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Nobel Prize Winner Eugene Fama on Bitcoin
This week the Bitcoin Uncensored Podcast with Junseth and Chris Derose interviewed the winner of the 2013 Nobel Prize in Economics, Eugene Fama. Bitcoin Uncensored has given CoinTelegraph the first peek at the interview so that we could publish it for the greater Bitcoin community.
Professor Fama is the father of Modern Finance, and one of the biggest proponents of what is known as Efficient-Market Hypothesis (EMH), which states that markets are efficient and that their information is broadcast in their current price. In its different forms this also means that it is impossible to “beat the market”, and that technical analysis of stock markets is ineffective.
BitcoinCT r: 3 Uncensored: Hello Professor Fama.
Eugene Fama: Hello.
BU: To begin with, what do you know about bitcoin?
EF: Ohhh. I have a cursory knowledge of it. To me it seems like I really don’t know the difference between bitcoin and a checking account. I read all these papers in the 80s about how when you conduct transactions to a bank you check a wire that’s really just an accounting system for exchange...running in the background to clear accounts. And it seems that bitcoin is pretty much the same thing. It’s an accounting system of exchange. I don’t know, maybe it’s a better protocol or whatever, but I don’t really know the difference between the two.
BU: Well, there’s a lot of ways to explain the differences. but right at the top, the existing settlement solutions are solutions by the way of a centralized authority such as the bank or such as some clearing house.
EF: But really, it’s just a computer.
BU: Correct. But it’s also a computer tied to censorship and subject to moderation, which is unlike cash.
EF: There is no anonymity, that’s the main difference as I can tell. Bitcoin gives you anonymity, and transactions through a bank. For example, all transactions higher than ten thousand dollars are reported.
BU: Bitcoin is more like paper money. Subject to the same type of assurances that paper money is subject to, without fear of chargebacks.
EF: Yeah, it’s basically anonymity.
BU: That would be a huge part of it. Certainly.
EF: I don’t know, what would be the other part?
BU: Bitcoin has added value in the form of censorship resistance and other tangentials that can be built onto the protocol. Regarding the financial aspects of it. What do you think about the volatility of a currency with regards to markets in general? In this case being Bitcoin.
EF: Yeah, that’s a very good question because, the standard belief among monetary economists, is that a unit of account—which is what bitcoin is—to which prices get stated, can’t survive if it’s highly variable. People won’t use it because basically it’s very difficult to know how much you need to settle. It is quite variable, they won’t want to hold it as just a way of settling payments, they will try to get rid of it quickly, as they do; and that’s not good for the survival of that kind of a unit of account. As if it doesn’t have a stable value it’s probably not going to survive as a unit of account. What that means is that it’s value is likely to go to zero at some point. What value does it have except as a unit of account?
BU: Bitcoin can be used as a store of value, and it has censorship resistance components.
EF: No, it’s a not a store of value. Unless it has some other value, the core value has to come from something. It comes from its use as a unit of account in transactions. If people decide they don’t want to take it in transactions it’s value is gone. I don’t get what people who defend the censorship resistance are talking about. I guess that for a drug dealer that has a lot more value. But otherwise, I don’t see the big value about that.
BU: How do you feel about gold? Where there's no stable unit of account, and it is nonetheless store of value....MORE