Exactly. Ultimately cryptocurrencies are a negative-sum game in that they take in real money and just move that money around, while spending some on overhead.
In contrast, imagine investing in, say, a new fast-food franchise joint. They money you put in there is used to acquire assets that are used to produce goods that people will pay to consume. If it's a well-run business, the value of the outputs will be more than the value of the inputs, making it a positive-sum effort.
I'm a crypto bear myself, but I'm not sure I agree with this argument. Plenty of services are built around "just moving money around" - accounting in this way has a ton of real value or else stripe, visa, paypal etc wouldn't be the huge companies they are. The questions are, whether "investing" by buying and holding is the right way to capture the value that this produces, and whether the benefits of doing it on a distributed blockchain outweigh the costs.
That's not quite correct, although I understand your sentiment.
When you own a share of Square (or Visa, or PayPal) each time a transaction takes place on their network, a portion of that transaction (revenue minus costs) accrues to the company - and by extension increases the intrinsic value of your share. The transaction revenue is spent on furniture, on R&D, on employees and on buffing up their cash position. As a shareholder, you benefit from every single transaction made on their network.
On the other hand with cryptocurrencies like Bitcoin, as a holder of Bitcoin you are a customer not an owner. You lose money on every transaction. That value accrues to miners, and by extension, your local PE firm re-opening a fossil fuel power plant or the Kazakh coal mining complex.
Square shares ~= Hut8 shares.
Bitcoin ~= a Starbucks gift card you hope appreciates in value when Starbucks sells more coffee. Currently there are enough, uh, savvy investors who think it should, so it does. In accounting terms, it won't though because that benefit accrues to shareholders of mining companies, which you are not. You hold a gift card. One that costs money to spend so must be worth less than face value.
Bitcoin is a strongly negative sum MLM, or if you agree with jstolfi, a Ponzi scheme with a fresh coat of paint. [1] The network currently costs $60M per day to operate. That's $21B per year in new money that has to come in to prop up the price. [edit](And all that money goes to burning coal and throwing away mining hardware).
Bitcoin isn't figuratively a store of value, it actually is. The amount of bitcoin on DeFi, backing collateral for flash loans and Stablecoin minting is astounding.
>When you own a share of Square (or Visa, or PayPal) each time a transaction takes place on their network, a portion of that transaction (revenue minus costs) accrues to the company - and by extension increases the intrinsic value of your share.
All the V3 crypto protocols have exactly as you describe above. However, instead of the money going into the coffers of the company, it goes into a 'Development fund' That will award the crypto to people who have applied and been voted on by the community to launch a project/technology in the protocol. [1]
> Bitcoin isn't figuratively a store of value, it actually is.
It's a speculative, negative-sum MLM token. I suggest reading up on what a store of value is. [1]
I'm not saying there aren't ways of monetizing it within the network - which may indeed create value, but intrinsically, it is a negative-sum asset, a mechanism of redistributing real cold hard dollars from new participants to old entrants and miners. It creates nothing. Systems built on top of it might, exploiting let's say regulatory arbitrage, facilitating crime or gambling, but intrinsically, it creates no value.
Exactly. Nobody before 2009 would have described a highly volatile unbacked synthetic commodity as a "store of value". That's just what Bitcoin partisans shifted to when they realized it was unworkable for its stated purpose as a payment system. E.g.: https://avc.com/2017/08/store-of-value-vs-payment-system/
It seems our difference in opinion comes from our definition of value.
I know people point to the current system and infrastructure of stock exchanges, SWIFT, the IMF, Central Banks, Retail and Commercial Banks, Internet Banks (Such as Stripe, Paypal, ETC.), Credit Unions, Savings and Loan Associations, Investment Banks and Companies, Brokerage Firms, Insurance Companies as working good enough. But for me... Occams razor hits me hard. Doesn't it seem weird that through this complex system of interactions, we can recreate all of that in Code? If there was no value in it, why did we create all those institutions in the first place?
If we can recreate those in a more humane, democratized, decentralized way, I think it's worth the .001% of the global financial system that it currently is. Even if it's grabbing 5% of the current headlines.
> Doesn't it seem weird that through this complex system of interactions, we can recreate all of that in Code?
All of these systems are already software.
> If there was no value in it, why did we create all those institutions in the first place?
Centralization makes them massively more efficient than crypto. If there was a way to make them more efficient that did not involve throwing risk models out the window or regulatory arbitrage, someone could just do that in the traditional economy without crypto.
This is a lot like the programmer tendency to want to re-write instead of refactor because to understand a system is way harder than to set out on a quest to build a new one. Although they always end up the same way: at best what you started with. To me this falls squarely under Spolsky's "things you should never do." [1]
There hasn't been a single actual competitive business built on top of crypto in fourteen years. That's because they're all hamstrung by the massive inefficiencies they boat-anchor to their solutions. Decentralization and trustlessness and permissionlessness don't matter at all to 99.9% of humans. Attempting to offer these is incredibly inefficient and makes it totally uncompetitive with centralized solutions for every legal use case.
I would argue it fails Occam's razor to try and add miners to a monetary system.
The simplest, most efficient, most economical solution to moving value around is centralization. If there's a better way to solve any of the given problems with crypto, there's an easy way to optimize it further: get rid of crypto.
Do you think we will forever be organized and segregated by governments?
Do you ever think a human being can be a sovereign individual in his own right, without owing fealty, taxes and morality to a government in some future?
The current financial system is not all software. When i pay in crypto, i give you my money. When i pay in the current financial system I am giving you every bit of information to rob me blind and hoping you don't take it all. My currency(Value i produce) is not my own and at any moment in time some outside entity can cause rapid inflation, devaluing of my currency or take everything i own straight out of my bank account. My contracts are not upheld by code, but by courts of law. I have to do a credit check to outside entity's to ensure you've got the collateral to extend you a loan. I have to physically go into a bank, have a minimum balance, an address, a phone number in order to even have a bank account. That doesn't sound like all code to me.
Also, you're right. POW as a consensus method is flawed. But again, all V3 cryptos have essentially transitioned to delegated proof of stake at this point.
Lastly, in a generation of cancel culture gone wild and as an avid reader of history, I'm glad crypto is available to me as the nation-state that we've all known and loved is looking more and more stressed.
If you still claim there's absolutely no value in any of it, then me and you have very different definitions of the term.
Edit: There are 104 protocols/coins that have over $1B market cap. Value isn't a personal judgement, it's a group one.
> Do you think we will forever be organized and segregated by governments?
Since you asked, yes. I do. To me, it's like asking if a beehive will always have a queen. It's in our DNA.
> Also, you're right. POW as a consensus method is flawed. But again, all V3 cryptos have essentially transitioned to delegated proof of stake at this point.
I honestly don't know enough about "V3 cryptos" to speak to it, and I'm not trying to add any FUD to the conversation :) I'll have to DMOR if you will before I can speak to that, which is why I've been constraining my comments to the system I know (BTC).
> Edit: There are 104 protocols/coins that have over $1B market cap. Value isn't a personal judgement, it's a group one.
[edit] Market cap isn't a judgement of value, just the most recent price multiplied by supply. Control the most recent price, you control the market cap. Unless you include legitimate market depth it's not really a meaningful number. SHIB for instance.
Places without a functional government have a history of doing pretty poorly.
I think the burden of proof that there is a possible future without government lies on those making that claim. That burden has definitely not been met and the thus the feverent belied in that claim by cryptocurrency bulls is not rational.
This is kind of a straw man… while I’m sure there are some fringe John McAfee-types who think crypto is the door to anarcho-capitalism, I don’t take any of them seriously. So I’m not sure who you’re directing your argument towards.
All humans enforce laws with physical interactions, especially violent ones. If you have no central governing body then every human makes their own rules and laws and when they enforce these rules they will be just as violent as the governments they wanted to run away from.
You should probably read some philosophy. There are much more sophisticated and nuanced ways of thinking about government and law than your comment seems to endorse.
Really enjoyed this convo, if you want a bit more of a long form of my thought process on this, read the Sovereign individual (With a grain of salt, it gets a bit wild)
My main point is don't completely dismiss a nescient technological field based on it's lack of utility now. Sustained development effort with real venture capital only dates back to around 2017, 2018.
All major silicon valley firms have launched funds to develop early research teams, nobel prize winning mathematicians developing protocols and some of these people are currently the richest individuals on the planet, just no one really know how much they actually have and obvious issues with liquidity withstanding.
> SHIB for instance
As many (If not more) of the crypto industry is marketing teams riding the 'Wave'. However, some of the projects have 100's of employees building infrastructure for the new internet. Check out Parity if you want an example of a true crypto company.
Is there any short form version of something someone can read to get a sense of the value you’re seeing? I followed this conversation with interest, but still find myself unenlightened as to what there is I haven’t understood yet about the space. Whenever I talk to a proponent it seems very theoretical.
There are often analogies to the early internet, but I was alive then and remember some of the early, tangible use cases which had me hooked:
* You can look at Nintendo’s website. It has information about games, which you are currently getting from magazines (my first exposure)
* You can buy books you can’t buy locally (Amazon)
* You can mail a friend from another location, for free (hotmail, gmail)
* You can call a friend in another country, for free (skype)
* You can call a phone in another country, for cheap (skype)
What are some crypto equivalents, today, that would convince someone who is not already invested in crypto that they need to get into crypto to use it?
E.g. saying “you can get a loan of 66% of your Bitcoin holdings!” is a use case for people already in crypto.
I would also exclude stablecoin yields because the risks there are massive, and there exist plenty of investments with high risk and high return in normal land.
I think two of the coming applications that has me most excited (of which there are many others on the horizon), are permission-less stock markets where shares are fully accounted for at all times in real-time (an actually transparent financial market), and proper third party markets for digital goods whereby goods bought online can essentially be treated like you do physical goods.
Both are applications of NFTs and both have significant players developing them.
I can elaborate more on these two applications if you want. Currently on mobile.
> permission-less stock markets where shares are fully accounted for at all times in real-time
We can already achieve this without blockchain technology! Indeed that's not the way the system works, but that's not due to technological limitation. What makes you think that once "permissionless stock markets" are available on the blockchain then secondary derivative markets won't spring up, making the ownership situation as murky is it currently is for stocks?
Transparency is always a sliding scale, and right now there is very little transparancy with regards to who owns what stock and how much of it. The system is currently more paper based than digitally reconcilled. And the onus is on every financial firm (bank, hedge fund, brokerage, settlement house, etc.) to maintain their own books and report back as best they feel inclined to. What they volunatarily report back can be ammended, or late. And when you add up all the human induced delays / data entry mistakes, what the public has available to look at can be months out of date or just plain wrong.
In principal, yes, the trusted parties could have stepped up and implemented a more transparant and automated system. No, they did not need to base such a solution on a blockchain. But the reality is that they were not inclined to change the status-quo, and now we find ourselves in a world where every relevant financial system is looking at, testing, or in the process of rolling out a blockchain based solution.
For anyone asking where the value in the technology lies, the proof is in how seriously the large players [1] are taking it.
I’m much more interested in something already happening, now. Crypto is full of “wait and see, this is the future” but the early internet had immediate utility.
What can I do, today that should make me want to buy the crypto to do a thing with crypto. Rather than buy crypto to hope for an increase in value.
I love discussing both this topic specifically, and all sorts of things I have a strong opinion on with folks who disagree. I'm always open to being wrong; I've added The Sovereign Individual to my Kindle library and my reading list. Hope you have a great evening. Enjoyed the back-and-forth as well.
Just want to chime in and say I enjoyed reading this interaction. Both well-reasoned points, politely and maturely presented (one of the things I love about HN.) I happen to agree entirely with your side, but that's irrelevant. Thanks!
Just want to chime in (on the flip side) and say I enjoyed reading this interaction. Both well-reasoned points, politely and maturely presented (one of the things I love about HN.) The opposite of what i wrote below: I happen to not agree with your point, but that doesn't matter. Thanks for sharing your perspective!
> Do you think we will forever be organized and segregated by governments?
> Do you ever think a human being can be a sovereign individual in his own right, without owing fealty, taxes and morality to a government in some future?
Without governments, how are social strictures enforced? How are externalities, positive or negative, accounted for? How does a government-less world not look like Somalia? (Or are you suggesting that you really would like to live in a place like Somalia?)
This isn't to suggest that existing governments are perfect (far from it), but it seems to me that the anarchic counterpart is infinitely worse.
It's not flawed, just hardcore. It's like the gold bars sitting in vaults deep underground in London, rarely moved and usually just relabeled to account for change in ownership. Every now and then someone gets spooked and asks to take custody, and it's expensive as hell to move it but you can lay your hands on it and know your ownership is secure.
When i pay for something online, I am giving away my credit card/ debit card/ ACH information away for them to subtract the total amount of my transaction (Or debit it).
I am trusting that outside entity in a number of different ways; To only take the required amount, b.) encrypt my information to prevent my information from leaking.
Credit card data is leaked regularly in mass uploads for pennys on the dollar. Credit card fraud is mediated by the credit companies themselves and is just an insurance issue to them.
Crypto, I sign the transaction to send it to you. You don't get anything but my public id, amount and block time.
I often notice this expressed by Americans. I can't remember last time I gave my debit card (why would anyone need a credit card anyway) to any party other than big companies like PayPal. Locally I pay with Blik (I have to confirm exact amount transferred on my phone and the seller doesn't have an option to extract/ask for more). If a company really wants a card I create a virtual, load it up with a chosen small amount and get rid of it when I no longer need it.
We also have instant bank transfers if needed (normal ones take several hours).
Even with debit cards you have 3D secure these days which requires confirmation on your phone.
Just because USA is behind in banking department and even credit/debit card thing doesn't mean those problems are especially hard to solve. The rest of the world is already partially there and with more fintechs putting pressure on banks things will improve even more.
> Do you think we will forever be organized and segregated by governments?
> Do you ever think a human being can be a sovereign individual in his own right, without owing fealty, taxes and morality to a government in some future?
All of this is doing nothing to change my view that cryptocurrency requires me to buy into this whole weird worldview in a way that few other products do. No, I don't particularly want to be an anarcho-capitalist.
> Do you think we will forever be organized and segregated by governments?
As long there is scarcity of resources, there will be wars/conflicts and humans will be collective species, even if we don't have scarcity of resources, some humans will invent a few, and even if humans will not invent one, it is debatable since I don't know of any evidence where humans can survive individually. This is without mentioning social classes over multiple generations.
Good, a bit of competition works out better for the end user. Political systems tend to be a monopoly, and monopolies lend themselves to abusive practices.
The only people that have no issues with centralisation are the people who are benefiting from it.
World Bank estimates 31 percent of people globally do not have a bank account. Decentralisation helps these people.
When you deposit money into a bank account, it is not your money. It is the bank's money. You aren't allowed to use it, or spend it how you like without the permission of your bank. Crypto doesn't have this issue.
There are financial tools that only people with net worths of over $100 million have access to, such as market making, arbitrage, liquidations, insurance lending etc. Crypto solves this.
99.9% of banks in traditional finance run their systems on outdated, closed source, barely maintained and bug ridden software. Contracts, money and agreements than can happen in seconds in crypto, takes weeks and months in centralised finance.
If centralised finance had the potential to be more efficient, there should have been more innovation decades ago. Centralised finance needs to catch up.
> World Bank estimates 31 percent of people globally do not have a bank account. Decentralisation helps these people.
Banking helps these people. Remember a fully-realized BTC transaction fee (pricing in electricity and mining hardware) is right around $250 each. That's a non-trivial amount of the GDP per capita of a lot of these countries you're alluding to.
Poor folks are also the most vulnerable to the massive volatilities of this so-called currency.
Real, centralized solutions help these people. Solutions like M-Pesa [1]. And Postal Banking, which a hundred years of legacy solving exactly these problems. [2]
> There are financial tools that only people with net worths of over $100 million have access to, such as market making, arbitrage, liquidations, insurance lending etc. Crypto solves this.
It certainly does not haha. It makes them less efficient, which is why not a single crypto-powered business in the last 14 years is competitive with any centralized solutions except in the areas of regulatory arbitrage or by throwing risk models out the window.
> If centralised finance had the potential to be more efficient, there should have been more innovation decades ago. Centralised finance needs to catch up.
It's obviously more efficient, and pretending otherwise doesn't change that.
The lack of a bank account doesn't have to do with centralization, for the most part, and decentralization doesn't matter if you can't spend the decentralized "money" without turning it into the local currency, because to do that, you need to have a bank account.
I personally know people who were running a HFT market making fund when their net worth were below one million. It's true it's not the easiest field to enter but that's the case for many others as well (medicine, law, competitive bike racing etc.).
His best case scenario is opening a Wise multi-currency account, with supporting instant transfers free of charge in many cases.
Bitcoin is not accepted anywhere, practically speaking.
As such you're only looking at a small fraction of the transaction. You actually need to (1) transfer money into a crypto exchange for a 1-2% fee and whatever delay the domestic transfer takes (2) purchase Bitcoin for whatever fee the exchange charges (3) transfer it for $0.50-50 depending on the fee du jour (4) hope the market doesn't collapse out from under you while all this is happening (5) sell it at the destination unregulated exchange for whatever fee they charge and hope they don't flee with your money (6) transfer to the destination bank account, waiting as long as a domestic transfer takes.
This is probably a few days total, with severe counter-party risk, forex risk, and substantial transaction fees.
Or you can use Wise for a very low fee directly bank-to-bank, or open a Wise multi-currency account and support almost-free instant transactions. They're also super, duper regulated by a number of world regulators.
Yeah, usehackernews@ can you detail which exchanges he is using on both ends because I'm guessing your standard ACH transfer to an exchange to make the initial USD->Bitcoin transfer would probably make the supposed time speedup moot.
I completely agree with this; the prior example given for bitcoins value (that it is used in defi for flash loans, etc) is literally deriving its value from moving value around (internal to the crypto ecosystem).
Flash loans are used to arbitrage across exchanges, not create any extrinsic value.
> This is a lot like the programmer tendency to want to re-write instead of refactor because to understand a system is way harder than to set out on a quest to build a new one.
And what if they did want to refactor the existing system. Can they? What does that iteration process look like? Is the system currently evolving to fit everyone’s needs?
Remember, RMS actually did want to refactor the printer. He just wasn’t allowed to. [0]
Contrast that with how fast things are moving in DeFi. It’s permissionless innovation at its best and worst. We can barely even wrap our heads around OHM, but nobody needs permission to fork it into SPELL. Systemic refactors happen faster. [1]
When somebody in the future doesn’t like a piece of decentralized infrastructure, they can _literally_ fork all of it and just make their change. With fewer black-boxes, we share more intellectual property.
> If there was a way to make them more efficient that did not involve throwing risk models out the window or regulatory arbitrage, someone could just do that in the traditional economy without crypto.
This is assuming there is no value in regulatory arbitrage, which is wrong.
The value of this is proportional to the dysfunction of the existing system in any given country. In countries that impose currency exchange limitations or other authoritarian policies enforced through the financial system, cryptocurrency has more value.
You could capture that value by reforming the laws and governments in those countries, but that hasn't happened.
And one of the benefits of cryptocurrencies is encouraging those reforms. If you can't use the financial system to impose authoritarian policies because people will just use cryptocurrency instead, you might as well not try to use the financial system to impose authoritarian policies, at which point people can use the more efficient ordinary banking system instead of cryptocurrencies. But we're not there yet, are we?
The argument is that cryptocurrency is useless under the assumption that the traditional financial market is functioning perfectly, i.e. that there is no regulatory inefficiency at all. There currently exist countries where this is not the case, so that assumption is incorrect and cryptocurrency is useful until such time as that is no longer the case.
> Doesn't it seem weird that through this complex system of interactions, we can recreate all of that in Code? If there was no value in it, why did we create all those institutions in the first place?
One of the primary reasons for the rise of the complex system of interactions, as you put it, is trust. A lot of financial interactions require dealing with people who might not merely not have your best interests at heart but are literally in diametric opposition to your interests--several financial transactions are inherently zero-sum. So you need mechanisms that give you trust that your counterparty will actually honor their side of the transaction.
Code fundamentally does not provide trust--indeed, you might even say it is the antithesis of trust. Even accomplished software developers are frequently unable to write code that works in edge cases or even slightly abnormal operation. For regular users, code is as opaque as if it were written in Linear B. Indeed, to popular sentiment, software is often equated with a learned notion of bugginess--people tolerate the frequent mistakes of their computers far more than we would any other piece of equipment.
And the cryptocurrency community takes their misunderstanding of trust to new levels. I mean, we're being told by people like you that we shouldn't trust the government, but instead trust code [that the lay person can't and won't understand] written by people like the owners of Tether--people who have been convicted of stealing people's money and, in the history of their own company, lied about what they were doing.
As Matt Levine put it, only in the cryptocurrency industry is "we may be charlatans who will run off with all your money" literally something people feel necessary to put in their risk prospectus.
I've been a big fan of Matt Levine's commentary on crypto--he doesn't get all histrionic and judgmental because he knows (and his regular readers know) that whatever craziness is happening in crypto is basically exactly what happens in traditional finance, just dialed up a notch or two.
His column a couple weeks ago about the "main move" in finance (i.e. transmuting an amorphous pile of risk into tranches with radically different riskiness) and how this explains Tether was absolutely brilliant.
In my book, there's some value in protecting the average Joe from the incessant dollar printing that decreases the value of the dollars in their saving accounts.
