of a growing economy with a fixed amount of currency in its system over a long period of time.

So while I'm very interested in figuring out the problems blockchain can solve, I don't think currency will be a successful use case unless we give up on the hard-money constraint. I'll be happy to be proven wrong.


You'll only receive email when Catch and Release publishes a new post

More from Catch and Release: