Money has value because of the value of the economic transactions in which its conducted.
Government-backed currencies are forced to have value in the sense they force people to use it for their taxes. The US, additionally, forces the world to use it for oil trades.
Value is in those economic transactions. A currency is just a "liquifying" of that value, to make it easier to spread around. So that 1hr of my time/output can be more easily traded for 1hr of another persons. We are still just trading output.
For BTC (or any coin) to have any value, it needs actual economic transactions to be conducted in it. If there arent any, its value is smoke-and-mirrors; its not real. If you can't trade the market cap of bitcoin for actual economic output, it isnt actual economic value.
Imagine doing that right now. Imagine BTC was actually used for any scale of economic transactions. It would collapse overnight.
Who says BTC isn't used for payments? Many porn sites ONLY allow you to pay with crypto, including PornHub[1], and they're keeping the lights on somehow. It's being used by the Ukrainian military to pay their suppliers while the banking system is offline[2]. It's being used for remittances. I had to pay my rent with it once. Also VPNs, etc. There's far more global economic activity conducted in BTC than in gold.
It all depends where you look. In some niches, BTC is used a lot. In some niches it isn't used by anyone (hi HN!) But it's a big world out there, and if you look outside your bubble it's not hard to find people using it.
Re: the last paragraph, BTC did indeed crumple under load for a long time around ~2016, and transaction fees were very high as a result. But lightning network has appeared since then and fees are back down to reasonable levels, well under $1. Those were serious growing pains, but we made it through just fine.
Regarding donations to Ukraine, the total value of donations to Ukraine has been around $900M so far [1], of which only $7M has been in crypto (according to your WSJ article), so less than 1%.
That's not true for PHub -- Just went to confirm and the first option is bank transfer, the second is crypto. What percentage of people who pay for PHub do you think even own crypto? My guess would be <1%.
Right - as a commenter on a technical forum - how much overlap do you think there is between yourself and the age/infosec knowledge/technical savvy of the type of person who pays for PHub in 2022?
Doesn't really make much of a difference; "only give your banking info to those you highly trust and only if it's absolutely necessary" has been common sense for longer than the Internet has existed.
Is it? Cause a lot of stuff still happens by check even now, which literally has your name and your account and routing numbers just printed on it, which you used to order by sending all of that information via the mail to a random printing company.
I already have to trust my power company, most of my credit cards, my ISP, my gas company, and my landlord with my bank info, all of which are probably less secure and trustworthy than Pornhub...
Sure, but a check is at least ostensibly ephemeral (even if there's nothing preventing someone from jotting down the account/routing number), and there are legal protections against using that info for transactions other than that consented to on the check (hence the signature and memo line and such).
Contrast that with explicitly authorizing PornHub to withdraw from your account at their discretion, as is the case when you're giving them your account/routing number on a web form. That info then gets stored in some database.
And no, I don't give utility companies or landlords or what have you such authorization, either. I mail them a check (thereby not giving them cause to store the account info long-term and not giving them consent to auto-withdraw), or I use a credit or debit card (which I can dispute or change far more easily than I can a bank account). If they accepted cryptocurrencies, then I'd pick that over either of those options.
No, I directly addressed the question: it's common sense, i.e. entirely independent of tech-savviness or age or other factors. It's indeed common sense passed down to me from people far less tech-savvy (and far older) than myself.
I would trust them a lot more than your average consumer fintech. They have been around for a long time and their engineering is nothing to be sniffed at.
They are also a far more interesting target because of their size. Imagine downloading all customer information of paying pornhub clients. Assume it holds basic information (name, address, email, payment info), and not any usage data.
I could use that data to extort at least 10% of those people easily (religious people, celebrities, politicians, etc). This is disregarding the price that I'd get for just leaking the other 90%.
Now imagine the fallout of somebody downloading the same info for a local brewery, a big tech company like Atlassian, a household brand like Staples, or even great big Amazon.
Anyone can invent quasi-financial terms to make grandiose claims. The beauty of the market is that loudmouths don’t participate in the market for long.
I’ll sell an American-style options contract to someone who thinks BTC is going anywhere near there at Black-Scholes -75. And I’ll have no trouble financing it.
In fairness, I was one of those people until I landed at a satellite office of my SV company in New York and started hanging out with real finance players.
Not the person you are responding to, but is there somewhere reputable offering these kinds of contracts to no-name retail investors like myself? I would absolutely load up on something like 12,000 - 15,000 USD bitcoin puts depending on the time decay people are offering and how certain I could be that they would actually let me exercise them, and not freeze trading or even go belly up during the crash. I am somewhat.. skeptical I will be able to exercise them on an primarily crypto exchange like Binance that has blocked trading during freefalls before that is structurally dependent on the price of crypto to some extent.
Depends on the size. At retail size counterparty risk of e.g. Binance or FTX is a talking point, not a legitimate concern.
If you want to take a big position, talk to someone like Wintermute who has a big OTC desk, or if you want a better deal, find a friend of a friend. Someone you know knows a whale.
I mean, my use of belly up is definitely hyperbole. But, that the position of say, 12,000 usd per coin expiring in December is a huge enough dip from current prices that it is likely to come true only in the event of a large crash, and during the last crash Binance froze withdrawals and there was a large backlog of “stuck” transactions on the blockchain. I don’t know how these options execute but if I have to move bitcoin on the blockchain to unwind the position I would be afraid of being able to actually unwind it at the most favorable price in a time window, making the risk actually higher than typical models. Or maybe I dont know what I am talking about and Binance options wouldn’t need to actually move coins on the chain to close out the position?
In the US, LedgerX[1] (now owned by FTX) is a reputable, regulated exchange. The longest-dated put I see for $15k is EOY 2022 and is trading at a spread of $2000-8000.
You can buy puts at the $25k strike dated June 2023 for $4300-4800.
There are dozens of dApps where anyone with an internet connection and money can buy/sell puts and other options on BTC anonymously.
They have full openly auditable reserves and all their code is open source and visible on their respective smartchains. Wanting an institution to provide a sub-par solution for this is a cop-out. Put up or shut-up.
With a centralized service I don’t need a law degree, I can quickly ask an expert what my rights are and understand an option, and there is a (limited and slow, but existant) method to make myself whole in the event of a problem. Each dApp is its own special setup and it can be quite complicated to figure out exactly how it behaves, who to sue if it doesn’t, and who to pay money to find these things out for me. I hope you’ll forgive me for being worried about trusting that with any significant sum of money.
No man is an island. I’d rather pay taxes for police and hire a plumber than live in the woods with a rifle and fetch my own water, given that there are only so many hours in a day to try and be an expert on everything.
Ah, but the Randian elite is not concerned with such. Obviously the Galts of the world will have services, they’ll pay for them by running monetary policy as well as Greenspan did.
Right, I’ve learned the hard way that if my models are that out of line with the market then my models are wrong in ways that will cost me a lot of money. Satoshi himself could reveal to me the future price of bitcoin is intrinsically around $1,000 USD as a little understood fact of how the blockchain works, and I still wouldn’t trade on that today with prices where they are. Even a instantaneous divine revelation from God to all mankind would take a long time to propagate through the markets and you would lose your money in the meantime.
I don’t know whether or not you’ve studied economics or financial mathematics, but you’ve concisely and concretely identified something called the Weak-Form Efficient Market Hypothesis.
Maybe you already knew that, but if not you’re a natural.
I'm pretty bullish crypto but I think there's a chance Bitcoin hits $1000 again in the next 10 years or so.. mainly because I think the case for Ethereum is much better.
I don't understand what Black-Scholes means, but if you're willing to take 10 to 1 odds in my favour I'll draw up a smart contract: we both deposit USDC and receive tokens for our position which can be resold if desired; if bitcoin hits $1000 or less according to the Chainlink BTC_USD oracle at any point between now and 10 years from now, I get 10 USDC for every one of mine wagered
I said 75 bps off what Black Scholes kicks out, gets a little weird with the thin market, and the expiration has to make sense, but in general, fuck yes?
You think BTC is going to drop like 20x in a sane options duration?
Just using BTC to replace all of McDonald's daily debit/credit card transactions would completely destroy the system. I don't know why people think they are refuting your argument by pointing out low-volume examples like porn sites.
Just using BTC to replace all of McDonald's daily transactions in the Berlin metropolitan area alone would be enough to destroy the system. (Of course this is where people come along and talk about layers on top of BTC, but all those seem to me to just be extra ways to replace trivial transaction-level auditing with Turing-hard code auditing).
It also seems like those "layers on top of BTC" erode one of the only aspects of blockchain that has appeal for me -- the full transparency of the system, such that you can see every exchange of BTC on the network.
The minute you offload any of that to other systems, you're essentially creating dark pools and money laundering opportunities because of differential oversight.
If there's one thing that people should correctly point out as scams in the world of crypto, it should be L2 chains. Every single one of them is a ploy to enrich their creator, full-stop. I don't even know what kind of pipe dream they sell to their investors to get capital.
It's particularly funny, because I remember Justin Sun trying to scam people like this years before cryptocurrency had really taken off. Back then, though, everyone who had skin in the game actually cared about the health of the community, and the guy lost millions of dollars trying some really insane hostile takeover tactics. Nowadays though, nobody cares. The hucksters of this world make their money hand over fist now.
You could look at L2s as a sort of credit card system, and from a systems and technology POV there’s nothing inherently “scammy” about it. For web3 applications of any meaningful large scale, L2 solutions are necessary.
For better or worse, the L2 developer platforms that I assume you’re referring to are essentially low-code solutions to abstract away the actual systems software engineering aspect of web3 development. Are the low-code SaaS companies overvalued or “scammy”? I’m not suggesting they are or are not.
Well-staffed tech companies building web3 applications often build their own implicit L2 solutions because it’s just how you connect things in a distributed system with modern L1 blockchain constraints.
I think the person you're responding to was talking about Bitcoin L2 chains, probably more specifically the lightning network.
I actually agree with that about Bitcoin.
Web3 is generally done on EVM or cosmos chains, some of which are L2s (and some of which are loosely considered L2s). But most of them are still separate chains, so not L2s in the sense that the Lightning network is an L2. If you're looking at EVM chains, then L2s are certainly required to handle significant throughput, but the "lack of transparency" mentioned by GP isn't an issue with them.
Especially considering that it is being independently developed by three organisations as an open source protocol that offers complete self-hosting and doesn't require an intermediary during operation...
Basically it leads to hubs forming where lightning nodes with large amounts of funds are better able to facilitate transactions, and also benefit from that due to transaction fees.
This is as clear and succinct a statement as to why "web3" has nothing to offer as I have read.
Translation: we will rebuild existing financial institutions with a bunch of move-fast break-things poorly-regulated "difi" companies which will both intentionally and through ignorance recapitulate every flaw of the existing financial industry.
Purpose: as in the Celsius case, to intentionally exploit regulatory response time so as to extract money through opaque extra-legal and unethical exploits, intended to allow ourselves and chosen insiders to run off it, leaving deluded last-fools holding the bag.
There is literally no benefit to anyone except the VC backing the scam, who are using chaff and FOMO to farm rubes.
I think this has been going on for at least 2000 years…
It doesn’t matter if it’s crypto or gold, there will always be people manipulating financial systems, but that doesn’t mean any system is inherently good or bad.
> Well-staffed tech companies building web3 applications often build their own implicit L2 solutions because it’s just how you connect things in a distributed system with modern L1 blockchain constraints.
Sure. The banks do the exact same thing, which is what makes them so goddamn profitable to run. The problem is that the entire cryptocurrency space now has to choose between two destinies:
a. Default on the trustless model in order to continue scaling, passing the actual verification process to private validators who may or may not be scamming you.
b. Let every token lose it's value, allow the system to suffocate and continue pushing for airtight security until the bitter end.
Now, neither of those are attractive choices. I'll tell you what, though: I'd rather have a $20 bill than $20,000 of Monopoly money.
I’m a relative crypto noob, but I did see certain “lightspeed” transactions which would allow for high-volume and “instant” transactions. Is this also considered an L2 chain, or not? If not, how does it circumvent the limitations of the bitcoin blockchain without sacrificing transparency?
I can't say for sure without actually seeing the tech, but if a company promises to scale cryptocurrency transactions then they're probably doing it on an L2 chain. The problems with this are obvious: trusting a single party to handle all of your transactions and not abuse that insider info is crazy. These people are going to use their power over the chain to eke out every cent they can, otherwise it doesn't make financial sense to operate in the first place. It looks attractive from a VC standpoint, but that's because it's a deliberate honeypot.
I don't know, and I don't really care. Any sufficiently complicated technology is indistinguishably from magic, and I don't trust magic to manage my finances. L1 chains are simple and their trust models are transparent, I don't think any L2 chain is going to see widespread adoption when decidedly better alternatives exist.
> one of the only aspects of blockchain that has appeal for me -- the full transparency of the system, such that you can see every exchange of BTC on the network.
Which is interesting for many applications but kind of kills BTC as something that could be an everyday currency.
I'm already uncomfortable with the amount of data my bank has about me. No matter what scheme has been used to obfuscate it, I'm not comfortable with that data being held by anyone with a hard drive and internet connection.
And you're trusting some central authority to manage your money along with that of countless others. You're right back in the same situation you presumably wanted to avoid with fiat and banks, only with exponentially greater environmental impact and no regulations in place to protect your money when things go FUBAR.
The L2 systems built on bitcoin have faults, but centralization is not one of them. You don’t go custodial when you put bitcoin into a lightning channel.
But this feels like "Just using Model T's to transport all of the corn in the early 1900's would destroy the Model T system." Doesn't really say anything meaningful about "the impact of cars and trucks."
I don't get why this is a useful argument; BTC and/or Crypto is definitely going to evolve. The question is how.
The problem, as with many things from the current tech cycle is that the valuation demands that this techomnology is available today.
DeFi may need to evolve, and it may need to do something other than blockchain - but something pre-product/market fit shouldn’t have a multi trillion dollar market cap.
> The key difference is that BTC and all cryptocurrencies in general are not getting better about being scalable to many total transactions and transactions/second - they're getting worse.
> This is true for all blockchain-based currencies, and it's fundamental to the technology. There is no "fix". It's not just a case of poorly written code or limited infrastructure, it's the core premise of the idea that's rotten.
You are very confident for someone who seemingly hasn't researched much about optimistic and zero knowledge rollups. These systems inherit the security of Ethereum while providing exponentially greater transaction throughout which means scale improves and these networks cannot steal your money or do anything nefarious.
Honestly, that someone can be this confidently incorrect is really fascinating to me, both in theory and practice.
Even setting aside the fact that you're wrong in practice (i.e. there are already far more efficient cryptocurrencies in existence today) it's just very weird that the sort of person who goes to a site like this will confidently say something that's roughly equivalent to "We've reached the maximum speed of CPUs, they cannot get faster than this."
This sums up how I feel about so many crypto related comments on HN. Just look at this thread. It's full of people confidently presenting 100% false statements as facts. Several of the comments contain something like "I looked into crypto years ago and then I saw problem X and discarded it." My guess is remorse because they could have been "early" compounded with confirmation bias.
To anyone who spent a few hours, days, weeks looking into crypto a few years ago and thinks you have any idea what's been going on in research in the field since then you're sorely mistaken.
Most people did not have a car in the early 1900s. Not everyone can go into space today, it doesn't scale. BTC may have a maximum number of transactions today but many are using bitcoin and the big advantage is it doesn't matter how much you move you pay the same transaction fee. It is not ready for micro payments but works great for larger payments.
What size transaction do you think it helps with? My transaction fees are usually zero, even internationally, with the only exception being trivial costs when I visited the USA. Conversely, when I bought a flat I was legally required to add the much larger in-all-but-name transaction fee of having a lawyer sign off that I and my money and my payment of it and the flat itself and the seller I was buying it from were all legit, and still would have had that even if I'd used BTC.
You've perfectly hit why "Smart Contracts" are perhaps literally the worst named thing in tech. They're not smart, and they're not contracts.
In real life, the things we "Contracts" are not the the execution of the transaction itself, they are the written statement that attempts to describe the intent of the parties and most importantly -- what you do if things go wrong.
Despite what I've said above, I will definitely go full Luddite and say we are not remotely close to a world in which the lawyers are not needed.
While I'm generally not a language prescriptivist, I gotta say no here. In real life, up until now, AFAIK we have NEVER used the word "contract" to refer to the underlying act that the contract is about. We've ALWAYS used it to refer to the associated documentation/statements of intent about the humans involved.
"Building a house" is not a contract. It's an act.
They're NOT CONTRACTS. They're automated transaction robots.
Again, different -- This isn't a mere choice of word thing. It's that uninformed people are making harmful, and perhaps even stupid, choices because they are relying on an effectively false phrase -- where the "real version" of the thing is essentially a safety mechanism, and overzealous tech bro types absolutely incorrectly believe that their thing can replace the real thing.
Now, as a lawyer, I could just sit back and wait for the f**ups to happen and get paid cleaning them up -- and I might -- but also, I like the idea of warning people as well.
Your transaction fees are zero. Most people sending money through western union don't share that rate and western union requires id and travel to a pickup place.
You're comparing apples to oranges. Debit/credit card transactions are done through centralized systems. Bitcoin transactions can also be done at scale on those same centralized systems (aka "off-chain transactions").
You have the option to settle down to a decentralized system. Imagine the US still on a gold standard. If you lose trust in USD because of changes in the government (election of obviously corrupt or incompetent officials), you can settle out of the US Dollar to gold, which is apolitical and allows you to be self-sovereign.
The breaking of the gold standard has allowed the US government to extend its monetary base significantly, which is a price future generations (read: our generations) will be footing the bill for.
I'm a bitcoin maximalist, but I don't mind if all existing banks were to build a second layer that scales vastly, so long as I'm allowed to settle my bitcoin in their ecosystem with bitcoin on chain.
THIS. I feel like I keep smashing my head against a wall explaining the same thing to everybody. This isn't quantum mechanics. Why is this so hard to understand for others :(
This is why second layer solutions are being built, which offer the option of settling on-chain at the user's request. Second layer systems allow you to transact within that system without needing to publish each transaction. Block space is valuable, and your 1c purchase probably isn't worth putting on everyone's hard disk for all eternity.
Bitcoin is actively managed to prevent bloat to keep it decentralized. A layered system allows you to scale massively, much like the OSI model used by the internet.
Gosh. Have you guys even heard about the Lightning Network? Throughput higher than visa. We're already well past the scale needed to handle the world's txns.
They have strong-armed their petrodollar system since 1971, and have invaded a number of oil-producing countries that toyed with the idea to price oil in value other currencies.
Saudi Arabia only get to price in Yuan, because the US can't afford to invade China. The unipolar world is fraying at the seams, and one wonders what will happen to the dollar when the US government can no longer lean on the petrodollar to enforce it's world reserve status.
Check Lyn Alden's piece on the history of the US Dollar as world reserve asset [0] for a vastly superior exposition of facts regarding this matter.
Trusting the WSJ on this is like trusting Fox News to say that angry people on primetime TV with reactionary rhetoric doesn't have any effect on political discourse.
Well an apple has value because it's food, but if today people are willing to pay 1 banana for it and tomorrow they're willing to pay 2 bananas for it, the apple still has the same value it did yesterday because the calories in it haven't changed, but you can actually obtain twice the calories you could've obtained yesterday by taking the banana (2 bananas today), so its value today has doubled.
Bitcoin is a 0 calorie apple, today you can exchange it for 1 banana, people who hold it think tomorrow they'll be able to get 2 bananas for it.
At the end of the day we are biological entities, value is what survival and reproduction benefits we think something can provide, and if enough people are paying that price then its value is that price in dollars.
This is well said, I’m gonna borrow that - “crypto is like a 0 calorie apple.”
This matters. Even gold, at least I can wear it and display my wealth. You can’t even display your crypto wealth like that. It is entirely lacking in any “real” value.
Idea: luxury tshirt made out of a $5 white tee with a wallet QR code slapped on the front showing off the balance of the shirt. Or a ring. Crypto fine jewelry.
This is not deep. This is you getting confused about how money works. Nothing you are realizing applies specially to specific money like gold or Bitcoin - it applies to all money and frankly it makes little sense.
Would you mind elaborating please? I am not following your point.
I understand cash has this same issue. Assets do not - they provide an actual value to the physical world - which is what my point was in the above statement. A crypto t shirt can still provide value as a t shirt, regardless of the value of the coins it holds. I’ll admit it’s a reach, but just to illustrate the point.
Money is important, it provides liquidity for trading. It is based on trust, so it makes sense that it can feel arbitrary, but you simply have to compare a world where you must barter assets directly between those who actually want that specific asset to realize how much of an improvement money is; meaning its not so arbitrary.
What gives money its value? Well it depends on the money. Fraud, violence, trust, in the case of Bitcoin: cryptography and game theory.
This doesn’t really address the point. As I said above, yes cash and crypto have this same flaw, they are useless without the ability to trade it. What is a dollar good for? Wrapping a stick of gum? That was the point. True utility value.
Real value doesn't matter. "Marginal" value is what matters. Breathable air and drinkable water have the greatest real value of anything, but their marginal values are zero and near zero respectively for a number of reasons (chiefly scarcity).
Marginal value itself is unstable compared to real value. Sure, the amount of air you require may change, albeit insignificantly. Marginal value can go +/- total value at any moment due to external factors.
> Breathable air and drinkable water have the greatest real value of anything, but their marginal values are zero and near zero respectively for a number of reasons
Case in point. Sure, abundant now. But when they are not, which we know is actually happening, that “0 marginal value” will quickly become “whatever we can afford so we can survive”.
The counter to this point is that if (through monetary mismanagement) the amount of dollars exponentially rises, the value of those dollers drop. Fiat isn't backed by a hard asset; it can be arbitrarily increased/decreased in value through organisations and unelected officials.
The original QE decision by the fed was taken during a meeting that has meeting notes that can be downloaded. I highly advise you to do so if you are under the illusion that the decision was made by highly competent experts basing their decisions on hard data and well-made, objective models.
Oh totally agree - someone can just pull a necklace right off you. I was just surfacing the point that at least gold does has some value on its own as a status symbol - there is a market for jewelry outside of gold as a transfer protocol. An bitcoin wallet without ability to transfer it is just some used up memory, it doesn’t have any value on its own. See coins going to 0 when exchanges close their doors. All the banks in the world could close and people would still find shiny rocks attractive and admirable. We have for thousands of years.
nothing is of any real value unless there's also some risk of losing it.
If you're looking for a commodity to have trade or exchange value, then it must be tradeable or exchangeable. That's the notion of "inalienable" as used in the US Declaration of Independence: rights which cannot be alienated (separated) from the individual posessing them. Life, liberty, happiness being the three used in that document.
This doesn't mean undeniable, and there might be some value which can be extracted through threats of denial: "your money or your life".
And there are aspects of value which can be exchanged though the good itself doesn't move: title, copyright, and patent rights might be three such of these. If I transer you land title, the land itself doesn't move, but the claim to usefruct from it does.
A hypothetically nontransferable, non-appropriable technical asset is still subject to claims if a superior right or denial of access to that asset may still be claimed.
And in general, a currency which is used to facilitate trade should in general be portable, readily recognisable, divisible, durable, and homogeneous, all attributes William Stanley Jevons proposed in 1875:
(He also claimed money required intrinsic value, which appears to be an error. Rather, intrinsic value exchanges for trust within the financial system.)
I like that. Risk of losing it, and difficulty of recovery of the same or an equal asset.
Life, for example, is extremely valuable. Everyone loses it, but there’s no getting it back. If you lose the apple, you can probably get another relatively easily, unless we’re talking a post-apocalypse situation…
Totally agree. For example, I have 10,000 SOL (Solana tokens) that I regularly screenshot and show off. It's all on devnet, though, so it's free and worthless.
It's the web3 version - in web 2 I'd be instagramming my knockoff Rolex I bought in Tijuana
Would you say there is value in having the capability to transact with someone else? There is some value there, no matter how many alternatives and how little that value is. That value scales exponentially with the number of potential transactional partners because each additional partner gives all other partners a new potential transactional partner.
So at scale, even if the value of having the option to trade is minuscule, it balloons into real value when every single person on earth is a potential trade partner. That is the inherent value of a cryptocurrency network.
Well that's the total addressable market: all possible users of any currency.
Likewise, that's the same market for any currency proposal -- including all the coins currently trading at 0 USD.
Money's job is not to have inherent use-value, as then people would use it up. Its value is relational, it tracks the economic exchanges with actual inherent value. But not perfectly, since you can eg., have hyperinflation, etc. So money has a life of its own above the economic transactions, but this is unsustainable, hence inflation which is "money falling back to earth".
There is no earth for crypto to fall to, ie., no place of actual economic productivity.
I will play the devils advocate here. What if it’s value is more like a store of value (gold) rather than a currency. We can’t pay all of our bills in gold, but it’s a store of value you can buy in and out of.
I don’t have a horse in the race, just trying to understand.
Right, except that gold has inherent value. Historically we thought it was pretty and made jewelry out of it. It’s important for a variety of technology products. It’s a value store because it is consistently valuable first. Bitcoin skips that step.
Gold has pretty big downsides as a store of value. It's heavy, hard to transport, ... .
The key to a cryptocurrency store can be memorized in your head. That means I can have 2mil in my head, with no other way to access it. I take it wherever I go, and can access it when there is internet. I can also send it to whoever I want, no limit.
This is literally a 1st. How high people value that, is not up to me alone. But you cannot deny that it has some value. And as long as it has some value, the above works. It basically bootstrapped itself. Claiming it has a value of 0 is very short sighted.
Also, nobody quits MasterCard et al because it relies on the internet...the transactions are cached, and the few problems when things come back online are dealt with as a standard "doing business" item — everywhere from insurance agencies to corner stores.
So does elliptic curve signing, radio, digital storage. Confirming a transaction in this state would probably be competitive with making change for, verifying, securely exchanging, securely transporting and securely storing gold.
Doing everything the majority of the economy of gold does (industrial uses can be ignored) better, except being shiny. If 'shiny' is your real argument then reconcile Pokemon Cards without ruining your argument.
"The economy of gold" doesn't do much of anything except extract wealth from a particularly extremist subset of "economic freethinkers" and my generation's parents when they watch too much Fox News, so I'm glad we're in agreement.
Big companies are not using actual printed paper money directly. Cash, like Bitcoin, is great for peer to peer transactions, but too slow and impractical for the population to all use end to end for all daily transactions.
Companies like McDonalds operate on credit via privately owned payment rails because ACH and cash are way too slow. Even when it takes cash that cash is not physically shipped to a bank vault at McDonalds HQ but instead local restaurants make cash drops to other private companies, banks, that then take possession of the cash and use their own private network to credit a remote account.
Even tax payment portals allow use of the payment rails of private companies because paper USD is too impractical.
Still, the fixed supply of federal reserve issued USD is what all these magic third party payment rails create an abstracion layer for.
No one Bitcoin advocate that knows how it works is saying Bitcoin will be used -directly- for daily commerce. Even in El Salvador venmo-like apps have emerged that batch Bitcoin transactions and use credit, much like Visa does to abstract slow ACH or cash.
These proprietary credit systems defeat a lot of the point of Bitcoin though, so open off-chain credit systems like Lightning exist. My local Coffee shop accepts Lightning which in short allows us to just continually cancel and re-issue signed Bitcoin transactions off-chain we never publish until one of us needs to settle which in some cases could be years, and that is fine.
Unlike Visa, the benefits of credit solutions like Lightning are available to all replacing KYC and credit checks with cryptography.
> No one Bitcoin advocate that knows how it works is saying Bitcoin will be used -directly- for daily commerce. Even in El Salvador venmo-like apps have emerged that batch Bitcoin transactions and use credit, much like Visa does to abstract slow ACH or cash.
There's something else El Salvador has too. Two really fast ACH networks. The fastest one can do inter-bank transactions in seconds during banking hours. And a second slower one that takes about 15 minutes but covers more banks and is available every day of the year. Payments cards are slower though, they usually take between 2 to 5 days to clear.
Exactly! If Walmart/McD's wish to successfully use Bitcoin, they will easily batch millions of transactions from numerous locations into just a handful of on chain network transactions. The point is finality in Bitcoin for those who wish to hold hard money at the end of it rather than a credit system or fiat currency.
I see a lot of clearly incorrect information being displayed here about l2 such as Lightning Network, and at odds with reality. I'm not addressing the posts but it seems lately HN comments have nearly become a pile-on of misinformation bike-shedding about Bitcoin and in the face of reality, these folks want to spread outright lies and falsities. You may not own Bitcoin and you may not like it, but it's going far when hundreds of comments are so boldly misleading. For folks who are into science and technology, and some who are hackers, the ethos doesn't check out spreading misinformation about energy usage, centralization, and fairness of the system. When I was growing up, hacking was all about freedom to explore, libertarian bent, and/or anarchy.
The cypherpunk movement from which Bitcoin sprang was very libertarian or even one could say classical liberal. This article attempts numerous times to, for some reason, compare libertarianism to communism which is quite absurd. Libertarianism is for as little system of government as necessary, for staunch individual liberty and property rights, and hands-off free market economies. Clearly, communism is for state controlled property and no individual rights, one-world state, and no individual rights at all. Communism seeks to replace free-market economies with everyone equal and no individual rights. It's absurd on it's face to even compare libertarianism to communism when they're at opposite poles. At any rate, I would hope people don't take all these fear-mongering anti-crypto articles just at face value and do some research into what crap they're reading.
Taxes aren't why money generally works (money emerges naturally in human societies), but taxes are what makes national currencies work.
If you don't pay your taxes, you don't get to participate in the local economy for very long. Men with guns will eventually come to your home and take your stuff and/or take your freedom.
You can't even do direct barter without cash without incurring a tax obligation in the US, https://www.irs.gov/taxtopics/tc420, so even if you live your life like this, you still need to find a way to get actual dollars to pay your taxes. This is what creates the basic and permanent demand for dollars.
The simple truth is that every government is at its core the biggest, baddest gang in the land. The old royalty were literally mob bosses, and often presented themselves as gaudily and arrogantly as the street gang bosses in the modern age. They have the monopoly on violence in their realm and then printed a bunch of tokens that they demand as tribute for the promise of letting you live your life in peace. Because they control the issuance of these tokens, they effectively control the flow of the economy and can more easily manipulate people. They can't arrest everyone, so there's still a fine balancing act required to keep the masses generally consenting of the arrangement, with just the right show of force to reinforce the system.
But other things beyond currency are still money, like gold and bitcoin, because money is just something scarce that you hoard in the hope that in the future, you can trade it for at least as much goods and services as you originally traded for the money, if not more. Anything scarce can be monetized when the currency becomes less scarce, which is part of what is driving up housing as people hoard it as a better store of value than currency. And importantly, making the thing you store this ethereal "money" in even more scarce relative other things increases the value of your own, which is part of the driving force behind NIMBYs who block new housing developments.