That's just one argument for Bitcoin, there are more. For example, it provides the opportunity to second/third world countries to break free from the IMF debt slavery.
> In my book, there's some value in protecting the average Joe from the incessant dollar printing that decreases the value of the dollars in their saving accounts.
This is a complete misunderstanding of the role of currency in a modern economy and the mandate of the federal reserve, which is to maintain a low, predictable rate of inflation to incentivize investment and maximize employment. Literally any asset will "save you" from the "relentless printing." That's the role of an asset, not a currency.
> That's just one argument for Bitcoin, there are more. For example, it provides the opportunity to second/third world countries to break free from the IMF debt slavery.
They're all basically debunked, but advocates trot them out and try and Gish gallop over any criticism.
> Literally any asset will "save you" from the "relentless printing."
That's an oversimplification. Let's just say that Bitcoin and Ethereum are now the apex assets.
I'm no frothing at the mouth crypto advocate or fiat currency hating conspiracy theorist, but whatever you're trying to say, and the article you link to, seems like complete nonsense to me, and your snarky recommendation to "read up on what a store of value is" is silly.
> A store of value is an asset that maintains its value, rather than depreciating.
Value is just what others are willing to pay for something at a point in time. Literally nothing is guaranteed to maintain it's value, not even US Treasuries. So this is just circular logic saying "things that maintain value are value stores" and "if something that previously maintained it's value no longer does, then it is not a value store".
> Gold and other precious metals are good stores of value because their shelf lives are essentially perpetual.
Gold and other precious metals are terrible stores of value, their dollar values are incredibly volatile, they are incredibly expensive and risky to store and transact with, and contrary to popular belief, they really don't actually have much "intrinsic value". Let alone that "intrinsic value" is a nonsensical concept. "Intrinsic value" is meant to be understood roughly as "useful for some practical purpose", but valuations clearly often have nothing to do with their practical purposes. A stick or a basket can have very significant and diverse intrinsic values too, but that doesn't mean it has value. Likewise, some sticks and baskets might have very high values, despite actually not being very good sticks or baskets! (eg if they're antiques or archeological artifacts or whatever)
> A nation's currency must be a reasonable store of value for its economy to function smoothly.
Most central banks aim for 2% inflation per year, literally guaranteeing any amount to become worthless over time if stored in currency. (vs bonds or some other appreciating asset)
> intrinsically, Bitcoin is a negative-sum asset, a mechanism of redistributing real cold hard dollars from new participants to old entrants and miners.
Just what. Bitcoin is strictly positive sum under any sane definition. Unlike MLMs or pyramid schemes, Bitcoin never alleges to return anything other than Bitcoin.
> It creates nothing
Neither do currencies. They're just currencies. Their purpose is to be means of transacting things that are created, that otherwise wouldn't be created, if there was no means to transact. Bitcoin does that too. But in Bitcoin's case, it actually does create something: it creates the ledger of transactions itself, the wallets, the ability to sign things etc, which currencies don't.
> Systems built on top of it might, exploiting let's say regulatory arbitrage, facilitating crime or gambling, but intrinsically, it creates no value.
Even if you disagree with the valuation of Bitcoin and how inefficient the mining is (and I do), the realized idea of a distributed, tamper-proof ledger is useful, and thus has "intrinsic value" just like toilet paper or gold. (again, intrinsic value is a nonsensical concept, but under that logic, it does)
> ... and the article you link to, seems like complete nonsense to me, and your snarky recommendation to "read up on what a store of value is" is silly.
Just to be clear, my point was that the classical definition of a "store of value" isn't something that goes up exponentially and flails around wildly at the whims of folks trying to liquidate leveraged positions.
It's broadly regarded as something you can purchase and expect to get your money back. Not a ton more, not a ton less, roughly what you put in. I don't think there's a single world in which any cryptocurrency falls into that definition today. Might it? It could. I don't think it will. But that's speculation, what's not speculation is that it's not one today.
The "store of value" narrative was coopted once folks in the community realized it couldn't ever actually sustain more transactions than required by a small Costco.
> Gold and other precious metals are terrible stores of value, their dollar values are incredibly volatile...
They're dramatically less volatile than cryptocurrencies which does make them better suited, however I do not personally advocate for owning metals - for exactly the reasons you rightly describe.
> Most central banks aim for 2% inflation per year, literally guaranteeing any amount to become worthless over time if stored in currency. (vs bonds or some other appreciating asset)
Modern economies intentionally split long-term stores of value from short-term medium of exchange. Currencies are inflated slowly to incentivize investment, and to maximize employment along the Philips curve. This is the charter of the Federal Reserve and most other world central banks.
> Just what. Bitcoin is strictly positive sum under any sane definition. Unlike MLMs or pyramid schemes, Bitcoin never alleges to return anything other than Bitcoin.
It doesn't allege a return, however literally every frothing at the mouth holder of crypto will allege it for you, as they are incentivized to do. Bring in more people, you get wealthier. Sound familiar? It's a decentralized MLM. It's negative-sum because miners constantly extract $60 million dollars per day, $21B per year in block rewards. These are liquidated and cause negative price pressure, socializing what amounts to a $250 transaction fee. [1]
> Neither do currencies. They're just currencies.
Which is why they don't go up in value. You can't have it both ways :) dreadful currencies go up astronomically in value, because this creates a deflationary spiral. Dreadful currencies go down a ton in value because it doesn't offer you time to productively allocate. A good currency averages a low, predictable rate of inflation.
> ... tamper-proof ledger is useful, and thus has "intrinsic value" just like toilet paper or gold.
We have yet to find a single use for it. All you can do is look at your spreadsheet cell in a web browser, or get someone else to buy it from you. You can't do anything with it. At least you can turn gold into electronics, like bitcoin miners.
> literally every frothing at the mouth holder of crypto will allege it for you, as they are incentivized to do. Bring in more people, you get wealthier. Sound familiar? It's a decentralized MLM.
Just because idiots abuse cryptos for baseless manias doesn't make the underlying technology or idea or thing bad, nor a pyramid scheme or an MLM. You could say the same thing about property, art, vintage cars, any number of things that are also not pyramid schemes or MLMs. Bitcoin is definitely experiencing baseless manias, but it's very clearly not a MLM or pyramid scheme.
> It's negative-sum because miners constantly extract $60 million dollars per day, $21B per year in block rewards. These are liquidated and cause negative price pressure, socializing what amounts to a $250 transaction fee.
Agree this is bad but that's an artifact of what people are doing with Bitcoin, not an inescapable fundamental quality of Bitcoin. Bitcoin can and for a long, long time used to run just fine on comparatively little energy and transaction costs measured in cents. More energy efficient protocols (and those exist now) can comfortably accommodate orders of magnitude more transactions than Bitcoin for orders of magnitude less energy. (I guess if you wanted to calculate in dollar terms the "intrinsic value" of Bitcoin, it would be the equipment and energy cost of running a comparable or better blockchain, which could possibly be what a couple of grand per year?)
