Quote from: Mike Hearn on November 19, 2012, 03:46:19 PM

Anyway, if a government decided it monetary policy was more important than Bitcoin it would simply ban usage of Bitcoin and force everyone back to state issued currency. I don't believe there would be any reasonable argument for doing so, because I believe in a purely Bitcoin based economy there would be no business cycles and thus no need for monetary policy.

You are saying that the government would simply ban bitcoin. Does that make any sense to you at all? If you were in the treasury or a central bank is that the solution you would recommend? Did you read the ECB report? What was the ECB concerned about in order of importance (reread the document if you are confused)

1) Financial Disruption Stemming from Bitcoin Collapse (essentially bitcoin is like mortgage backed securities. There is a bubble and if it grows to big it causes problems when it pops)

2) Loss of control over Monetary Policy

Do you think banning bitcoin sounds like a good solution if the Central Bank's main concern is number 1? No that is a ham-fisted approach. You don't intentionally cause the problem you are most concerned about.

What would a sensible gov't would do? For example, a government that wants financial stability, revenue from seignorage, control over the monetary system, tax enforcement, etc.. Well, how about regulating bitcoin? How do you regulate bitcoin? You mine of course. Then you can have control over the monetary policy, seignorage revenues, control money laundering, tax evasion, etc.

This policy is theoretically more effective at manipulating the monetary system than any tool the gov't currently has at its disposal. Keynes, debating Gisell, dismissed such tools because they were infeasible, even if better in theory. You think the government wouldn't want this new technology? Why not?

Sure, the loonies here talk about collapse and flight to the secret underground blockchain and other nonsense. News for you: If bitcoin were widely adopted, the majority of users would not be libertarian crazies. They would abide by regulations and continue to use the bitcoin because it is convenient and backed by the support of government. Sure the libertarian crazy could go do their thing. No one would care about that. Just like they don't care about it now.

I agree this debate is almost certainly purely academic. Why? Because bitcoin almost certainly will never be widely used. However, if it became widely used, the government would try to regulate quite narrowly. The most obvious way of doing that is as I describe. This is actually a good thing.