> so there's still a fine balancing act required to keep the masses generally consenting of the arrangement
Yes, this is the part where the government (state or federal) delivers value, such as education, healthcare, natsec, and generally facilitates the ability to do business via the court system. I think it’s disingenuous to make the argument you’re making without acknowledging the value that government provides.
> The simple truth is that every government is at its core the
biggest, baddest gang in the land.
Were.
I don't know if you subscribe to the political analysis of Adam Curtis
but in the past two decades governments have been passing their power
to private banks, corporations, QANGOs and "non majoritarian"
think-tanks like it's a hot potato. The new breed of politicians are
not statesmen but revolving-door temporary managers who would sell-off
and outsource the whole country for personal convenience.
Other than a monopoly on violent power (which is vanishing fast in the
USA as private cops and prisons take over) it's hard to locate the
power of government sometimes. Even the military is dissolving into a
loose collection of defence contractors. In the UK our intellgence
services were more or less sold to Amazon.
The OP article seems dead set against anarcho-libertarianism but it is
by no means pro-government, or explicitly pro-democracy. With regard
to money and economics, from my moderately pro-government/state stance
I see the great mistake governments are making is giving up on cash.
Physical currency is an absolutely vital component of a stable
economy. Its very lack of instantaneous fluidity (it relative
inconvenience) means it acts like a capacitor to stabilise markets if
you can manage circulation and interest. Moreover, governments have a
strict monopoly on that, and physical currencies can take on many new
guises with modern cash technology. Abandoning that would be suicide.
If governments get into a battle to take the ground of purely digital
currencies against crypto, they will lose. They are making this
mistake in an attempt to gain legibility (surveillance). Ultimately
they will have to choose between surveillance and economic control.
And since the value of surveillance is massively over-rated I am
optimistic we'll pull out of the Orwellian misadventure in time.
Anyone genuinely interested in defending against the "ideology of
crypto" (as this article posits) should be investing in new cash
technologies (some of which I have mentioned in earlier comments
here). They should be promoting a plurality of diverse cash
equivalents (many of which can be implemented using cryptographic
technology - not necessarily block-chain).
> Physical currency is an absolutely vital component of a stable economy. Its very lack of instantaneous fluidity (it relative inconvenience) means it acts like a capacitor to stabilise markets if you can manage circulation and interest.
Based on this statement, the currency need not be physical. It sounds like all that’s really necessary is to moderate the money supply (something that is already done in a federal reserve banking system).
What am I missing? Is there some other aspect of physical currency that makes it advantageous?
> Physical currency is an absolutely vital component of a stable economy. Its very lack of instantaneous fluidity (it relative inconvenience) means it acts like a capacitor to stabilise markets if you can manage circulation and interest. Moreover, governments have a strict monopoly on that, and physical currencies can take on many new guises with modern cash technology. Abandoning that would be suicide.
Governments are made of individual actors, in the US these are often buying cryptocurrency. Their friends have invested in and built cryptocurrency companies. They hold investments in cryptocurrency companies.
Cryptocurrency IS the capacitor you're talking about, the policy of the US is showing this more weekly.
Curious, do “modern” cryptocurrencies (aka not bitcoin) still tightly couple money creation and transactions? I feel like this would be a blocker to being able to use a cryptocurrency as an automated economic manager directly (although perhaps this could be mitigated by using derivative currencies backed by the primary cryptocurrency).
Paying taxes in a given currency means that the government forces the use of that currency nation-wide. Without a central tax authority requiring that currency, groups of people could start exchanging, say, peanuts for the mutual exchange of goods and services. Since you can't pay your taxes in peanuts, you would want to hold national currency instead of peanuts.
For example with USD, this also requires not just transacting in USD once a year, but hedging in the national currency, as many crypto earners and traders are learning. If you get paid 1 BTC when BTC is worth $50k, you really should sell and hold 15-50% of it immediately to cover your tax obligation. If the price drops to $20k, you can sell and book a $30k loss, but you may only be able to deduct $3k of it against your $50k in income, leaving you in a bad spot come April 15.
I would want to exchange peanuts and consequently owe no taxes. That is why the US has very complicated rules to discourage bartering and gives every sign it would complicate and eventually outlaw quid-pro-quo family/friend arrangements for things like child and elder care if large and powerful groups of people weren't still extended family oriented.
> I would want to exchange peanuts and consequently owe no taxes.
This idea is at odds with the concept of the modern nation state. You can't have running state institutions and an army that, in theory, should provide some level of security of the state borders. Having many groups of people, each exchanging peanuts, beans or stones would lead to a decreased level of trust and no concept of national unity.
I don't get your point or you don't get mine. The individual individual's incentives are to have benefits without them being measurable income so Tax being about dollars makes dollars less desirable without many more actions from the state to force dollar measurable transactions.
The exceptions in the rules here for example are almost certainly directly constructed by Congress or anger from Congress and not particularly consistent with how the IRS expands laws by expanding existing theories if left alone:
Most IRS rulings and much of tax law itself are to try to patch over loopholes that are being exploited (the very page describes the various checks they have in place).
As far as I can tell, money is so entirely based on trust that it might as well consist of it, trust in in some fuzzy combination of other people's continued rationality and things staying roughly the same. I accept 100 euro bills for my labour because I believe I'll continue to be able to trade them for food and shelter.
Fiat is indeed based on trust. The trust that the government remain functioning. Fiat is a government backed claim on economic production. That’s not trivial, because the government is the sole arbiter and enforcer of property rights. Fiat determines what resources you can legally assign to you, according to the rules of the sole arbiter of property rights.
The notion of property rights is only relevant with a central authority who is able to enforce it. Which could be a nation state, tribal chief or a lord. In the jungle you only own whatever you are able to defend. Even your own life.
Gold was based on trust. Trust that the next merchant you deal with will want it.
The same was true for salt, and many more local kinds of money that existed.
It's also the same trust you need for fiat money. This, and trust that your government won't create a huge lot of it in an instant (slow rates of money creation are fine). Turns out that governments have a lot of leverage to enforce the first, more relevant kind of trust, so the total trust required decreases.
The idea of cryptocoins was to remove the trust on nobody creating a lot of money very fast. But in doing so, they also lost the leverage to enforce that people will accept it.
With Cryptos you need to trust that you can convert it to fiat. Crypto trust is still a reliant on fiat trust. Any business accepting crypto, even drug dealers, need to convert their cryptos to fiat, because they need to pay the bills, pay their mortgage in system reliant on government enforced property rights.
> The notion of property rights is only relevant with a central authority who is able to enforce it.
The innovation of bitcoin is precisely making this statement no longer true. The "property" might only be digital data, rather than physical things, so you can argue that it is no longer true in only a limited context, but it is not longer absolutely true.
Absolute truth is not relevant because 99.99% of what you need to sustain yourself is physical. It’s practically 100%.
Maintaining BTC itself requires physical inputs and physical property rights. You need fiat to buy energy. Your house with mining rigs needs enforcement of property rights.
The central tenet is the underlying intrinsic value. There are many fungible concepts that operate on a valuation that seems like it is being bought and sold solely on the basis that others think it is valuable too. However, usually there's a seed of intrinsics, something fundamental whose value will always be there.
For 'fiat currency', it's the fact that the state has a monopoly on violence and has decreed both [A] that they will accept the fiat currency for fulfillment of tax obligations, and [B] that they will not enforce a claim of debt if you have offered to pay it in fiat currency and the debtee didn't accept your offer.
For gold it's the fact that gold is considered intrinsically pretty by some, and has industrial uses.
The same can be said for iron, wood, or even air - but those are far less rare. Wood has value just as gold does - it's just that folks tend not to trade trailers full of wood as a fungible because it is unwieldy.
Stocks have intrinsic value too: It's a tiny voting share, and gives the right to enjoy a share of dividends.
Bitcoin has __nothing__. Whatsoever. It's real easy to look at the ridiculous price of stocks in companies that make it incredibly difficult to use your vote and which never pay out any dividends, or the sheer unfathomable levels of business done in terms of USD or EUR and how it seems to dwarf the intrinsic, and conclude that the intrinsic is just not important...
But is that a jump you can make?
As you said:
> I accept 100 euro bills for my labour because I believe I'll continue to be able to trade them for food and shelter.
You sure? Maybe it's 1% 'because I have absolute guarantees I can pay my taxes with this, and I have a guarantee that I can trade them for food and shelter because if I pay my bills with dollars and the recipient no longer wants them, they have no legal recourse to force me to make good in any other way'. Presumably you have certain outstanding debts that work like this (if not just simply your tax bill, which is inevitable, then your power bill, your rent or mortgage, etc), so that euro bill __already has value__ the moment you receive it. You can take your mental bookkeeping of 'oh yeah the month is halfway through so I absolutely do, unambiguously, owe my bank half a month's mortgage at the very least', and immediately reduce that amount by €100,-, given that you are holding a €100,- bill in your hands and the state has decreed that they will tell the bank to get fucked if they decide they no longer want to accept your euro for paying off that mortgage.
Well, in my country my taxes are deducted from my salary before I receive it, so the psychology of that is a bit different. But I think we agree, what I'm saying is fiat money is valuable because of the stability of the institutions that order our society/ies, and because there is an unspoken agreement that most of us want things to stay roughly as they are and believe that they will. If too many cracks appear there, people start acting very different.
As for Bitcoin, the original Bitcoin paper talks about replacing trust with code, and I just don't buy it. Sure, you can trust that Bitcoin aren't spent more than once and all that, the maths take care of that. But it fails to consider all the institutions that integrate the Bitcoin world with the rest of social/economical reality, and all that arises there like price volatility, transactions taking forever, exchanges getting hacked, and that Bitcoin-as-a-casino, excuse me, object of speculation, has a far bigger impact on its day-to-day than for e.g. the Euro. The paper doesn't consider that reality at all, but those things mean that 1000EUR worth of Bitcoin is a lot less useful than a stack of fifties.
As stated it’s bollocks - but also a straw man. The value depends on the value of the state in question. A wealthy state will force money to have some value if they collect taxes in that currency. A completely dysfunctional state with no wealth or services doesn’t exchange any value for taxes.
But for the US, Europe, China, whatever - not Zimbabwe - it’s a major factor
To me, the stronger government intervention is taxing the use of cryptocurrencies (or pretty much anything except dollars in the US) when buying something with it. There is a capital gains tax event that happens if you buy something with BTC, for example. So you have to pay extra to use non-dollars for transactions but also a regular person's taxes would become extremely complicated if they used non-dollars for all their transactions.
Excellent point. This also lends to it being easier for US tax subjects to use the dollar as a unit of account and ignore its (small, but not insignificant and always trending downward) value changes. I think a crypto wallet app that optimized for this problem would be super valuable, e.g. making doing taxes of these transactions seamless, and suggesting paying using a currency that is optimal for taxes (e.g. realizing a loss if that is possible, because then your purchase would come with a tax credit.) There are also efforts by legislators to enable de minimis exemptions for crypto transactions (taxes waived if the transaction size is sufficiently small)
I agree with this, it's a market of last resort but it hasn't prevented hyperinflation ever.
No one facing a hyperinflationary death spiral says "oh well, at least the government will take taxes in this crap" they desperately cast around for a stable place to put wealth.
One: gold is the og currency, it doesn't have to prove its value because it already did. Two: it is also being actively used for transactions, look no further than jewelry. If you have gold, you will find someone who is willing to exchange it for something else with material value in any city on the planet. This is not the case for crypto.
Counter scenario: you're fleeing a country ahead of war, and you know that metal detectors will be involved and your gold will be taken. But they will not be checking every piece of paper you have, everyone is in a hurry. The bank run already happened and reinsurance depends on the capital staying functional.
Bitcoin wins.
See, we can do this all day. There are points of comparison and points of departure.
You can verify gold with a vessel of water, an already verified piece of gold and a set of scales. It's taught in story form to primary age children with the famous quote "Eureka I found it!"
For daily transactions at the current gold price, it would be extremely hard to do this sort of measurement that way with any precision without very specialized equipment. A gram of gold (around $60) is a reasonable daily transaction size and has a volume of 0.05ml. In order to distinguish metals of similar densities, you'd have to be able to measure just a fraction of that volume accurately. Maybe there is some clever system to scale this down, but wasn't obvious to me.
Well one historic way of doing this, was instead of trading directly in minute quantities of gold, people would store larger amounts of gold in a bank and trade contracts that represent certain fractions of what is stored. This was called "currency".
We have never seen a distributed mesh network that worked correctly in the real world at scale. The OLPC project tried doing that but ran into severe technical problems. So it's not necessarily impossible, but I simply don't believe we will have an operating mesh network in that scenario.
If the farmer is unwilling, you'll find someone else. That was one of the conditions right? That you'll be able to find someone "who is willing to exchange it for something else with material value in any city on the planet". Not the likelihood of a farmer during a country-wide blackout. This is just moving the goalposts.
Gold is drastically more difficult to transact in than bitcoin or any cryptocurrency. Not only is it extremely difficult to create exact change to pay in gold (shaving of milligrams per dollar?) but there is zero infrastructure or education on how to verify that the gold is real. Even modern nation state banks have been fooled by tungsten cored bars of gold.
There are plenty of well established crypto apps that make receipt, verification, and conversion into your preferred cryptocurrencies or fiat currencies instant and effortless.
Gold has thousands of years of history as a currency (or backing a currency).
It's also intrinsically valuable for jewelry and industrial purposes. It's irreplaceable in electronics, for example.
Cryptocurrency that can't be sold to someone else has absolutely no value. In fact, it has negative value because of transaction fees, something that plain cash doesn't have. I can send someone $100k with a $0 transaction fee.
That is incorrect. The Bank of International Settlement definitely uses gold for payment. In rare events, a country will do physical settlement via shipping, but it is usually done via paper claims.
If anything this is an argument for Bitcoin also having “value” without being used by the average Joe for day to day transactions like buying a coffee.
Sure, but a not-insignificant amount of gold is still used for industrial applications. Even if gold wasn't used as money or in jewlery, I imagine it would still be quite expensive: at least half of it's current price. The same could be said of other precious metals.
But I don't think you can say the same about bitcoin. Bitcoin's fundamental utility is low, even compared to other cryptocurrencies.
Gold has useful unique properties over other metals. Bitcoin does not even have useful unique properties over other cryptocurrencies.
It would definitely be worth half its price as a reserve currency for purely industrial reasons, if not a bit more. Like if it became impossible to balance payments with it, well like if it became irradiated long-term like in Goldfinger, but there was still some clean gold left and it was just for industry. People would totally invent new uses for it at half the price. They just don't even consider it because it's expensive.
This reminds me, I was looking at the periodic table the other day and I noticed that gold actually has a pretty high electronegativity: almost as high as carbon!
As much as I enjoy (and actually use) crypto, you touch a very important point.
No current cryptocurrency that is even remotely decentralized, offers good throughput / scalability / tps.
Bitcoin has Lightning and it's in my opinion fundamentally flawed in its UX. It hasn't picked up much adoption after many years for what it's worth.
Ethereum has many L2 solutions in development but they are many years away from being finished (actually scalable, safe, decentralized)
I don't know much about other cryptocurrencies but from what I've seen they all are either very centralized or not scalable either (see the Blockchain Trillema)
Nano uses what they call a "block lattice" which is based on DAG's. Seems to work both in theory and practice: 0 fees, sub-second transactions and can handle thousands of tps.
Your comment sort of works against BTC, because it was intentionally crippled. But there are many other coins that will do just fine for day to day transactions.