> You can't have it both ways :)
I'm not making claims about whether Bitcoin (or any other crypto) is a currency, or a good currency. But they undeniably share in common with currencies that they are means of transacting (other) things that are created, that otherwise wouldn't be created, if there was no means to transact. (despite them being insanely deflationary) (and while their psuedonymous nature certainly makes them attractive for illicit transactions, it simply isn't true that they're "only" used for those)
> We have yet to find a single use for it
This just isn't true. It's not difficult to imagine how a distributed tamper proof ledger could be useful, or find actual practical uses of blockchains. I'll be the first to admit blockchains are overhyped and that they don't offer any meaningful advantages over existing tech in many, many of of the proposed use cases, but the legitimate uses cases do exist.
> Bitcoin is definitely experiencing baseless manias, but it's very clearly not a MLM or pyramid scheme.
I'd love to see you address any of jstolfi's points directly!
> Agree this is bad but that's an artifact of what people are doing with Bitcoin, not an inescapable fundamental quality of Bitcoin. Bitcoin can and for a long, long time used to run just fine on comparatively little energy and transaction costs measured in cents.
It really can't. Its security is proportional to its wastefulness. It must always waste more than its opponents are willing to spend to destroy it meaning its waste must grow with its valuation. It's a proof of waste algorithm.
> I'm not making claims about whether Bitcoin (or any other crypto) is a currency, or a good currency.
I am making the claim its so utterly bad at being a currency pretending it's a currency is pointless and harmful to the discourse.
> This just isn't true. It's not difficult to imagine how a distributed tamper proof ledger could be useful, or find actual practical uses of blockchains.
It's been 14 years. There isn't a single use that isn't crime or regulatory arbitrage - or solving a problem crypto created for itself. The proof is in the pudding, and there's simply no pudding.
> ... but the legitimate uses cases do exist.
If you find one, and productize it, you will be the single wealthiest person alive. Elon better step aside.
Wow. This is a HackerNews thread, not some academic panel.
The handle I'm responding to hasn't exactly provided "evidence" either, including for:
* the existence of nebulous things like "value stores", "intrinsic value" or what constitutes or possesses either
* that Bitcoin is a negative-sum asset, a MLM or a pyramid scheme
* that a distributed tamper proof ledger doesn't have any usefulness for any practical purpose
which is fine by me, we're all just here to kill time between builds and deploys anyway :P but if you think evidence is required knock yourself out and prove some for any of the above
>All the V3 crypto protocols have exactly as you describe above. However, instead of the money going into the coffers of the company, it goes into a 'Development fund' That will award the crypto to people who have applied and been voted on by the community to launch a project/technology in the protocol.
So you replaced "shareholders" with "developers of cryptocurrencies/beneficiaries of the development fund".
Does a rose, by any other name, not smell as sweet? I mean, from the case you're making, these v3 protocols seem more like securities.
Stablecoins sound exactly like banks. Which means AML/KYC/Reserves on the horizon.
The entire cryptocurrency space recreated the current financial system, rooked in a new generation of suckers (and some old one's that should have known better), did everything current financial product regulations were put in place to prevent, made it as energy inefficient as humanly possible in the case of PoW, but it isn't all that cause it's called something different.
My distinction without a difference alarm is ringing itself off the wall at the moment.
> made it as energy inefficient as humanly possible in the case of PoW
I'd encourage you to broaden your understanding of the purpose of PoW and specifically the energy used. The energy used is the cost of securing a PoW blockchain--quite literally, the cost of the energy used is what makes it difficult to mount a successful attack. It is simple and universally accessible. It is not "inefficient"; it is functioning exactly as intended.
What I think you are really trying to say is that you think the benefits provided by a PoW blockchain do not merit the economic expense of securely maintaining it. And that's a fine opinion to have. But the only reason you pay attention to the electricity cost is because it is highly visible--you probably have no clue how much electricity is consumed by all the other economic activities that you may consider pointless or wasteful.
I mean, we can compare it to mastercard: 74 billion transactions a year for mastercard vs 100 million a year for bitcoin. Mastercard revenue is 15 billion while bitcoin has 21 billion in annual mining fees. So mastercard processes 740 times as many transactions for 70% of the cost and I would argue the real cost is the revenue - operating income for their actual expenses to operate which is 7 billion so 1/3 the cost. That would make it 2,220 times as efficient.
Bitcoin is like physically moving gold bullion between (anonymous) vaults. It is not appropriate to compare it to MasterCard, because it has dramatically different requirements and guarantees.
There may be some Bitcoiners who think it should be used for all payments, but I’m not one of them. Centralized payment processors will always be more efficient, especially for the massive flow of low-value casual transactions that the average consumer produces.
> If I borrow a Bitcoin what makes you think that I can repay the Bitcoin after it grew 10x in value?
That would make Bitcoin a very good store of value. However, to benefit from the "store of value" property you have to, you know, actually store the bitcoin yourself, not sell it now and try to buy it back later…
This all sounds intuitively correct, and it seems that similar arguments can be made about gold bullion, right? It costs some amount of money every year to mine, refine, transport and store it, and none of that is accruing to the actual holders of bullion. (One difference being that there is some residual value of the gold for industrial and jewellery uses, but that's hardly what's keeping the bullion price where it is).
It's similar gold, yes. Gold is an unproductive asset. You are correct that there is base demand for it in the form of jewelry and electronics. In fact, a percentage of the world's gold output goes into making Bitcoin miners each year. However, its value is not supported by its demand in these industries. This is why I personally do not invest in gold.
The difference is that if you shut down gold mining, existing gold would still retain all its value. If you were unable to protect your gold reserves, they still retain all their value. If you shut down Bitcoin mining it's immediately worth nothing. In fact if you reduce your energy expenditure below some unspecified threshold it becomes utterly worthless. Mining gold consumes resources, but once extracted it does not. I would consider it to be zero-sum, as compared to the negative-sum nature of Bitcoin.
I would argue if institutional demand and even jewelry demand for gold fell, it would still be a fairly valuable commodity, and its use in electronics would likely expand substantially as it became less expensive. Connectors, switches, wires, PCB contact plating. All big demand drivers, and gold is better than the status quo - just too expensive at the moment.
I think you are a little unfair in your comparison of bitcoin and gold. Gold has advantages over bitcoin, but bitcoin also has advantages over gold. Storing gold is more expensive then storing bitcoin. Transacting gold is much more difficult than transacting bitcoin. One of the downsides of bitcoin is that it could go to zero for some reason. I think gold has less of a risk of that, but other investments have a significant risk of going to zero.
I am not sure I understand the negative sum game you mention. The first payment miners get is (I don't know the proper name) a bounty, which is equivalent to a gold miner obtaining gold. This can be seen as a built-in inflation, which not only gold but also any fiat currency has. The difference is there is no known limit on this inflation factor for gold or fiat currencies. For gold we assume some gargantuan deposit will not be found and that it will maintain its scarcity. I don't think anyone thinks there is an inflation limit for the US dollar or any other fiat currency. Bitcoin has a known amount limit. (As a disclosure, I own gold, bitcoin, and US dollars.)
The other part of what miners make is a transaction payment. That exists in every other payment system I assume, except I guess physically handing an object to another person, which covers a pretty small fraction of transactions.
AIUI, the negative-sum game breaks down like this: consider a black box around the entire bitcoin ecosystem. This black box is consuming $20B/year worth of real resources, which (given that you can't generally buy electricity or generation assets with bitcoin) means $20B/year is flowing out of it.
