I can not stop asking myself the question, what problem does bitcoin actually solve? Before you accuse me of being lazy and not doing any research, here is my thought process:
You want to have a
- decentral
- stable
currency, (where trust is not needed).
From an economic perspective (without much knowledge about cryptography), these axioms already seem contradictory. Why? Well if you want to be decentral, no one can be allowed to change the money volume. But if you can not change the total volume of the money, you can not get a stable currency. Since the velocity of money is determined by exogenous factors such as payment cycles (e.g. monthly bills, wages, etc.), it is often assumed to be constant in economic models. But then the total amount of money which exchanges hands (i.e. the nominal GDP) is the total volume of money multiplied by its velocity (i.e. Y =MV).
Which means that a constant volume of money results in a constant nominal GDP. Which means that (assuming your economy grows) this will cause deflation. Of course you might hard-code some rule into your system, that the amount of money increases over time. But since you can hardly guess the GDP growth over the next decades, you will grossly under and overestimate growth and thus cause inflation or deflation whenever you under- or overshoot.
In other words: For any stable currency, there needs to be a way to adjust the volume of money. But since that adjustment needs to be made on the basis on activities in the real world, you need some form of input to your computer system. And whoever decides that input effectively decides the money quantity. So you end up with someone having power over the system. Of course this someone could be a committee. Maybe you could even implement some voting system, but since votes need to be allocated somehow this would likely result in votes proportional to wealth.
EDIT: Additionally the question is, who gets awarded the generated funds? In the current system the central bank has a monopoly. It can generate new funds and use that for things like economic relief programs (e.g. business loans in the current corona crisis). If no one has such a monopoly on the generated funds, and everyone can get them, then there needs to be some cost associated to obtaining them. Otherwise everyone would just print money. But you only stop people from printing, if the cost is roughly equal to the benefit. In other words: In a decentral currency, the cost of generating money must necessarily be so high, that it eats up the entire value of the money generated. This means crypto currencies with inflation necessarily have to be economically inefficient. I.e. people must waste resources like computing power in order to generate funds. Which means that the generated funds do not contribute to anyones well being, and can especially not be used for economic relief programms.
So not only is it difficult to implement a form of inflation which keeps step with real GDP growth, the distribution issue will cause a lot of unnecessary waste.
/endEdit
Compare that to a central bank in a functioning democracy, which would be governed by all people regardless of wealth. That sounds hard to beat.
This is why I doubt that crypto currencies could ever replace centrally issued money at all. And this fundamental issue does not even encompass the problems with current implementation. Proof of work causes transactions to be extremely expensive, and proof of stake appears to be just as problematic.
Okay so if the target audience is not functioning democracies, maybe you could target failed systems? Hm, so I doubt that the dictators in such countries are interested in giving away power over money. So any crypto currency would be unofficial. Then the question is what benefits does crypto currency provide over any other foreign currency? Failed systems are usually not known for their highly educated population, so it is unlikely [many] (edited) would actually understand how crypto currencies work (even spoiled by a good education system and a university education I do not understand it - I mean I probably could if I would start to read, but I am still wondering why I would even want to). So any crypto currency based service would have to run through some form of user friendly system. Who would design such a system? And if you trust them, you already trusted some company. Why can you not just trust a bank then? Which would enable you to have an account and posses all sorts of stable foreign currencies.
So neither democracies nor failed states seem to be the target audience. I mean not even criminals can really use this system since it is an open ledger and I heard stories about transactions being traced, completely ignoring the fact, that this would be a strange target audience to say the least.
So who in the world is the target audience? (Except for enthusiasts/idealists and speculators of course) Or are any assumptions in my reasoning wrong? I mean people seem to be enthusiastic about it, and I would have thought the hype should have died off a long time ago. Yet for some reason this thing still exists.