But also the premise of your argument (taxes and oil) is weak. The value of these transactions pales in comparison with the rest of the transactions. So government enforcement has little to do with the value of USD. It has value, because people believe it, they trust it will be accepted and / or easily converted to the currency of their choice.
State authority is only truly relevant for collapsing currencies - for a functioning economy and currency, trust and availability are far more important.
Back in medieval and later times, when states were much weaker than they are today, especially economically, and especially small states, people chose which currencies they trusted, and often ignored the coins their local state was minting in favor of other, more trust-worthy coins minted in other places. Those places had no direct power over the people using their currency, and these people were not paying any taxes to them - they were simply choosing a currency they knew was likely to keep its values over the years.
This does happen occasionally in the modern day, with USD-based economies outside the USA, typically in countries with runaway hyper-inflation in their local currency.
> Imagine BTC was actually used for any scale of economic transactions. It would collapse overnight.
Higher velocity of money would lead to zero value? That's not commonly what basic economy dictates.
This being 2022, let's try to keep our concepts clear as to not rehash the debate from ten years ago. BTC is a currency, a blockchain, a programmable transaction language, a piece of software, and a protocol. It is good to suggest which one of these we imagine in use, and how that use is done.
Otherwise we risk saying that imagine if the physical $100 bill was used for all McDonald's transactions, clearly that wouldn't work, they are too hard to subdivide and even if they weren't there simply aren't enough of them, and therefore it is unusable as a currency.
Clearly McDonald's couldn't operate each and every economical transaction by settling them publicly on the BTC block chain, that much is obvious. But just as clearly there's nothing stopping Visa from denominating transactions in BTC, or utilizing that type of transactions internally, or utilizing the public Lightning network, or whatever it is McDonald's use in El Salvador. That much we probably agree on so let's leave that discussion in the past decade.
> Higher velocity of money would lead to zero value? That's not commonly what basic economy dictates.
I think you missed his actual point, which to be fair wasn't explicitly stated and I don't think is widely known. The bitcoin network can not handle large transaction volumes, like at all- its absurdly low. Somewhere around 10/second is where I understood it to stand, and I recall reading a paper that talked about changes that could theoretically get that to 40/s. A quick googling on the state of the art of this has it reporting 7/second: https://www.google.com/search?q=max+transactions+per+second+...
I know this because this came up around 2016ish during one of the booms, and while I was previously crypto-curious and even a bit enthusiastic about the possibilities, once I saw that, I immediately lost all interest and got out. Other coins like Bitcoin Cash tried to address this, but the numbers were still absurdly low for what was supposed to be a completely decentralized currency to replace all others. Which is actually why Coinbase, FTX and the like rose so quickly and became so important- they enable transfers off chain.
Bitcoin doesn't need to be money, especially not on layer 1, to have value. USD doesn't get its value as a currency from slow and expensive wire transfers, and it gets very little value at all from being a store of value.
Even if Bitcoin was primarily transferred between custodians between clients, it would still be better than USD (assuming a stable market cap) and give clients far more options while also forcing banks to disclose reserves.
Transfers can be dirt cheap with normal money (e.g.: Single Euro Payment Area), and your banking system can be transparent enough (the US one already is), if your regulating body cares about it. The average individual neither can change it, nor cares. If many people can’t help themselves but get fleeced, as happened recently on a large scale in the crypto space, at best you can struggle to recreate regulatory agencies in some kludgey crypto form. Most egregiously, all this is still worse than pointless, because the true differential value-add in crypto comes from enabling value flows for undesirable activities like crime, and it’s only possible thanks to horrible incentive system that rewards wasting energy.
You have admitted that I was correct in refuting you: all desired qualities of the current system can exist on Bitcoin no problem.
Then you moved the goal post. If Bitcoin is pointless because it has no use case, you would have started with that point and not been drawn into critiquing an aspect reliant on the assumption it is useful.
The continued existence of gold as a store of value (and to a lesser extent silver) contradicts this model. Very few economic transactions are denominated in gold, either as a medium of exchange or a unit of account.
There is a small amount of industrial demand, but this is far too tiny to justify gold's gigantic market capitalization. Valued on industrial demand alone gold would maybe worth $100/oz, yet today it trades at $1700/oz. And it has held a lofty valuation more than half a century after all major economies abandoned any gold standard behind their fiat currencies.
The only possible explanation for gold's continued valuation is that it's quite possible for assets to exist as money-like stores of value without necessarily needing to possess a functioning role as a medium of exchange or unit of account. Moreover what we can see is that store of value assets are highly path-dependent. Rhodium has similar properties to gold, yet gold is far more widely used as a store of value. The sole explanation for this is because of gold's historical narrative.
Gold is the world's best physical commodity to use as a store of value -- it doesn't degrade or tarnish, is easily molded into coins or other symbols, melts easily, has a highly fixed supply (synthesizing it is prohibitively expensive), and (now) increasingly is not tied to an industrial output so can weather GDP fluctuations. So in a battle Royale of all commodities, gold wins. That said, all commodities are affected by price action by speculators, so the actual traded value of gold can be very unrealistic.
Gold is conceptually very similar to bitcoin, except gold can't be forked or copied. Which is why in the long term, I prefer gold.
What makes you trust consensus? Consensus is fickle. Gold is unique in its physical properties. Even if you can’t agree on which country has a trustworthy currency, you have to trust gold.
Good has a long history of use as a store of value. Bitcoin has a few years of being valuable. So did beanie babies. Noone knows if Bitcoin will be worth 0 or 100,000 in 5 years.
Gold is used for jewelry more than it used as a store of value. Even as a store of value, Gold has an advantage of cryptocurrency in that you can actually store it. Cryptocurrency presupposes the existence of the internet. If all the world reserve currencies collapse, there is a good chance that the internet would go down with it, and your cryptocurrency would be worthless.
> Gold has an advantage of cryptocurrency in that you can actually store it.
The vast majority of gold investors are not physically storing it on their own property. Most invest through funds, derivatives, ETFs, etc. If civilization collapses to the point the Internet can no longer support a peer-to-peer network moving 1 MB every 10 minutes, then it's almost certainly the case that you won't be able to sell your GLD stock at NASDAQ.
The point being that while some gold investment demand may be as an armageddon hedge, the behavior of most investors is not consistent with that being the central driving factor. Ergo gold has utility as a store of value for macro conditions that fall short of civilization and the Internet collapses.
> Cryptocurrency presupposes the existence of the internet.
Not really. You just need some way for nodes to communicate. That could happen over the Internet, or it could happen over mail, or it could happen over a team of ravens carrying transaction data on little scrolls (hell, given corvid intelligence, they might even be able to execute smart contracts in transit).
Theoretically, maybe you could do it over letters. Just like you could run a computing algorith with horsemen and flags in place of a CPU (like in the scifi novel, Three Body Problem).
Practically, you are talking nonsense and it's patently impossible. You cannot run any crypto currency with a system of letters even if you're transporting them with the full infrastrcture of the modern world with it's airmail and diesel vans.
Try and do it with letters delivered on foot. It is actually impossible.
Very few economic transactions are denominated in gold, but having it is a hedge for the contingency of finding yourself in a situation where you can only do a transaction in gold, and then it can be life-saving (bribing your way out of a European country in 1944, etc.)
The reason people believe gold will retain meaningful value in a situation where nothing else does is thousands of years of history where it did work out like that. It's debatable (to say the least) whether Bitcoin with its mere twelve years of history and inherent dependency on easily disrupted digital networks could have the same properties.
>Very few economic transactions are denominated in gold, either as a medium of exchange or a unit of account.
That doesn't mean that gold isn't a viable medium of exchange - it obviously is, just go to a market of your choice and trade it for goods. In fact, it's the single most viable medium of exchange, globally, since currencies are tied to economies, and economies can crash. Gold can not, thus is it valuable.
>economies can crash. Gold can not, thus is it valuable.
The thing about money is that it is a technology. But unlike other technologies, such as an electric toothbrush, for instance, it has an additional quirk: without belief, it doesn't work. Regardless of whether or not I believe in electricity, an electric tooth brush turns on and off; if the participants in an economy don't have faith in the economy, the economy falters. Money's value lies in this belief, whether it is the belief that I can buy groceries or pay taxes. It is a faith that is a function of utility: there is the interdependence of the gods' delivering and my belief that they will; should the gods not deliver sufficiently, my faith wavers; likewise, if enough of the faith of the masses wavers, the gods fail to deliver.
Gold is like an old god: its faith has a lot of coinage. However, its rule is not necessarily omnipresent.
Scenario: we are in a post-nuclear apocalypse. I have a small trading post and a can of beans; you have a solid gold coin. Challenge: convince me why I should take the coin.
>Gold is like an old god: its faith has a lot of coinage. However, its rule is not necessarily omnipresent.
Very nice point, you're not wrong. That being said:
>we are in a post-nuclear apocalypse. I have a small trading post and a can of beans; you have a solid gold coin. Challenge: convince me why I should take the coin.
Because it has properties that qualify it as a method of exchange (portability, provable chemical composition [...]) -- the same reasons it worked the first time. Mr Bean-Haggler, what else do you suggest we use for exchange? Mud? :-)
Proving you're not getting duped with plated lead is actually pretty hard to do without high technology, hence the reason gold coinage came into existence and then gold depositories and banking and all the rest.
Gold is transitorily convenient provided you exercise military force over a ___domain - that is you can force gold to be accepted for debts within your dominion. Nothing about it makes it intrinsically valuable otherwise - and more importantly you having gold doesn't grant you wealth because you didn't economically contribute to the system to start with.
Turning up with all the gold you want would get it rejected or siezed because it wasn't an approved coinage.
As an intermediary, currency requires a minimum amount of social relations. Its value, if it can be said to have one, lies in its use as an indirect measure of the degree of faith in a particular set of social constructs.
The reason I use the post-apocalyptic scenario is exactly because of this rupture of social relations. It is not the ghost of the previous civilization trying to reconstitute itself. It is a place in a wilderness onto which people might stumble. (Admittedly, this might not be communicated well and too informed by my early secondary consumption of old western movies.)
Without this broader social context, the concept of trade becomes purely localized. My needs are not serviced by an explicit diffuse network which is conceptualized as an aspect not just of society but constitutive of reality. Operating on a faith, we take the conceptualization as reality and can accept, in our lives now, intermediary exchange: I firmly believe that by accepting an electronic transfer to my bank, I will be able to buy sweet and salty food that is engineered to appeal to my dietary obsessions as bequeathed by a combination of evolution and social conditioning.
In the midst of such a thought experiment, however, I am not guaranteed to encounter another haggard individual in this hypothesized godforsaken world for a very long time. Neither am I guaranteed that any individual I meet will have such social relations as to value such an intermediary, either.
Intermediary exchange is only viable once the pool of social relations grows beyond a certain bounds.
The function of my acceptance of any system is the fulfillment of my needs, to some degree. In such a scenario, the only way those needs can be serviced is an equivalence of exchange. In this case, food is required for immediate survival, the tools of procuring such, and shelter, etc. Intermediaries, in such a scenario, provide no guarantee to provide such. So such must be acquired directly. I can eat beans. To take the gold assumes, incorrectly, I can obtain another can or equivalent. That incorrect assumption is a holdover from the fundamental and all-pervasive faith we are at present steeped in and that must be maintained for our reality to function.
It's post apocalypse - you trade whatever you find. The most important commodities will be food, water, medicine. Gold would be practically worthless - it's not going to help anyone survive.
More likely, in North America at least, we would have an accepted exchange rate for 9mm and 5.56 and I'd need more than a can of beans for one cartridge.
I unironically suggest having a box or two as a hedge, no associated weapon needed.
A glance at the gold prices and economies of the 19th century show that in fact the gold price certainly can crash due to gold strikes.
In addition, the stock of the planet’s gold is negligible compared to the global economy (the hard to quantify set of transactions that people do with each other) so by definition can only operate at the margins. If the world crashes so far that gold is a meaningful proportion, will there be much to transact at all?
The exchange rate for gold (i.e. the interface of an economy with the material) can crash, not gold itself, thus the inherent value. That was my point, sorry if that wasn't coming across.
>If the world crashes so far that gold is a meaningful proportion, will there be much to transact at all?
This is where I start speculating, but couldn't we just create an arbitrary new currency and tie it to gold?
Imagine a future where the vast majority of work is automated. Most of this is computationally expensive work, such as training large neural networks, and the average program takes a substantial amount of resources to run, comparable to paying a human worker.
In this scenario, labor power has been replaced by GPU power, which can be measured in terms of electricity. Everything from ordering a meal at a restaurant to building a house to designing a new computer system can be measured this way, and the price of everything is tightly coupled to the price of electricity and the price of compute.
Under these conditions, it might make sense that programs/robots would incorporate smart contracts or participate in some sort of generalized proof-of-work system to finance themselves. Running a program would require currency as input to cover the computational cost of actually running the program, even if the program is open source.
That's where I see this going. Traditional currency is great for incentivizing human labor, but the problem is it's not designed to be programmable.
My sibling-in-christ, you are talking about an imaginary future. You cannot start to base the economy of today on your science fiction. Even if we were moving the direction of your sci-fi (and we're not, because you are even describing a PHYSICALLY IMPOSSIBLE SCENARIO), it would be so far in the future as to be stupid to start today. You might as well start building landing pads for asteroid mined metals.
Physically impossible: yes - you've suggested using a currency made by the infinitely wasteful PoW system to finance the power used to compute something useful. You might as well try to fly by pulling on the arms of your chair.
Why not? What's to prevent two parties from creating a digital smart contract denominated in dollars? Don't we already do this with things like credit card pre-auth? And the best part is that the transaction is backed by a predictable rule of law as long as the transaction takes place within a country.
If a geopolitical climate is too volatile for fiat to provide value, what good is it that crypto can isolate its stability (it can’t) if the humans who would use it have bigger problems than how to pay with money they already have in some form? Supply chains, physical force/warfare, climate, etc. If fiat is breaking down, there are surely bigger problems at play. How does solving the ability to transfer money solve the overall stability of the situation?
Per your example, ok Apple Pay got cut off. Is the transit system going to support crypto? Will they be able to run their business and make that transition with regulators? It’s a drastic measure that cuts one off from the structures that they physically exist in, and unless those structures are overall crypto-supportive, they would just be putting themselves further between a rock and hard place (which as we’ve seen by the lack of serious business adoption, companies and orgs are not really willing to take that risk in any meaningful way)
Edit: I agree with your use of the term “regime” and am not arguing against the sentiment of your point. Just that I don’t think crypto actually has the backbone to solve it, there’s not enough physical-world tie in yet for it to have the leverage it needs to truly overcome the global financial regimes that are neck-deep in fiat and physical assets that actually impact everyday peoples’ lives.
>>Per your example, ok Apple Pay got cut off. Is the transit system going to support crypto? Will they be able to run their business and make that transition with regulators?
That's the big question. But assuming for a moment that crypto can act as a substitute for traditional centralized payment systems, then it has significant advantages in some contexts over those systems.
> But assuming for a moment that crypto can act as a substitute for traditional centralized payment systems, then it has significant advantages in some contexts over those systems.
Except that, fundamentally, distributed permission-less systems can't come close to the computational efficiency of centralized systems. So this is like "assuming perpetual motion machines existed, we could build a post-scarcity society" levels of assumption.
I don't think that is established. Distributed and permissionless systems don't need to handle the overhead of access control. They do have the computational overhead of massive redundancy, but that can be significantly reduced with zk-(SNARK/STARK) cryptography that provides succinct zero-knowledge proofs of validity.