Now to be sure there are some customers of the bitcoin system, using bitcoin as an intermediary to move money across borders or purchase from certain online marketplaces, and those customers are paying some amount of money into the system to use bitcoin for this purpose (analogous to the 2% that VISA skims off the top when you use your card to buy something on Amazon), but the majority of the money flowing in to balance that $20B outflow is from investors buying in. Unless you think bitcoin has managed to capture something in the order of $20B/year in transaction fees from the likes of Western Union, AMEX and Paypal, what's mostly happening is money being funnelled from investors taken as a whole to the the supplier industries that bitcoin relies on.
You mentioned transaction fees, the other is "inflation" or mined coins. As mentioned above, this is the same as gold and many other things. I guess it is just a matter of definition if you want to say that is a negative sum game. It is not unique to bitcoin though.
It's important to realise that when I'm talking about transaction costs I'm not referring to the inbuilt transaction fees in the protocol - those are bitcoin-denominated and so are an internal transfer within the ecosystem (likewise for the block rewards).
I'm taking about examples like when someone uses bitcoin to transfer money, by converting an external currency into bitcoin, sending the bitcoin somewhere then converting it back into an external currency. Whatever loss of value they see from that overall transaction has been transferred into the bitcoin system as a whole.
> If you shut down Bitcoin mining it's immediately worth nothing.
Except that it is impossible ever shut down Bitcoin mining at once(). It might be more similar to gold than what you think.
There are too many incentives to keep it up. The holders want value to be kept, the miners have vested interest in the system to continue to work. If you shut down, say, half the miners, this will create opportunity to other miners to invest and expand. If it drops too much, people inject money into the system, which gives liquidity to the miners again, that can continue to trade their work for goods and services with Bitcoin or by trading Bitcoin for fiat.
It is very similar to Visa, Mastercard, Stripe, Square and other centralized systems. The fees you pay for transactions keep the centralized finance business working and profitable as well as they invest back in software and hardware. For miners the Bitcoin fees, based on Bitcoin price, keep their systems profitable too. Not to mention some mining companies started to get listed on the stock market too.
(): Yes, you can shut down Bitcoin eventually, bugs, attacks, etc., but those have been tried and not very relevant to my point.
This is like arguing that the Beanie Baby market will never die. It's precisely the belief that the bubble will be eternal that helps inflate the bubble.
It's true that the Beanie Baby market never totally went away. And I'm sure that some die-hards will keep Bitcoin going for decades after it ceases to be practically relevant. But however much the bubble incentives keep major players aligned during the bubble, that doesn't mean the prices will stay up forever.
The Beanie Baby market on eBay is useful to study because it shows much the same behavior as NFTs. Beanie Babies are non-fungible - each one is different. So there's no "market price", just lots of individual offers. On eBay, you'll see asking prices around $5000. But if you look at completed transaction info, prices are around $50. That's what an illiquid market looks like. NFTs behave the same way - high asking prices, few transactions. Such markets don't crash, they stall.
Interesting! I see that there are grading/authentication services out there for Beanie Babies. That makes sense, as a lot of commodities have systems for taking unique objects and making them tradable. E.g., the CME wheat contract definition is extremely specific: https://www.cmegroup.com/content/dam/cmegroup/rulebook/CBOT/...
I wonder if we'll see things like that in the NFT market.
> In fact if you reduce your energy expenditure below some unspecified threshold it becomes utterly worthless.
This is not really true--it's not like lowering the security budget means all the old blocks can be rewritten at will. Roughly speaking, the cost of rewriting a block is the cumulative PoW cost of that block and all the blocks after it, although this amount typically decreases over time as better mining equipment lowers the present cost of hashrate.
For current transactions, if the security budget relative to the transacted value gets low, all it means is that one must wait longer to achieve the same level of confidence in transaction finality. It doesn't abruptly render the currency "utterly worthless".
There are still holding costs for it, though - the guards at the New York Federal Reserve don't work for free - so doesn't it have a similar "value continuously leaving the system" dynamic that suggests that it's negative-sum? Maybe the answer is that the quanta of value leaving is so minimal compared the the amount invested in the stock of bullion that "ever so slightly negative-sum" and "zero-sum" are the same to a first approximation.
Gold was also legal tender within living memory in many jurisdictions —- until 1971, you could freely exchange USD for gold and vice versa. In some ways holding gold as a hedge asset is a survival, though as with its intrinsic value, this doesn’t account for its current role in the market.
This is not correct. Gold in the US was freely exchanged for about $20 an ounce in the US until the Great Depression when, on April 5th, 1933 Franklin D. Roosevelt signed Executive Order (no. 6102) prohibiting the hoarding of gold coin, gold bullion, and gold certificates, and requiring them to be delivered to the Federal Reserve Bank. After getting all/most of the gold, on January 31st, 1934, the dollar was set to a new price of $35 an ounce by Franklin D. Roosevelt's Presidential Proclamation (no. 2072). Debts and contracts that specified gold in payment were made illegal and people had to use dollars instead of gold for transactions. Exchanging dollars for gold was not possible at a bank and actually illegal to do with your fellow citizens (certain exceptions applied).
This ended in 1971, when the Bretton Woods agreement of exchange rates broke down and Nixon took the US dollar off the gold standard and in 1975 we were allowed to buy gold again.
On Ethereum, the majority of transaction fees are burned. In effect, they are distributed to ETH holders in the same way that stock buybacks distribute corporate revenues.
I disagree, crypto incentivizes to add more miners such that equipment + electricity = revenue so there is no profit. Stock buybacks effectively transfer income into the share price so that when you sell your stock it will be for a higher price and thus you will make a profit.
But most of the fee revenue isn't going to the miners, it's being destroyed. And sometime in the first half of next year there won't be any miners; with the reduced issuance, the ETH supply will begin to shrink.
> Bitcoin ~= a Starbucks gift card you hope appreciates in value when Starbucks sells more coffee
Are you under the impression that Bitcoin is a company? This analogy really doesn't make sense from any angle, even being extremely charitable, so it's hard to address.
Bitcoin is a combination of a set of tokens, BTC, and a set of miners. Miners are either sole proprietors or, increasingly, publicly traded companies which operate the network collectively. When a transaction takes place, value is extracted from the BTC everyone holds and is transferred to these entities. The more transactions take place, the more value accrues to miners, not to holders. It's in fact taken from holders. Miners become more valuable, and the value accrues to these mining entities, which frequently means to shareholders in the public markets.
Starbucks cards are akin to pre-selling coffee tokens. Each time Starbucks redeems these coffee tokens for coffee, they collect a portion of the transaction just as miners do. And just as miners do, they pass on the majority to their suppliers and employees. Just as in the Bitcoin example, the fact Starbucks is selling tons of coffee, collecting a lot of transaction fees, doesn't mean that the Starbucks cards themselves become more valuable. Starbucks Inc, and Starbucks shares do, and that value accrues to their shareholders.
I hope that clarifies my thoughts. Open to being wrong about this framing.
An important thing you may not be aware of is that Bitcoin’s “dilution schedule”, so to speak, is fixed in advance. 88% of “shares” have been issued. This is, in fact, a critical advantage Bitcoin has over a ton of shitcoins - fixed dilution schedule, and no pre-mine/creator subsidy.
As a holder of crypto, you are both a customer and an owner.
