Sunday, April 14, 2013

Can the Fed Use Bitcoin Technology?

JP Koning has an interesting post where he argues that the Bitcoin approach of a distributed payments network is superior to a centralized network  like Fedwire.    His emphasis is on the possibility of the physical destruction of the Fed's central node (and its two backups.)   I would be interested in resiliancy regarding unraveling of trades.

Koning explains that the Bitcoin "mining" involves supporting and verifying the network.   (It  isn't just make work.)   While I will grant that this is valuable work, I don't favor a monetary base that only increases or whose increase is limited in this way.  Koning didn't comment on that aspect of Bitcoins.

3 comments:

  1. "Koning explains that the Bitcoin "mining" involves supporting and verifying the network. (It isn't just make work.) While I will grant that this is valuable work, I don't favor a monetary base that only increases or whose increase is limited in this way."

    Hi Bill.

    If the Fed were to adopt a bitcoin-style distributed ledger, all aspects of monetary policy and growth in the money supply would remain the same.

    For instance, if the Fed were to conduct an open market purchase, it would announce to the "miners", or bank nodes, that the Fed's ledger was increasing in size, and that ledger space was being redistributed to a number of selling banks. The nodes would work together to process this announcement and once verified, the size of the ledger would be increased, as would its distribution.

    The node banks would work for free, rather than being compensated like bitcoin miners. Member banks would be required to act as nodes as a condition of membership.

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  2. I don’t really like Bit Coin, it is so risky and we have seen it drop massively to where it once was, I am doing Forex trading where I use simple payments processor which is far better. I don’t even prefer for trading with it again due to been highly risky. I am working with OctaFX broker where I get so much advantage especially with their instant money transaction where we get all our payments instantly which is really great to have.

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