With zk-proofs, the redundancy of a blockchain can be significantly reduced without comprimising security. What redundancy remains provides the high process integrity that critical applications like financial transactions require.
Do you have any recommended readings on zk-proofs? Familiar with crypto, familiar with zcash, but haven’t looked into this enough and sounds promising. I am going to look into it.
It’s been around for a bit already, why is it not more widely adopted compared to BTC/ETH, any thoughts?
People being paid by the hour is just a result of simplifying work, in the very past everyone was a merchant and they sold their goods/services.
The same old behaviour should be applied to machines, it doesn't matter how much resource a machine takes to do the job, what is important is the output. The pay should not be X*Watts, but X agreed in advance for training that specific neural network, this type of market incentives evolution, where the machines that can do the same job with lower resources have the lower hand
> in the very past everyone was a merchant and they sold their goods/services
In the past nearly everyone was a serf and they provided their goods/services to their lieges in exchange for basic needs like having someplace to live.
In the present it's pretty much the same thing, except with us serfs being paid wages (which we then end up spending most of as rent and taxes) and serving multiple lieges.
I normally push back at calling consumer capitalism "freedom", but the freedom to leave your employment is a huge one and the serfs didn't have that. The whole idea of just being able to pick up and move somewhere would be alien to most historical peasants.
That's part of what I'm getting at with the "multiple lieges" bit. Feudal lordship and fealty are more fungible now than they were centuries ago, but the fundamental power dynamic remains; being able to swap out lords ostensibly at will is one of those "illusion of freedom" things that helps us feel slightly less bad about our exploitation.
Your mistake is valuing cryptocurrency purely as a currency. In reality BTC and other cryptos have combined properties of currencies, commodities, securities, as well as unique elements that can't be found elsewhere. Crypto is its own asset class and trying to value it using old models of other assets is bound to fail.
> For BTC (or any coin) to have any value, it needs actual economic transactions to be conducted in it. If there aren't any, its value is smoke-and-mirrors; its not real.
Not quite - if someone, anyone, wants something that someone else has, they're prepared to buy it. That's the price. You might say tulips are valueless, but that wasn't the case when people wanted them - https://en.wikipedia.org/wiki/Tulip_mania
I'm sure everyone has said "I wouldn't pay X for Y", but someone has paid X for Y. X is the price.
As much as many on HN like to hate on crypto, people want to buy it, and people also want to sell it. That means there's a market and therefore a value to it for those people.
Answering the question "why does Y have value X" with "because people/someone are/is willing to buy Y at price X" is technically correct but a cop-out. When people ask why something has value, they are typically asking why someone is willing to give money for it, what's the motivation. And the reason why people are willing to pay for something can be very relevant, especially if you want to figure out whether something will rise in value or collapse.
There are many reasons to want something, but broadly you can argue that you either want something because you believe owning the thing will make your life better in some way (food, housing, transportation, ...); or you can want something because you think someone else will pay more for it later down the line, in which case the value of the thing is entirely speculative to you.
Some things are not entirely one or the other. People wanted tulips because they are pretty. Eventually they became a status symbol, demand grew faster than supply, and quickly people started buying tulips not because they wanted them, but because someone else might pay more later. So tulips became a speculative bubble, which eventually collapsed.
>people want to buy it, and people also want to sell it. That means there's a market and therefore a value to it for those people.
People don't want to sell it, they have to, in order to pay the electricity bills for the mining (in their countries normal currency, for that matter).
There is no inherent value - you can only sell if the exchanges find someone who is willing to buy.
The value to the seller is the Dollar/Euro they get at the exchange. The value for the buyer is speculation on the price, which someone else then has to pay at the exchange in normal currency. There is exactly zero value in crypto itself.
Not at all - I can buy a bitcoin now, and then sell it, having not mined it.
I choose not to. But other people do.
> Money has value because of the value of the economic transactions in which its conducted.
As the OP said, little pieces of paper have essentially no intrinsic value. But use it for transactions, and it has suddenly has a value forced on it. We've all seen zombie apocalypse films with cash blowing around in the street and the survivors ignoring it for good reason, no one _values_ it.
Bitcoin is the same, it's a bit of paper in the sense that it's just some numbers on disc somewhere with no _intrinsic_ value, yet as soon as it's a medium of exchange, _which it is_, it has value. There are transactions made in bitcoin.
Here's the interesting thing about tulips: after the bubble popped, bulbs recovered to a stable and profitable price, and the Dutch have been exporting them in great numbers ever since. Tulip mania was a resounding success and an enduring source of wealth for the Netherlands.
No direct analogy intended but it's an important historical fact. A lot of money was made on the South Seas as well.
It’s a unique move to non-ironically point out btc has value because tulips once had value, aka one of the most notorious bubbles of all time. Most people pointing to the tulip bubble comparing Bitcoin are giving an example of why Bitcoin is misguided. This is the first time I’ve seen someone say Bitcoin is like tulips thus it has value.
Weird argument, you're presuming that it has no value today because it doesn't work YET. But, that's like the whole point of e.g. IPO's. People sometimes put money in something in the belief that it, or something related to it, will work later.
The argument I've been making is that Bitcoin is the equivalent of the Model T; the prototype thing that essentially "proves" the technology can, and even will work, but it won't be the actual thing. It will likely be a different cryptocurrency.
Bitcoin can't scale to real numbers of transactions (say, enough to handle the daily needs of a small town) fundamentally by design. Investing in Bitcoin with the expectation that it will ever scale to Visa levels of tps is like investing in an early-stage cold fusion start-up.
I don't follow the last statement. If a cryptocurrency was used for decentralized buying and selling, folks were not using it for speculation, and thus it became a stable currency would it not flourish?
This is why Monero is doing really well right now as a currency, but it has become a bit of a dirty word among crypto bros. For many people in cryptocurrency, the price action is the point. People are tired of saving and seeing inflation eat their savings. They want to get rich, and they believe that no investment lets them do it. That's why the Gamestop fiasco became such a phenomenon, and I think that is why Bitcoin is so volatile and why it is what it is.
In my opinion, there will need to be a great clearing out for cryptocurrencies and blockchain technologies to mature, and things will need to get very boring. The "clearing out" means $0 BTC, DOGE, ETH, LTC, etc. The "boring" part means things staying stable. Otherwise, it doesn't look like there is enough room for other cryptocurrencies (like SOL as an NFT/smart contract platform) to succeed in the market, and scams will be the only viable business models because they are fast.
which is fine, since you can back another cpi/whatever automated chainlink index adjusted asset with it. Sure the efficiency will not be as good as fiat but it's robust
It’s not obvious to me that transactions are the key here.
Suppose I want to buy something online using crypto. I buy up $X worth and transfer it to the vendor. They transfer whatever it was that they bought, but they immediately redeem the bitcoin for $X, give or take a small amount from market moves.
There’s no net demand for crypto here, and the increase in crypto price from my purchase will roughly be offset by their sale.
I think the only way to explain crypto prices is through buyers hoping that they’ll be used as a store of value. I don’t agree with that, but that’s a different story.
One of the biggest arguments I've seen for bitcoin is the theory that it's a store of value, and it can be valuable in the same sense less liquid financial instruments are useful. Not as a currency to buy bread and beer, but something to put your savings into.
Further, I've heard people emphasise crypto as being useful for things such as smart contracts and dApps. Even with a Lower transaction value, one could still theoretically do some higher value transactions with crypto.
I am not endorsing this argument, but I have heard of it.
there is so much soft-corruption pressure and old fashioned lobbying from Bitcoin kingpins to insinuate BTC into various nations' fiat pools. Why is this, when making bitcoin into fiat undermines the entire point of bitcoin.
Well obviously, on the superficial level there's plain old greed.
But on a more existential level, bitcoiners are acknowledging that proof of work will lose to proof of lead, in any kind of direct confrontation.
So backing its security with math isn't enough, coiners want it backed with armed force. like fiat.
So scarcity pays no role in value? Is the Mona Lisa not valuable? If money is printed it doesn't lose value?
Why would Bitcoin collapse if it was used at "any" scale? Low max transactions per second? It is used by some people (even if not many) to pay for real things as well as wages! Are you saying an "economic" transaction has to be a commodity or taxes?
I think any specific currency is valuable because people believe it is so. No single characteristic defines value.
>So scarcity pays no role in value? Is the Mona Lisa not valuable?
You're mixing up things. I can draw a one-off picture, that doesn't make the drawing valuable (sadly. If you want to buy my paintings, hmu). The value needs to be attributed by a shared denominator, which for the example of Mona Lisa is cultural prestige. Crypto has zero inherent cultural prestige, it's only value lies in social attribution. Wallets on hard drives are meaningless unless we decide that they aren't. The mona lisa isn't worth what it is if we decide otherwise, but it does have inherent value. Crypto does not. For crypto to have value, someone else needs to pay Dollar/Euro/whatever at an exchange. That's the value of crypto - the exchange rate.
> For crypto to have value, someone else needs to pay Dollar/Euro/whatever at an exchange. That's the value of crypto - the exchange rate.
This is true for every economic good, including paintings. Whether the value is "inherent" or not is irrelevant, you need a transaction or the value is just theory. Culture could also forget about the significance of the Mona Lisa, it has happened before, see for example https://en.wikipedia.org/wiki/Archimedes_Palimpsest, a mathematical text that our culture considers having very high value, but was overwritten into a prayer book by a culture that considered the work less valuable than the material it was written on.
OK, maybe the Mona Lisa was not a good example. But if somehow Da Vinci had produced a billion copies of the Mona Lisa it would not be nearly as valuable! My other point in that paragraph was that if a country prints more units of currency the value goes down, so scarcity is important to value.
Scarcity isn't 100% important for value - leverage is. Leverage can be tied to scarcity, but doesn't have to, it all depends on the goods which are being exchanged. Artworks exist just once, coupled with the attributed prestige the value increases. Guns exist a bunch, their price doesn't scale relative to their scarcity. Food is not priced relative to the amount on the market, but to the demand of the consumer. If the demand is high and so is scarcity, the price rises, but if demand is low but scarcity is high, the price stays low. [...]
Modern art reproducers can make copies of the Mona Lisa that experts can't easily distinguish from the original. This kind of replica fraud happens often in the art world. I find it interesting to try to justify the value of the original when it is almost zero cost to have an exact replica of the original. The scarcity is not real, or at least the scarcity of being able to enjoy the intrinsic value of looking at the painting is not real. When you remove that part, the value lies only in being able to verify the authenticity of the work, rather than in its quality as art.
Ha, nice. Problem: art receives value wrt the artwork, not the canvas, so the screenshot-meme wins. (Unless the cultural prestige lies in the underlaying technology itself, in which case the piece of art is the blockchain-implementation, not embedded content)
If an artist signs an NFT or Colored Coin with a keypair that is associated with their public identity, shouldn't that be analogous to an autograph? If a physical, signed artistic work has more value than an unsigned work, does that mean that if you take the physical artistic work out of the equation you're left with the value of the signature? It's a funny question I guess. Like imagine people collecting PGP autographs.
Maybe art has some intrinsic value, but I think a large part of the "value" of an art piece is associated with the cultural relevance of the piece. It would follow that if you can associate a transaction output with some cultural relevance in the same sense that traditional artwork does, then it could have value, albeit not much.
> Problem: art receives value wrt the artwork, not the canvas, so the screenshot-meme wins.
This assumes that an original painting and a perfect replica of it have equal value. That might be the case if you don't know which is the original, but in the case of the Mona Lisa - and in the case of the NFT - you almost certainly can figure that out.
Every crypto coin trading at 0USD is likewise scarce.
You need to pay attention to the actual economic transactions taking place. Looking at a graph of pure speculative value and calling it an economy is, more or less, a scam.
You'll see that when it all disappears.. moreso than the cashflow of, eg., an actual business.
It is true that not all scarce things are valuable. But isn't scarcity is a good quality for a currency? Fiat currencies fail because of money printing.
I think many cryptocurrencies are useless and driven purely by marketing and speculation and most tokens are unregulated securities. Bitcoin is someone's attempt at inventing an "ideal" currency and it is being bootstrapped into value and existence. How else could it work? Maybe it will fail, maybe not.
> Imagine BTC was actually used for any scale of economic transactions. It would collapse overnight.
You never explained why and I am honestly interested in your reasoning here. Are you implying BTC can't scale? It seems like two contradicting thoughts - if it is used, then it becomes less valuable.
That's such a silly argument. There are thousands of paintings around the world with the same level of scarcity as the Mona Lisa, but have far less value.
Scarcity drives up prices on items that already have some perceived value. It doesn't create any value itself.
Scarcity can support existing value - e.g. in creating a Gold Standard or some other means to artificially limit money supply - but it is not an intrinsic value. There are countless things that are both scarce and valueless.
I believe your last two sentences hit the nail on the head (albeit being oxymoronic). Things have value because people are willing to pay for them. That's it. If companies can be traded below book value, Tesla can be worth more than the next five automakers combined and NFTs can cost six digits there seems to be no intrinsic value.
I think Bitcoin will have as much value as the hypercard protocol has now. It's not really as valuable as Mona Lisa but you could say it has some value.
A more compelling theory suggest that money has value because it is coercively used to extract value from a society via taxes. People desire it because the government's monopoly on force requires them to pay taxes in it.
That said, I think Adam (the original article) is closer to being right.
He doesn't even get into the thing that originally made me incredibly excited about the potential of blockchain tech—the way it lets one create a new sort of custom and irrevocable 'physics' for information and incentives. But the same irrevocability is now what makes me deeply concerned. If we get something wrong, it may be impossible to change, unlike normal human systems. It's like building Facebook, except the original design might be at least partially locked in functionally forever—and so issues created by naive founders can never be resolved and may warp our political and economic systems.
I have also generally found that crypto/blockchain/web3 doesn't address the problems its adherents say it can solve ( https://aviv.medium.com/the-magical-decentralization-fallacy... ), particularly changing power structures to get to a better world. Trying to find alternative solutions to address the power issues around centralized platforms is what eventually led me down a very different path ( to http://platformdemocracy.com/ ).
I loosely agree with you but am a little more optimistic. I see centralized lenders and services like Celsius and 3AC collapsing and running off with money, or blocking withdrawals - this would not occur had the loans been made on-chain through smart contracts, and DeFi platforms like Aave are holding up just fine during this downturn. This is an example of a shift of power away from incumbents and toward the people en masse, should they choose to actually understand and use the decentralized blockchain.
> If we get something wrong, it may be impossible to change, unlike normal human systems.
It's not far fetched that blockchains will change as humans adapt to new challenges. An example is already happening: Eth is transitioning from PoW to PoS and moving to a layer two centric ecosystem to meet block space demand.
There are real concerns with adding functionality on top of the blockchain without understanding its immutability - like the ridiculous suggestion of putting twitter or a period tracking app on-chain.
> the people en masse, should they choose to actually understand and use the decentralized blockchain
I used to work for financial traders. Our company was essentially the same as the companies of professional gamblers. We knew we were playing zero-sum games. Our goal was to create asymmetries in information and skill such that we got the money that other people were putting in. In the markets we played in, the opposition was mostly other well-funded players. But you can bet that there are well-funded groups with snowdrifts of math PhDs who are happy to take money from "the people en masse" that decide to trade in the markets.
Those people already exist in the non-blockchain financial economy. From predatory lenders to fake health care plans [1] to ponzi schemers, frauds, and grifters. What mainly keeps them in check is regulation, not regular people "choosing to actually understand". Because what distinguishes "the people en masse" from the people who prey on them is that the predators can devote all their time and attention to one particular hustle, while "the people en masse" have to defend against every hustle, while trying to be good at their jobs, take care of their families, and live their lives.