You pay a fee for each transaction you send, just like any other service. b
However, your holdings increase in value the more other people use the same chain because the value of the entire ecosystem needs to scale proportionally to the value people are attempting to transact across it.
Financial systems, like social networks, and most businesses coming out of SV rely on network effects for much of their value.
USD has been the default option for the world, and enforced through violence when people attempt to create their own networks of trade.
The positive sum value that cryptocurrency is attempting to create is the ability to send anyone in the world any amount of value (money or otherwise) not subject to government permission, or sabotage (ie money printing)
It's like any one being able to suggest a Federal Reserve policy, and the vote being handled by the people, not representatives or a committee.
> USD has been the default option for the world, and enforced through violence when people attempt to create their own networks of trade.
Hah! Of course, who can forget how US paratroopers abruptly ended the attempted creation of the Euro shortly before its intended launch in 1999. Or the way the US Seventh Fleet blockaded China's commercial ports starting in 2002, preventing their rise as a commercial power. We can only wonder what a world with multilateral economic power might look like.
visa, paypal... all provide value in allowing commercial transitions. Exchange of goods and services, digitally or on credit. The value it is providing is eliminating the inefficiency of barter (which cash also does), and allowing remote digital transactions, again good for societal benefit.
There is no societal benefit to buying, holding, selling a crypto currency.
The thing that could provide societal value is smart contracts - but that has nothing to do with crypto. Visa (or Stripe) could implement smart contracts in javascript on top of their platform and society gets pretty much all of the benefits without needing any of the crypto.
There is value in having a monetary system though. And if BTC is a better system and more people find it's utility for barter or wealth preservation better it might appreciate more in relation to something like the USD which has many different characteristics.
It's a strictly worse monetary system by any measure. It's massively more expensive to transact, it's unbelievably inefficient - requiring as much power as Thailand and generating as much e-waste as the Netherlands to scribble 2-3 tx/sec into a ledger. That's 60 days of power for the average US household and 1 iPad of e-waste per transaction. [1] [edit](97% of all mining hardware will be thrown away without ever winning a single block reward).
If adopted as an actual currency it would immediately lead to a deflationary spiral savaging the job market. [2] Even the dictator of El Salvador wasn't nuts enough to adopt it as an actual currency. All pricing continues to be in USD and exchanged for BTC at the point of sale - and the point of a gun. (Keep in mind legal tender laws in ES require everyone to accept your Bitcoin for purchases or you face criminal charges).
To call it wholly unfit for any purpose except exchanging for black tar heroin would be an understatement.
Given the capacity of the BTC blockchain, if everyone one earth finally adopted BTC (as some people dream about), everyone could get in about one transaction in their lifetime.
(3 tx/sec = 3 tx/sec * 31m sec/a = 100m tx/a = 10bn tx/100a, so the network supports 10 bn transactions in about 100 years, and there are about 10bn people on earth, each living around 100 years.)
This is also one of the reasons Lightning is not a viable scaling solution. If you don't get your LN channel open soon, you'll be waiting until the year 2120. This will also of course consume 100% of the remaining block reward and almost a trillion dollars in electricity.
All of these issues can be overcome by upgrades and borrowing ideas and proven tech from other coins or just by moving to those coins if needed. I think it would be orders of magnitude easier to decarbonize bitcoin than it would be the petrol dollar backed by the thirsty U.S. Military machine.
Visa or PayPal are quite expensive to transact. It ranges from one to three percent overhead on every purchase you make. I don't think btc is that high is it?
21 billion in mining rewards / 100 million transactions per year is about 210 dollars per transaction. You'd need an average transaction size of $7,000 for a 3% fee to be comparable which it most certainly is not.
Mining rewards are not fees. They're the initial distribution mechanism (as a fairer alternative to pre-mining). The median transaction fees[0] which users actually pay are much lower: about 65¢ currently. With Lightning transactions they're negligible, potentially as low as 0.00000001 BTC (0.064¢). You can expect this to increase over time as the mining rewards drop, but there is no need to replace all the mining reward with transaction fees, and simple economics says that people wouldn't pay fees that high anyway. Instead the effort expended on mining will drop, resulting in a lower mining difficulty. We're in a "gold rush" phase right now due to the initial block rewards; that won't last forever.
Miners are incentivized to keep adding hardware/electricity until total cost = revenue. To pay their bills, they have to sell their new bitcoin to people which is effectively like a fee as their selling of 21 billion dollars in new bitcoin supply to pay their bills reduces the price of bitcoin acting like a fee on buying it.
> To pay their bills, they have to sell their new bitcoin to people which is effectively like a fee …
No, that's nothing like a transaction fee. The person submitting transactions to the network doesn't pay the seigniorage for minting new bitcoins. There is inflation due to the mining rewards (currently less than 2% annually, and set to decrease over time) which places some slight downward pressure on prices. That inflation is a cost for those holding bitcoin, not those spending it—not that anyone would notice it given the way the price has appreciated.
> 97% of all mining hardware will be thrown away without ever winning a single block reward
And fewer than 50% of Thoroughbred horses ever win a single race. This is a silly clickbaity statistic and you know it. Come on, you're better than this arcticbull ;-)
Horse racing is actually a pretty good analogy here, in that it's essentially pointless and an awful lot more money goes in than comes out. The big difference is that at least horse racing produces a fair bit of entertainment value, and that a lot of people truly love their horses.
It's true for any endeavor that falls on the bell curve that only has one winner. And this analogy ignores the fact that mining rigs win every day just by pooling their efforts
Yeah I should have replied to the parent above. I would have loved to use horsecoin to purchase human ivermectin from India last night.
All the feed stores in my area have locked up the paste and I have only the toxic to ingest orally pour on cattle versions readily attainable.
You can get by with rubbing it on the fatty areas of your body but dosing it is hit and miss.
Anyhow back to the guys in India, they would only take pay pal and the demand was so high, I had to pay an extra thirty five dollars just for pay pal processing. Crazy times...
Anyhow, I hope the mods don't burn this post. What if ivm is the real deal and I need it to save my life because my country with free health care can't fund any other kind of useful early treatment? It costs about two thousand from what I've read and there's no way they can print more money to cover this for the masses.
I'm not trying to get around vaccines even though the first one I took clotted on me and almost killed me. You should see my face right now, there's a huge scar on my forehead where my plastic surgeon ripped out a hardened clot from a vein in there last week. I'm just looking for early treatments for all of the people's no matter the vax status.
Pay pal will almost certainly shut this company off in India when they find out what he's doing. Horse coin will be the only way after that.
There is value in having a useful monetary system.
That ship sailed (multiple times) during the block size debacle for bitcoin, and there isn't nearly enough adoption with other cryptos to make them a useful payment system (aside from Monero if you're doing illegal activities)
If you live in a country where the government mismanages the economy or the currency, Bitcoin is not a great choice. What most people use in that situation is just a different national currency. This is a well-known phenomenon known as dollarization or currency substitution: https://en.wikipedia.org/wiki/Currency_substitution
In most of those countries the transaction fee is a non-trivial percentage of the GDP. Using it as a currency there would be economic suicide. And the volatility would be crushing to the poor.
They'd be infinitely better off with like USDC or better yet, a USD issued CBDC.