So the hustlers are always going to be one step ahead from regular folk. Doubly so in an unregulated, rapidly evolving space with metastasizing complexity like you see in the cryptocurrency/ico/nft/defi/web3/wft space.
> So the hustlers are always going to be one step ahead from regular folk.
I don’t disagree. This is always going to be the case in any global market with information asymmetries - grandma’s investments are not going to do as well as a hedge fund with a team of 50.*
The difference is: the people entering CeFi are having access to their funds revoked, and a counterparty failing to repay debts while fleeing to Dubai. while the people entering DeFi have not had access to their funds affected, and are not worrying about counterparty risk.
This is why it is a shift in power - the users retain control of their funds and leveraged positions, as opposed to placing that power entirely in the hands of tradfi and CeFi companies.
* ironically a lot of big players like 3AC are getting wiped out too, so it isn’t always true
There is good reason to think that hedge funds in general do worse than grandma's investments. That has long been Warren Buffett's belief, one he demonstrated in a 10-year bet with a hedge fund advocate: https://longnow.org/ideas/02018/02/09/warren-buffett-wins-mi...
> But the same irrevocability is now what makes me deeply concerned.
Strange hang-up to have. Irrevocability is not a trait that is fundamental to blockchain applications.
If the application is smart-contract based, irrevocability is a choice at the source code level. Just because one transaction in a block is irrevocable doesn't mean that another transaction in a future block can't undo whatever arbitrary state change was committed in the first. It depends entirely on what you make possible in the contract code.
Neither does the claim hold water for L1s that are the application (e.g. Bitcoin, Monero, etc.). If the entire Bitcoin core development team turned rogue, social consensus from the broader Bitcoin community would soon establish a new canonical chain. Hard forks can be and have been used. This is blockchain 101. Cryptographic and economic guarantees are not fundamental; the social layer is.
But that's just it: bad choices in the social layer become nearly irrevocable once a self-interested, powerful elite emerges. The bad choices put them on top and they will do anything to stay there.
> But that's just it: bad choices in the social layer become nearly irrevocable once a self-interested, powerful elite emerges. The bad choices put them on top and they will do anything to stay there.
I would argue that this trait is not unique to blockchain systems -- in fact, if you presented this argument without context, I doubt many readers would put blockchain in the top 5 potential referents. See: economic systems, political power struggles, social structures, etc.
Satoshi thought bailouts were the problem, but concentrated power was the problem. The libertarian "cure" of stronger property rights only exacerbates power concentration because concentrated power is in the best position to exploit stronger property rights. Cue exponential growth.
Regular economics uses the same dirty trick when it talks about value creation rather than wealth-weighted value creation. It stuffs all its dirty laundry in that one weight term and then "forgets" to talk about it. Oops!
Weight by wealth? You are failing to understand the basic concept of a hard fork. Social consensus doesn't care what your number on the blockchain says.
Case in point, the Hive hard fork.
One very prominent and widely unliked individual purchased majority ownership of the STEEM token. Weighted by wealth, they could now control the chain, its governance, and most notably unlock tokens (20% of the supply) that were (per social consensus between Steem and its community) not supposed to be unlocked.
So, what did the Steem community do in response? They hard forked the platform, launching Hive. All STEEM holders could migrate their assets to Hive, except the individual in question who attempted to takeover Steem via wealth. The malicious elite was cut off entirely. Today, two years on, Hive is still gaining in activity and has more than twice the market cap of STEEM. Comparatively, Steem has become a ghost town.
It is a choice at the software later. And who is making that choice? It's the initial people who actually write that software.
But what if that system is now affecting many other people, or the entire planet in a significant way? Should they have some voice over that?
Under a traditional governance regime the answer is that that is at least possible to change. It may be difficult, but it does not violate the laws of physics and can happen in less time than the heat death of the universe. But we can now write software that makes it functionally impossible for anyone to make that choice, even potentially the original designers. That is an option that we did not have before. It's in some sense the essence of trustlessness.
In some cases, this might be the right trade-off. For example, beyond the blockchain, this is also a way to think about encrypted communications. It is a very significant new power that we can now wield.
But it must be wielded carefully, and that doesn't seem to be happening.
So yes, blockchain applications don't need to be irrevocable. But the ability to make them so is something that could have a very significant implications—potentially negative.
As a somewhat tongue in cheek example, but with a little bit too much reality to be comfortable, this irrevocability might allow you to "create" a paperclip maximizer DAO (incentivized at the social layer, with humans doing the work).
> But what if that system is now affecting many other people, or the entire planet in a significant way? Should they have some voice over that?
This is an important point you are making. What you must recognize is that they absolutely can have some voice over that.
Just as we can write software (or smart contracts) that allow no one to update and fix such issues. We can write software that allows one person to do it. Or we can lock the ability behind a multisig, requiring a majority of the software's developers to do so. Still not good enough for the use case due to far-reaching trust ramifications? Then we write code that delegates the ability to trigger such an update to the entire userbase of the application.
In the world of contract platforms, you have to keep in mind that contracts and the tools that you can build with them are primitives. They are composable. There is no problem in building a DAO to control the ability to update a contract (or trigger arbitrary functions to remedy critical situations caused by unexpected and undesired state changes). This is already done in practice in various applications--and sometimes with undesirable outcomes! Of course, these are still experimental times and lessons are still being learned.
I've heard the metaphor that "writing your ledgers in pen instead of pencil doesn't make transactions irreversible" - meaning that in the same sense, actions on the blockchain could be coded to be irreversible.
The difference is in the authority of who gets to reverse transactions. For example, Tether can freeze and generally arbitrarily control USDT token. USDT therefore isn't really a cryptocurrency, since now a central authority can seize it. It seems to me that this authority undermines why one might want to use crypto in the first place. I don't think you can have it both ways.
It may undermine why you want to use USDT. I don't see why it would affect your desire to use DAI, for example.
The point is that you can have it any way you like it. There are no hard and fast rules like "irrevocability" as described above.
You can have a contract be not updateable, final, and verify its source code to know there are no malicious functions. Or you can have one that is updateable by its developer. Or one that is updateable by an elected authority. Or updateable by a DAO of the contract's users. There's no single way to do it or perfect solution.
Like most software development, it is the understanding of application requirements and selection of tradeoffs.
Wrong. Smart contracts can be updated. If they are deployed with the ability to update, any outcome can be revoked. It is as simple as adding a new function.
?? Updating a smart contract does not rollback the history of transactions, a wallet drained due to a buggy contract is drained for good, that’s what “irrevocable outcome” refers to.
You're missing the point. You don't need to rollback past transactions that make unwanted changes to the contract state. If you have the ability to update a contract, you can add whatever functionality you need to undo a given state transition. You invoke the new function with a new transaction. The old transactions don't suddenly not happen. Your new transaction simply reverses the state changes, making it as if they hadn't affected the state at all.
It's likely that you aren't considering this possibility because, of course, the average token contract does not do this. It would be a significant trust violation if a contract controller circumnavigated the need for signature checking or allowance setting in order to perform arbitrary token transfers. That does *not* mean the possibility for it to be done does not exist.
At the end of the day, token balances are just key-values in the contract storage, and how those values are changed is enforced at the contract code level. That code can say whatever its controller wants it to say, and if they deploy with the ability to update, they can alter the code as necessary in the future. Token contracts are extremely simply, easy to audit, and so are seldom deployed to be updateable.
To summarize, "irrevocable outcome" is not a fundamental trait of a smart contract application. It is a choice at the code level, with tradeoffs, which can be adapted to suit the application.
It's a good question. There are several kinds of answers, two of which I allude to but don't go into a lot of detail. The answers based off of peer reviewed research can be found in the article in Science that I quote. There is also the answer based off a sort of existence proof—so far, even when this is been done at a high level around extremely controversial and impactful issues, this has not appeared to be a significant problem.
To be clear, the process that I am describing there is not some newfangled idea that I just dreamed up. It's something that has been used by France, Ireland, South Korea, even the EU as whole, is likely to be institutionalized as part of the governance of these organizations. It's just fairly new so not that many people have heard about it.
This is really long and I gave it my best shot, but from the onset it's intellectually dishonest.
Anarcho =/= "centralized authority is corrupt and evil"
He has redefined anarchism (no authority) to suit his needs and attached the negative connotation in his defining characteristics.
The paradigm, which he has missed, is that the blockchain IS the "state". The authority of the system is derived from its working mechanism and therefore does not require outside governance.
Citing oppososition from leftist progressives as surprising....? The group that demands the most compliance to ideaology and greatest support for expanding federal government? This isn't difficult mental exercise or requiring some contortion to find plausible. Their opinion is the obvious conclusion.
I find here further evidence that VC is a bunch of wealthy hacks hiring their smart friends to wax knowledgeable to the rest of us, lower cretins.
I once lived in such an extreme anarcho libertarian society. It was called the 80s.
In that cash-based society, the government had no real idea how much cash I owned. I also had full freedom of transaction. Somehow taxes still got paid and crime wasn't really worse.
Imagine a world where you live as a slave with your owner having rights over your time to the extent they'd like. That sucks. Well, fiat is that with the Govt stealing your productive time (since your time was spent on earning money) to the tune of 7-8% (officially) and likely 10-15% unofficially. This is in addition to 40% tax. You effectively spend 50% of your working time serving the Govt. Would you vote yes on sending troops to Iraq, funds to Ukraine, military industrial complex etc? That's how your time is "invested".
If a world where this is fixed invokes your phobia, good luck to you. Dare the Govt actually ask you for your money (instead of stealing it) for funding a war and we'll see how many wars we fight.
Imagine living in a deflationary world where you live as a slave to unaccountable powerful holders of Bitcoin, where a man who holds 20% of the worlds wealth will continue to do so forever into perpetuity, at 0 risk. Do you think this is a world where real wealth creation (goods, intellectual property, etc) is possible?
Nobody holds 20% of Bitcoin, and early BTC whales have been selling to make their profits so we're getting less concentrated[1]. It helps that BTC has taken a decade to rise to this value with plenty of selling and redistribution along the way. I don't see your point but perhaps you don't mind sharing more :) I don't disagree that concentration is a problem but the existing system has enough concentration already. I don't want states printing away to glory, and bitcoin can't be printed so that's a HUGE improvement
Nonsense. Inflation has been running at below 2% for decades, and everyone is free to invest their savings in shares, gold, other currencies, or even crypto. Comparing that to slavery is not only fundamentally wrong, but distasteful.
US debt is skyrocketing, expenses like war paid for by debt[1]. Inflation in the US has been 2% but only because it was in a position of strength with the world accepting USD as the global reserve. That's changing steadily both with excessive printing and the world rejecting US debt instruments as a savings asset.
"Everyone being free to invest" is a bit of an elitist claim, as most in the US live paycheck to paycheck and are hurt by inflation. Cost of ownership of houses skyrocketing over decades, and CPI being oriented around very basic goods points to inflation being hidden away.
The US is incapable of paying their debt and must continue funding the economy via more QE. Other nations have moved to their currencies to trade with each other (Euro, Ruble, Yuan etc). This game won't last forever.
Real wages have been stagnant while the money supply ever increasing. This wasn't the case until 1971, when the US removed the gold peg: https://wtfhappenedin1971.com/
Europe is interesting in that certain parts of the Euro zone run high deficits and need bailouts while some of the others are disciplined. I don't have a clear theory for why inflation in Europe has been stagnant all along.
A great deal of the discussion here is surprisingly not smart because it's presuming that the current technical landscape is the forever technical landscape (i.e. mostly a presumption that looks like "Crypto, the entity, is just like BTC is today".).
I find it very strange because I feel like we've been able to do project out to "better working technology" quite well in the past. Supply and demand, y'all. Will at least some people have a use case for crypto? Yes. Can we use the example of bitcoin and other crypto's to relatively safely assume that in the future, there will be a cryptocurrency that more-or-less does what it says on the tin? I think it's silly not to.
START from that point in your discussions, because it's probably coming.
There's a reason the mostly unsavvy crypto skeptic hates the idea of crypto improving: they cannot financially capitalize on it.
Every new crypto project claims to be the second coming. There are no stable heuristics which don't get exploited by the next wave of marketing. The only way to make good bets in crypto is to deeply understand what teams are working on and make intelligent judgements.
What broad crypto skeptics don't understand is that every alt-coiner shares their critical point of view, but has the know-how to attempt (or pretend to attempt) a solution to those problems.
Absolutely. And I know I'll get clowned for mentioning him but gonna do it anyway: This is why I find Richard Heart so interesting if you believe his motives. His claim is "I'm already rich, so it's not about money, I actually want to improve on Satoshi's work and make a good crypto."
(I fully understand why one would absolutely not believe his motives given his appearance, but I'd encourage people to consider it anyway. I actually believe him and am throwing some money in his projects. THAT BEING SAID, I am NOT putting any money in crypto that I can't stand to lose and I personally do not believe anyone should)
So much drama. It all comes down to: do you want to use a currency whose rules are immutable and its value is decided by the market or do you want a government backed currency that can change its monetary policy according to its discretion? Everything else is just words.
Clearly there's much more to it. For example, cryptocurrencies with those two properties you mentioned are a dime a dozen. I could make one right now by git cloning bitcoin, changing some properties, then running it. And in practice there are thousands with high volume exchange-value. Digital currencies, when combined with ubiquitous exchanges, have such substitutability that I'm not sure there's much of a "network effect" or "lock in", when it's so easy to swap and pay with any of them. "value decided by the market" might be flimsy in this case.
I generally agree with the article. I would say that people using "crypto" as a hedge against inflation are sorely mistaken as the correlation with inflation is probably incredibly low. It's too volatile to be a store of wealth. It has no intrinsic value. It's incredibly resource inefficient. It's not an "investment" since it doesn't produce anything, and financially it has performed worse than real investments.
The only thing it does have going for it is a perfect pump and dump economics. Crypto "believers" are really only truly believing in this ponzi scheme economics, which is a shame since they'd make more money by using real financial instruments. If crypto was really so good, we shouldn't have to worry about "investing" in it, we'd all just buy some to use it for day to day transactions. Which categorically is not viable at all any time soon.
Forget everything else, simply having an asset that's limited in quantity and almost impossible to seize is significantly better than any other alternative. A cursory reading of the rise and fall of civilizations and currencies will tell you how flawed the current fiat system is and how much better BTC is
Sure but how many people need to worry about their life savings being seized? Out of 300 million in the US for example? Maybe just criminals? Also I don't think civilization falling is really much to worry about. It would take years for civilization to fall, and if it does we can just buy gold or something with a real tangible value. Or maybe we can move to a crypto after it falls, which is something we can do after the fact. And TBH there's no reason why any specific coin used today would be used in that situation either. In that event we can just create a new Blockchain to avoid the ponzi effect.
Nothing personal but your view of Govt is very very trust based, while mine is of skepticism. Executive order 6102[1] where the US Govt seized Gold from rank and file citizens is an example of the State's power when they chose to exercise it. This was back in the day when USD was pegged and the Govt didn't have money. So no, not just criminals, in fact, holding gold was criminal. BTC being seizure proof is critical as the power dynamic changes completely.
Moving to crypto or gold after it falls is much too late as your holdings would lose its value, but that's up to you. I can't say what would be used in such a case, but if countries with failing currencies are an example, they moved to buying USD, Bitcoin etc. Ultimately, you move to the best alternative and in the case of fiat, BTC imo is the one but who knows. I don't think you can just create a new blockchain and expect it to all work out after the fact :)
I'm not actually born/raised in US, only moved here 5 years ago. Thanks for the response as I wasn't aware of the gold seizures.
I would still say based on the practicality if you look at any cryptocurrency it would falter under the load of transactions as large as the whole US for example. So it's a bit early to bet the farm on any one of them. Also if a govt will support cryptocurrency they will create their own one so they can profit off their own ponzi, so to speak. They wouldn't be in favor of enriching Bitcoin whales just to take advantage of the 1s and 0s previously established in the btc Blockchain
The govt can create their own but would you trust them? Central bank digital currencies are simply a Blockchain version of fiat and comes with the same list of problems - centralized issuance (ie infinite printing), but much worse eg. Govt adding code to control how you spend - which can help control spending during inflationary times and absolutely kills any notion of a free market. What the govt wants isn't always what happens especially in the west.
Lightning network on Bitcoin already supports a higher throughput than visa
Sure but what if the US govt decided to launch a 51% attack on btc anyway?
I don't argue that blockchain tech will keep improving. I just say if it's going to be a currency of the future why do we have to spend money on it now? Won't we be able to create parallel blockchains to increase token supply? It's not an intrinsically valued asset, like buying a stock (which some have returned more money than speculative bitcoin purchasing). Why should the bitcoin believers tell everybody to buy it if there's nobody accepting it for payments?
I recommend googling Andreas Antonopolous videos on 51% attacks by nation states.
Re: parallel Blockchain- there are thousands of Bitcoin copycats since 2011. They're either dead or dying. See the top ten list on coinmarketcap over time. Point is that value will accumulate on what everybody agrees on and there's no way somebody's CrapCoin where they own 60% of tokens and dump it on the market will gain traction with it's inherent risks (security, centralization, lack of differentiation etc).
Bitcoiners themselves don't spend using Bitcoin yet but this change is happening as more and more people believe in it as something that holds value and isn't going to 0. It'll take time and I have patience.
A 51% attack is on specific counterparties, not the entire network. counterparties have other ways to punish such an attack: 1. Refuse repeat business, 2. Decrease credit rating etc.
I’d be more interested in seeing what number of crypto buyers are underwater. Despite popular belief the amount of people who own Bitcoin exponentially decreases the further back you go.
I’d be impressed if more than a thousand people who owned Bitcoin a decade ago still own the same bitcoins.
My thesis looking at the volume and prices during the pandemic is that most people who own Bitcoin still despite the price increases are underwater.
Not exactly what you asked and I am not sure how correct is this number [0], but it is said that the average Bitcoin purchase price is $21k.
You can’t tell how many buyers are underwater from the average buying price being higher than currently price, but it does tell you that a lot of people is currently losing money with Bitcoin.
I have a dumb question that's probably user error on my part, but I can't seem to find a simple answer for: shouldn't BitCoin transaction fees (and thereby price) eventually stabilize to the cost of electricity plus hardware? And if so, then why would price fluctuate? It seems like there are 2 options:
1) Cryptocurrency transactions cost less than the cost of electricity: a market will form farming the price discrepancy between electricity and coins (solarpunk?)
2) Cryptocurrency transactions cost more than the cost of electricity: a market will form to compensate miners for the extra electricity (money laundering? what goes here?)
If mining costs keep getting more expensive, eventually the network will be so throttled that it will petrify. Also I feel like the cost of mining tied (or passed) the cost of coins a few years ago. So I don't understand why anyone would want to be a miner now. Which suggests a hidden incentive to be a miner.
I stumbled onto this article from 2017 when BitCoin was close to the $20,000 it is today, and it cost about $3,000 to mine a BitCoin in Louisiana, maybe not counting hardware cost?
I don't understand what mental model you're using for the relationship between price, fees, and mining costs.
Bitcoin fees have nothing to do with the price or the cost of mining; fees are basically proportional to (transaction throughput demand) / (fixed transaction throughput supply).
I've seen various reports saying the cost to mine 1 BTC is between $8,000 and $13,000 so miners are still profitable. Note that mining ASICs have increased their efficiency since 2017 but difficulty has also increased.
I don't think that's true, fees are not proportional to that. Fees compete for a finite and precise limited space in blocks. There's no limit to how high fees could grow in this competition, because only the 7 most lucrative transactions get mined per second.
I think it is vaguely accurate to say that fees and mining costs are linked, *however*, currently the coinbase block reward is a bigger deal. Example: most recent block https://www.blockchain.com/btc/block/743055 created 6.25 bitcoin out of thin air, plus 0.186 bitcoin from all its fees. In the future, when fees make up a larger share of this, miners will indeed start to get income from fees. Then, we will see an interesting dynamic where automatic difficulty adjustments and competition between miners entering and exiting the market will result in miners electricity costs aligning with bitcoin transaction fees. In other words, every unit of value that goes into a bitcoin transaction will result in that much value being spent by a miner on their electricity bill.
OK, what you're saying is that after the block reward ends, fees will equal miner revenue and miners will mine harder until equilibrium where their costs equal their revenue. That's correct but it's important to understand that the causality flows from fees to miner costs, not vice versa. Miners cannot force fees up or down.
Well it's a continuous process: today the fees make up maybe three percent of revenue, but that fluctuates as transaction space demand changes, and as the coinbase halves every few years.
But your point is good - miners are not really in a traditional supply/demand relationship with transactors, because block space is perfectly inelastic. There will be 7 slots per second (amortized), no matter what. Although... a petulant miner could artificially restrict this supply, by perhaps declaring that they'll never mine a transaction that pays less than X fee. This would only apply to the blocks that they mine, but the effect on overall supply could be nontrivial?
> state’s fiat powers come from its credibility, transparency and the power of taxation
Nope. State's fiat powers come from its monopoly on violence.
Completely opaque and corrupt states have fiat currencies too. Many thriving ones. The only reason people use these fiat currencies is because not doing so invites violence from the state - imprisonment and fines at best, actual physical violence at worst.
I’ve always been supportive and even excited about what the technology promises, but when I reconcile it with any use cases, I simply can’t get behind the valuations we see. Excluding it being the main payment vehicle for banks, institutions, and individuals (I strongly disagree with this prospect), all the other use cases become increasingly niche. BTC at it’s peak was at a 2 trillion dollar market cap. Gold at the same time was ~10-12 trillion. I respect lindyness and 3000+ years of gold being the best store of value, is enough confidence that BTC isn’t gonna be the next big thing - if it aims to replace it.
> too high maintenance to be a store of value like gold
Really? because the price/value flutuates too much? How is storing 1B dollars in gold lower maintenance than storing 1B dollars in BTC or other high-liquidity crypto?
Maybe the author thinks it is easier to steal or harder to secure bitcoin than gold. I think it is sort of nuanced and could go either way, but I would agree that bitcoin is easier to store: especially with a trusted multisig setup.
Bitcoin owners have a lot of cheap security options based on their spending habits risk model.
Harvesting and storage of a naturally occurring element is lower maintenance in theory. It is easily stored a thousand years ago and a thousand years from now, even if some global catastrophic event occurred that renders modern technology useless.
This caught my eye: "anarcho-libertarian roots" is tagged as destructive.
I simpathyze with positions close to that.
I do not understand what is harmful about trying to be free and not surveilled. Harmful for whom? For the people who wish to keep social control, smash you with taxes and do intervention and cheat, like the inflation we are suffering now in Europe bc someone decided to print money willy-nilly? Who benefited from this printing of money? The SAME people who printed it. Who pays? Yes you guessed right... normal citizens. I firmly believe we have the right to protect ourselves from abuses like these.
On top of that the ONLY purpose of the European Central Bank is to keep inflation under 2%... Come on... who can believe these people anymore... I do not. Even the same people responsible for it (Draghi and Lagarde among others) are still there as if nothing had happened.
This article raised some very interesting points through comparing the movement to religion and the fact that the peoples wealth is affected makes it that much more potent.
I'm still optimistic because I think that the current way the world runs is not going to work in the long run. Something radical has to change or we will destroy the planet. I don't know if Bitcoin will play a role in this and if it's going to be positive or negative but things need to change.
I have two specific points in the articles that didn't make sense.
1. Bitcoin whales can only affect the price of Bitcoin. They have no power over Bitcoin itself.
2. The article also makes the point that Bitcoin is weakening local currencies (fiat) which doesn't make sense since inflation is mostly driven by money printing and other economic factors.
That is kind of a scary article. I tend to dislike crypto arguments that make it political. There are pure economic arguments against it, from free market laissez-faire Friedmanian perspective, from centrist perspective and more obviously from the left wing perspective, that show crypto as dangerous for society. No need to make it another wedge issue (I tried to be somewhat politically neutral here: https://benoitessiambre.com/specter.html ).
This article makes a fairly strong case that authoritarian politics could readily mix with the economics feeding on each other in an unstoppable vicious circle that eventually leads to financial and societal cataclysm.
As to whether or not Crypto becomes a legitimate form of currency is neither here nor there, but in its current history it has (seemingly - I am not an economic historian) mirrored the Dutch tulip trade of the 1600's in many ways:
How Crypto comes out on the other end remains to be seen, but there can probably be some technologies that can be salvaged in legal and shipping contracts, for sure. As far as digital currency and items goes, in games and life, that remains to be seen... proof of work currency will probably die, if I had to guess though.
> The world has never seen an economic phenomenon like crypto. There is no historical analogous technology trend or investment craze that comes close to capturing the sustained and frenzied momentum of crypto that has engulfed so many and that will continue to do.
Never say never. Greed and speculation have a long and robust history. This crypto speculation and greed reminds of of the price of tulips. [1] During that craze a single tulip bulb could purchase a mansion.
"Tulip Mania" wasn't real. The "bubble" was a very small group of speculators and it did not have any larger affect on the industry. The stories about it were made up and come from propaganda pamphlets published by Dutch Calvinists who were worried that consumerism was causing societal decay:
According to your link it was real. "That’s not to say that everything about the story is wrong; merchants really did engage in a frantic tulip trade, and they paid incredibly high prices for some bulbs. And when a number of buyers announced they couldn’t pay the high price previously agreed upon, the market did fall apart and cause a small crisis—but only because it undermined social expectations."
In the link I posted is this gem: "Peter Garber in the 1980s published an academic article on the Tulipmania. First, he notes that tulips are not alone in their meteoric rise: 'a small quantity of ... lily bulbs recently was sold for 1 million guilders ($480,000 at 1987 exchange rates),' demonstrating that even in the modern world, flowers can command extremely high prices."
I wasn't making a point about the degree of societal collapse from tulip mania. I made the point that there is a long history of greed and speculation.
You were responding to a claim that there have never been other cases of sustained momentum of speculation. The price spike for Tulipmania took place over about 18 months. Bitcoin launched 13 years ago and was first above $1k in 2017. They're not at all similar. I agree with the parent comment.
Whenever this comparison is drawn, it must also be pointed out that after the speculative bubble, the Netherlands has remained for centuries the center of a profitable and stable flower industry that was born in that time. The collapse was real and the speculation was real, but the emergence of a new industry was also real. This is also similar example to the dot com bubble.
nice rebuttal - but the "profitable and stable flower industry" is the trade of an underlying commodity with utility value i.e. the flowers. there is no such underlying asset with crypto. the part that is parallel is the rife speculation that left many bust.
Flowers were not a commodity before there was a market for them. Internet did not have commercial value before the speculative wave, in fact very little profits were made even by the end of the dot com boom. Agree there is rife speculation in crypto, but rife speculation does not prove that there won't be future sustained value. When dot com boom imploded it was because people similarly thought there was no value in the internet.
Flowers are used for decoration, dies, teas, scents. Sometimes they may be overvalued.
Crypto doesn't have any underlying value. It's just greater fool investing, there is no underlying cashflow, asset or company. Future cash flow comes from greater fools buying in.
When you say "the internet" I think you mean the wave of web1 companies? Same as flowers above, there are real uses and value creation, which can be priced in many ways.
In 1999, what web1 companies had cash flows or even a business model that could become profitable? In hindsight it is obvious because we know that things worked out, but at the time it was just speculation, and the crash was the market calling it worthless. Similar objections then around what underlying value is and how the tech was useless. The ways to monetize often were invented much later (eg search ads).
If you were a middle age farmer, sure you might like to look at or smell a flower but you would be crazy to say stop growing wheat and plant tulips. But as society advances markets can emerge to serve needs of people that were not possible before.
I agree crypto tokens is just speculative investing. But that doesn't imply that the value doesn't stick-- it doesn't have to either collapse to zero or go up forever. Monetary premium is a real thing and necessary for humans to transact. You can't predict what money we will use in the future.
it does imply that the value doesn't stick - in fact that's exactly what I'm saying. there is no value beyond the expectation that another greater fool will buy it from you in future.
There are other more practical examples too. For a time, the banks in the United States would issue their own paper currency that could be redeemed at the bank. The paper money traded up or down based upon the reputation of the bank and, to some extent, the distance to the nearest branch. It's pretty much an exact analogy to the world of alt coins, except the physical details like the ___location of the bank made a difference.
Do bubbles, after popping, collect and reconstitute themselves in analogy or reality? Tulips certainly didn't. Bitcoin really is a slow motion multiplicitis analogy to your "muh Tulips."
You don't even need to go back that far: e-gold, liberty reserve.
Fun fact, bitcoin client had a poker lobby in it, and it was announced mere weeks after Liberty Reserve court ruling jailing its founder for 20 to life for money laundering.
Individual or groups behind bitcoin were watching that Liberty Reserve trial very very closely and e-gold/liberty reserve was very popular amongst the online poker industry ;)
There's many more interesting facts you can discover but I won't spoil them.
Thanks. Looks like it was more GUI code copied from something else then removed a few commits later rather than it actually having a "poker lobby" feature as implied though.
All these grandiose words for the pecuniary value of a market whose entire capitalization is considerably lower than Google, a company that can't even prevent it's main product from becoming absolute crap. A market that's also remarkably absent of utility. Cryptocurrencies are a drop (that's the closest to evaporating) in the ocean of money, this article reads as if Baader–Meinhof phenomenom discovered how to write by itself.
>10 accounts own 88% of Binance Coin
Correlating addresses to people like this is such a rookie mistake in a world with CEXes and smart contracts, why the hell is this person being taken seriously?
I don't follow the automatic assumption that giving the info to centralised entity like a bank is bad? What is that you are fearing? And why is that more likely than Crypto sinking or going to zero, you losing your wallet key or someone hacking your wallet? Code is law - so you're left with nothing.
My point is that the current financial system is not secure in any sense. Why would i have to give you my entire credit card information to make a payment. Why are you 'pulling' money from my account instead of me sending it to you. Why have we failed to implement a public/private key relationship with our financial data?
>giving the info to centralised entity like a bank is bad?
Well my first and prime example would be to talk to any greek citizen during 2008. The goverment took a percent of all the citizens money to pay their debts. Countless credit card scams have happened because i am trusting all of my data on the cybersecurity of (Upwork, linkedin, outlook, google, tinder, etc. etc.) as you go down the list of entities with your full name, address, & credit card information you start to realize that you have lost control of your financial self-sovernty.
I've played this game with my friends and it's a fun one; Give me your full name and i can buy your information on the darknet, including current/ past credit card info, Social Security number, past addresses, past-employers, tax information, etc.
My question to you is: what's the problem? On the few times I've lost money to online fraud, the bank returned it to me.
Why does having a huge public web of transactions on the slowest ledger ever created help? What happens to your "sovereignty" when everyone can see your purchases patterns? What happens when grandma loses her wallet key?
top comment:
"How fantastic to let this man expose how incredibly dangerous governments are, without him even realizing [he's] doing it."
Also, the entire time he seems to conflate crypto with CBDC which are nothing alike.
>what's the problem? On the few times I've lost money to online fraud, the bank returned it to me.
How is that not a problem?! I really don't understand this sentiment. There is hundreds of millions of fraud occuring on these systems that employ thousands of people for flagging, eliminating, and reimbursing people due to it being a fundamentlly flawed system. Pull vs. Push here is an important distinction. Having a public private key, even within the current financial system (Not talking crypto here) would be an order of magnitude improvement and would eliminate all of this.
I think you're right about online fraud being much reduced with public private key tech, but if it's such a good idea why has no one been able to do it?
the IMF has no incentive to change the way it's doing things & would require a 'rewrite' of the current infrastracture. Also, public/ private key encryption is not quantum-safe, so eventually we need another way. (There is ton of research being done on quantum-safe cryptographic proofs)
History shows systems rarely 'change'. More likely than not they are replaces. That's what BTC is an attempt at.
To be honest - and this is to my detriment; I have no idea how much crypto i have/ what it's worth at any given moment. So... no haha.
I participate in 30 different defi pools across tons of different protocols, have money in various excahnges, run like 10 different nodes on Eth, BTC, Sol, Filecoin, etc.
I was lucky enough to get into crypto in 2014 and treated it like a game. Started mining from my gaming rig and have been addicted since. I haven't put any money into the ecosystem besides harware (My filecoin node as $12k, gaming rig is $25k, bought 2 helios miners, bought some NGX chips for ZK's, etc.)
I used to love runescape. I would love waking up, checking my flips in the grand exchange, running dailys like farming and checking my ales, etc. As i got older, i discovered blockchain has similiar mechanics. Now it's one of my favorite things in the world to check the various defi pools available, read about different projects, leveraged trading, 'daily's and is just a distraction from my real life. work.
So in short, crypto is a game. As long as people keep taking it too seriously, they will lose the game.
Like the failed removal of all closed-source software called for by the free-software movement towards the likes of tech bros at Microsoft, Google, Meta and many other developer still creating it, the same tech bros are now calling for the complete removal and destruction of crypto screaming for all it to die in a fire (which I'm afraid it simply won't.)
Both the crypto skeptics and the crypto maximalists screaming about their very utopian and absolute ideas are both going to be very disappointed once crypto regulations come around the corner.
You can't simply long for regulation. Many legislators have no idea how harmful these cryptocurrencies are and would rather not regulate in case some world changing beneficial innovation comes out of it. Some, like Ted Cruz, are cryptogrifters themselves and won't regulate accordingly. You have to contact your legislators yourself and explain why it is bad, why nothing useful will ever come of it, and why it should be regulated.
> And similarly, crypto rewards its early followers and doesn’t promise an expanded pie, but a changing of the guard.
Nearly all crypto does indeed concentrate wealth onto early adopters, by emitting the majority of supply in the first few years (or even all at launch).
But fixing the block subsidy avoids such concentration, leaving most supply to later generations, much like gold.
Such a purely linear emission deters speculation while encouraging use as a currency.
I completely agree. Another thing I've been thinking about is this:
What if, instead of creating inflation by adding new coins, you create "inflation" by directly decreasing the value of transaction outputs, and you just keep the coinbase reward constant?
Depending on the model, you could make it so that outputs eventually go to zero, so they won't need to be recorded on the ledger forever. The old outputs just get garbage-collected.
What if you create "inflation" by directly decreasing the value of transaction outputs
This is called demurrage and it's been discussed a few times. People find it very confusing when their wallet balance magically goes down but they find it less confusing when their balance stays constant but prices increase.
- "The future I fear is one with a new anarcho-libertarian power structure that lacks transparency, accountability, and is the antithesis of democracy."
- "I truly trust that my government is capable to govern and have my best interests in mind"
Because I know I am stuck in between the two extremes. Crypto is just a way to hedge the possibility the 2nd one goes rogue.
But the crazy part is, yes I am aware of all the points in the article above, but that's exactly why I do crypto.
This article is soooo good I will give it to my peers every time they ask me "why crypto"
This article is claiming that .01% of the BTC owners hold more then 27% of the supply. This is not true. Those .01% are in exchanges and from early adapters who lost their keys. The main consensus is that around 3,000,000 BTC are lost.
Furthermore, the article makes a lot of assumptions. "Crypto presents anarcho-libertarians with an escape hatch that seemingly puts one’s no wealth, data, and resources beyond the reach of the state or a corporation". On paper this sounds plausible, but in reality (by using an exchange for example) bigger whales can be better identified.
To be clear, I own crypto, because I like the technology. Off-course it would be impossible to create a society where I make my (untraceable) money by working and spent this money in buying a house or car. You need some form of control, so you can't go around robbing people and using that stolen money to fund your lifestyle.
But the big problem BTC tackles is that the money I make is not influenced by printing more, thus making it less valuable. Maybe the whole world should go back to the gold standard and keep the amount of money going around the same.
Abandon this thread ASAP. HN "economists" are in full force with all the wacky theories. If mainstream economists hardly get one thing right, you'll only be totally misled by the clueless crowd here.
"The world has never seen an economic phenomenon like crypto." - I'm not an expert but the whole state of crypto just looks like buying stocks before stock exchanges and market regulations were in place.
This comment is fueled by the prejudice that people just tend to speak about history without knowing it that well to prove a point. I might be wrong.
I don't think that Bitcoin is extremely anarchist / libertarian. It would be similar to gold standard. There would be no unlimited funding for governments through central banks. It would limit government spending, but also ensure that politicians are wise and responsible. In my opinion, democracy needs hard money standard to function properly.
> The future I fear is one with a new anarcho-libertarian power structure that lacks transparency, accountability, and is the antithesis of democracy.
That's the money quote (around which most of the article revolves), and my response to it is simple:
I love watching privileged people squirm.
Anarchism (and more broadly libertarianism) is the realization of transparency, accountability, and democracy to their greatest extremes - even (hell, especially) when those extremes conflict with the capitalist status quo. The author, being "one of the top investors in Israel", has a vested interest in convincing the rest of us otherwise, such that we continue to buy into the legacy financial system that's actively failing (if not outright exploiting) people even in developed economies, let alone developing ones. He half-heartedly tries to address this in the postscript...
> I know crypto has been helpful for remittances, refugees, dissidents and even non-profits, but that has very little to do with the trillion-dollar crypto economy that has emerged.
...but he's flat wrong here, too. Cryptocurrency's usefulness for remittances, refugees, dissidents, and non-profits is exactly why that trillion dollar industry emerged in the first place, and the fact that it's leaving rich and powerful people like him shaking in their boots is the best advertising said industry could ever hope to get.
That article is a whole lot of words where it never really becomes very clear what the big "fear" is about, until we finally arrive at this:
"A feudal system in which the masses are duped into farming the lands of their crypto overlords."
Sounds quite a lot like our current system, but I digress. This fearful scenario requires the so-called hyperbitcoinization scenario where all of the world's wealth will be absorbed by Bitcoin (or other crypto). A market cap of 100T or more.
Which will never happen. It's easily suppressed by regulation. Most of the current elite won't allow it, and the people themselves, whom are already in the mood for protests, surely aren't going to sit by and end up dirt poor because they missed crypto.
As for crypto being libertarian, not really. Most are in it because it's a "number go up" technology, in good times that is. There's a small minority of loud mouths whom see it as a religion, but the vast majority are pragmatists, or plain gamblers.
Even if you consider the die-hard position, the so-called "anarcho libertarian", the author makes it out to be as if they are the devil themselves. All they say is that money should have controlled inflation and that there's freedom of transaction. I guess that's an extreme right wing position now? How very scary. It's pretty much how the 80s cash-based society was, except for the inflation part.
The biggest gap in these kind of "crypto scary" articles is that they fail to sympathize with the root cause. There's claims like "well, our current system may not be perfect, but at least it's democratic and accountable".
That sounds nice, but it doesn't mean anything. Young people experience one financial hardship after the other and grow up living in a monetary and economic system that is plain broken.
Where exactly can you "vote" on the 2008 crash, aggressive monetary expansion, zero interest rates on savings, 10% inflation? None of these things are democratic, they are hollow words.
Does crypto solve these problems? Probably not, but the above backdrop explains the appeal. In a system that doesn't work at all, why not throw the little you have in crypto? There's the potential to win big, and if instead you lose it all...it wasn't that much to begin with anyway.
If we'd have a sound monetary and economical system, that ensures a middle class existence and reasonable wealth for all, one that doesn't boom and bust all the time, one that preserves purchase power and savings, one that enables upwards mobility and the building up of assets, if we'd have all of that and in a stable sense...yes, then crypto has no use case or appeal. But we don't have any of that.
Own the failing of the current system. The status quo is completely broken.
This is kind of a straw man, but I don't think he's wrong. The problem is that he's kind of straw manning what "libertarian" means in this context and by doing so he's landing a much weaker blow against crypto than he could.
Libertarian, if words are to mean things, is roughly the view that the initiation of force should be extremely strictly limited. This includes the idea of small government since government has a legal monopoly on the initiation of force, but it also includes an aversion to private initiation of force including everything from riots and gang violence to... scams.
Scams and fraud count because any understanding of what force means that is not paper-thin includes the idea that deception and even perhaps some "dark pattern" style attacks on human cognition constitute force. Force is anything that attempts to contravene the independent will of another human being. That can be done by whacking someone on the head, pointing a gun at them, or gaslighting and lying to them to the point that their judgement is deeply impaired. In standard issue "pure" libertarian theory the only justification for force is in response to its use, but since scams and fraud are force there is justification for someone (usually a minimal rights-protecting government) to intervene.
One of my central problems with crypto is that it's not what it claims to be at all. There are many ways crypto isn't what it claims to be including being a bad currency and a bad inflation hedge, but it's also not what it politically claims to be.
Crypto is neither "libertarian" (rights-respecting) nor truly decentralized.
It's not a rights-respecting libertarian thing because it's absolutely lousy with scams and fraud of virtually every imaginable kind. It's not truly decentralized because proof of work tends toward centralization due to industrial economies of scale and proof of stake tends toward centralization due to its structural biasing of the system toward intense levels of wealth concentration. With either PoW or PoS you eventually end up with closed syndicates more or less owning the currency. Then you have cryptocurrencies with actual companies behind them or de-facto rulers like Ethereum.
With those factors leading to centralization and with scams and fraud and all kinds of opaque intermediaries popping up what you end up with is something far less transparent and honest than a central bank. All the criticisms of central banking apply, but more so.
Gold is decentralized because it's just matter and anyone can hold it without asking anyone's permission. Honestly even paper money, while "fiat," is more decentralized in that exchange is completely permissionless.
So while there are valid criticisms of libertarianism, it's not the problem. It's much, much worse than that. Crypto as presently organized and operated is a full-on scam, period. It's not what it claims to be.
The libertarians and decentralization advocates are among the marks in this scam.
> Force is anything that attempts to contravene the independent will of another human being. That can be done by whacking someone on the head, pointing a gun at them, or gaslighting and lying to them to the point that their judgement is deeply impaired.
I find this definition of force somewhat counter to most libertarian positions I've seen. When it comes to employer/employee relationships, what is the need to eat other than "pointing a gun at [the employee]"? Under this definition of force, how can employees ever enter into contractual agreements with employers freely? Especially at bottom of the labor ladder, where the struggle to meet basic needs is more acute.
There is no easy canned answer. If there were easy answers to questions like this the world would be way simpler. Yet I can't even imagine how you can have a free society without some respect for the honesty. Without that at the very least people will start taking the law into their own hands, which leads to collapse and the tyranny of the nearest person with a big stick.
Both the rabid pro-crypto and rabid anti-crypto people seem to be missing that the prices move on the monetary policy of the United Stated Federal Reserve: more visibly the FOMC target guidance, the underwater part of the iceberg is the balance sheet.
Global finance is a big deal, to put it mildly.
Crypto is a flea on the ass of the foreign exchange market (which it superficially resembles), which is a bacterium on the ass of the derivatives market.
It’s. Just. Not. That big of a deal.
There’s been a lot of scams, some serious people here and there are doing real work in the space (don’t argue with me: take it up with Liskov and Waddler).
But if we put the wisdom of crowds on a forum like this to work on the dog wagging the tail with the flea on it, it would be a potentially useful discussion.
There are trailing indicators and leading indicators. The fact that something like Dogecoin can be invented as a joke (according to its investors) and be said to have a market cap of over $8 billion is an indicator - that's 8 "unicorns". Bitcoin's market cap is over $350 billion. You are right that it has to be seen in the context of global finance, but other parts of global finance were bubbly at the end of last year, and if there's confusion over that, Dogecoin's 8 billion dollar market cap is an indicator, even if eight billion dollar is not that much in the context of global finance.
Yup. Total crypto market cap is less than a couple of large S&P 500 companies. The SNR is just so insane in that community that it seems like a bigger deal than it is.
Crypto has social effects (wasting energy production capacity, scams, wasting computer hardware and chip fab capacity) outside of its economic effects that do make it a big deal.
You’re seriously here to make the case that these basis points on the numbers that move real human beings around like pieces on a chessboard is why HN foams at the mouth over cyber-money?
The energy cost is debatable (energy displacement is complex), the ASICs used to mine BTC are keeping someone’s Verilog sharp, and scams? There are 17 payday loan places in a 3 mile radius of my house, not counting pawn shops.
This is not enlightened humanitarianism.
Everyone on here knows an annoying asshole who rubs it in everyone’s face that they’re generationally wealthy over a speculative bet in 2015.
I fucking hate intellectual dishonesty. Especially from smart people.
I've argued in another thread that we can expect those adverse effects to decrease as hype dies down and the coinbase reward for bitcoin and others decreases.
I disagree. I think internet advertising is what killed micropayments. If anything, cryptocurrencies would be really useful for micropayments if they weren't used as poker chips.
Bitcoin's primary value is access to gray or black markets.
Bitcoins secondary value is appreciation, which depends on the primary value, plus a transient state where the public becomes aware of this new value at a pace that outstrips new BC generation.
Bitcoin's tertiary value is marketplace/exchange operation, which depends on both primary and secondary values.
But all of it rests on forbidden market access. The cost is considerable: a very high rate of consumption of both (dirty) energy and chip manufacturing capacity. There is also the cost of participation risk in totally unregulated markets, costs which have no upper bound.
I use bitcoin to fund my sports gambling, overstock.com purchases, some web ___domain names purchases, gifts to ppl. Nothing dark about any of it. Wtf are you talking about? Plz show stats on hacker news instead of spewing old tropes. Sorry you didn't get in earlier.
But also, it is a terrible currency for accessing true black markets. It is 100% traceable. Lots of people have gotten caught buying bad stuff because they used Bitcoin. Just use cash. Or use Monero/Zcash.
Money has value because of the value of the economic transactions in which its conducted.
Government-backed currencies are forced to have value in the sense they force people to use it for their taxes. The US, additionally, forces the world to use it for oil trades.
Value is in those economic transactions. A currency is just a "liquifying" of that value, to make it easier to spread around. So that 1hr of my time/output can be more easily traded for 1hr of another persons. We are still just trading output.
For BTC (or any coin) to have any value, it needs actual economic transactions to be conducted in it. If there arent any, its value is smoke-and-mirrors; its not real. If you can't trade the market cap of bitcoin for actual economic output, it isnt actual economic value.
Imagine doing that right now. Imagine BTC was actually used for any scale of economic transactions. It would collapse overnight.