More and more I wonder if there’s a cultural/community aspect to crypto. Humans are meaning and group seeking animals and there is a hard to break value from that relationship. While some are likely ephemeral (hype coins like shiba) the amount of community formed around ETH and BTC is non-trivial and provides something akin to “value”.
For sure. Bitcoin is in some ways better understood as a religion. If you're interested, I'd suggest the documentary LuLaRich, currently on Amazon Prime Video. It looks at the MLM/pyramid scheme LuLaRoe and does a good job conveying the quasi-religious nature of these things.
Money transfer services do convey money from one person to another, and along the way they may provide additional services. But the focus there is on the service provided. I don't just put money into my American Express card in hopes that I somehow get more money back later; their job is to give money to merchants I patronize while protecting us both from certain problems and risks.
What I'm talking to is more along the lines of poker games and Ponzi schemes, both of which "just move money around" in the sense that no more money comes out than goes in, even though certain individuals may do better than others.
Buying a cryptocurrency as an "investment" is much more like the latter than the former.
You could make the same claim about any kind of money though. Whose to say the USD or GOLD or CAD or tree bark is real money? A productive asset is an entirely different thing. It's not easy to convert an asset for instance or walk across a border with it.
People make the fundamental mistake thinking these things are investments, they aren't, it's just currency or forex speculation that we are doing here.
> You could make the same claim about any kind of money though.
This is one of the things I find hilarious about cryptocurrency discussions. When I point out it isn't a good asset, people argue it's really a currency. When I point out it's a bad currency, people argue it's an asset. I'd love it if you all could get together and agree on what it's supposed to be good for and just leave the rest of us out of it.
But addressing your point directly, it's bad as a currency. It was launched in 2009 as e-cash, and for a while people argued it was going to be a great medium of exchange. Now, more than a decade later, Bitcoin is doing what, 100m transactions per year? Most of which are not real economic transactions for goods and services. Venmo, which started around the same time, does over 2 billion. M-Pesa, a "digital money" solution the same age does 15 billion. US credit transactions? 45 billion. Debit? 75 billion per year. And unlike Bitcoin, most of those are what people would call real transactions. Bitcoin's real use as a currency/payment system is a rounding error.
Anyhow, as others point out, actual major currencies are backed by very sophisticated organizations dedicated to maintaining the value of those currencies. Which are in turned supervised by national governments, most of which are democratically elected.
For Bitcoin, at best you have a set of shadowy organizations manipulating the market to their own advantage. E.g., reasonable people suspect that Tether is behind quite a bit of Bitcoin price appreciation. They have been proven to be liars about what they're doing and how much money they have. This is great for creating hype and volatility, but it's very much not what you want in an actual currency.
All reasonable criticisms. But it is very early still and you won't see many transactions for exchange of goods this early in its adoption. That's not to say that BTC will eventually take over, it's just to say that the kinds of uses you see this early aren't predictive of its future.
It is not very early. I specifically gave comparisons for things that launched at the same time.
And merchant adoption actually declined heavily for Bitcoin. It had a period where many online merchants and some offline merchants tried it out. Everybody gave up on that because it is not a good currency. That's when prominent advocates pivoted to "store of value" (which it is also bad at). For example: https://avc.com/2017/08/store-of-value-vs-payment-system/
The whole "but look at the fuuuuuuuuuuture" routine was plausible early on. But at this point there's nothing but wishful thinking to suggest that there will be a radical change. Whatever it is, Bitcoin is what it is.
In the case of the USD, the existence of a powerful government with a variety of powers (including coercive ones). Nothing is guaranteed in life, but it is orders of magnitude different from a digital currency offered by private individuals.
Sure and I agree the USD at the moment has an incredible backing. Also it being the reserve currency and base for most other currencies and commodities is no small thing.
You could argue that BTC is backed by one of the most powerful networks of computing power on the planet. I don't think that's better than what the USD has, but it isn't 'Nothing'. The fact it can't be debased as easily as fiat currencies is not a tangible thing but it does compel interest in it.
Its network doesn't create value, it extracts value. $60M per day, $21B per year.
> The fact it can't be debased as easily as fiat currencies is not a tangible thing but it does compel interest in it.
That is not a benefit to a currency, quite the opposite. A deflationary currency would likely lead to a deflationary spiral, savaging the job market [1]
It also leads to a monetary system that cannot adjust to a changing population or to transient issues such as COVID. If BTC were the currency of record in 2020, the economy would likely have been utterly devastated.
Maybe you are stuck on the track that there has to be a winner. There doesn't have to be a single monetary system. There can be several. And bitcoin has real utility in a lot of valid scenarios. Not having a central authority is interesting and appealing to many. Deflationary by nature makes it an excellent store of value.
> And bitcoin has real utility in a lot of valid scenarios.
Let's just wait I'm sure OP will deliver even a single one that isn't crime, regulatory capture or gambling.
> Not having a central authority is interesting and appealing to many.
Lots of counterproductive things are appealing to lots of people. Rolling coal is appealing to lots of people. Not getting vaccines is appealing to lots of people. That doesn't mean the benefits outweigh the costs socially, and it doesn't mean that it should be legal.
> Deflationary by nature makes it an excellent store of value.
And that makes it an awful currency. The fact it's a negative-sum MLM which creates no value whatsoever while creating the illusion of wealth is what makes it an awful asset. There's nothing left.
> Let's just wait I'm sure OP will deliver even a single one that isn't crime, regulatory capture or gambling.
I’ll bite. Donating to a Ukrainian twitch streamer. PayPal doesn’t allow it, every other option requires entering your credit card details on potentially shady sites.
Caveats: This was a few years ago, not sure what the situation is now; Current BTC tx fees make that rather expensive (which may or may not be alleviated by lightning or a cheaper to send crypto).
Well it just depends how much you trust the entity in control of the money and whether they will allow it for things you want. Will they let you buy a plane ride if it's your tenth trip already this year to see your sick mom in Hawaii? Maybe not, too much carbon. Control of money is control of society, even the individual if you apply a little tech to the mechanics. Trump and Hitler were both elected democratically, are you okay with either of them pulling the strings on the only thing you can exchange for your labour?
What about Xi in China with their real life social credit system built by exactly who? Should that regime be trusted with that much control over that much humanity?
> BTC is backed by one of the most powerful networks of computing power on the planet
And that huge computing power is employed to basically solve Sudokus whose difficulty is adjusted to burn as much energy as is put into it (which unscrupulous people will do as long as that energy is still cheaper than the mining rewards).
It appears that's the case but I've read a lot of bitcoin is mined using power sources that are under utilized and otherwise not practical to keep using. Much off this includes green energy which might have a better ROI in its early stages with bitcoin hovering it up when it's excess can't be sold. It's fairly easy to just switch to proof of stake though if ever this issue is forced hard enough by energy providers.
It could be debased rapidly through collective regulation and enforcement. While that hasn't happened yet, at least consistently, there's no guarantee it won't happen.
Its value and utility would drop but it won't be debased in a technical sense. For now the kml/amc controls for the on and off ramps are so locked down I think the powers that be are satisfied. The tin hatters say this is just a warm-up to get us primed for a centrally controlled all digital central bank backed system that can be used to better control a populations use of carbon, vaccine uptake and whatever else they want to pull your strings with. I often wonder why they tolerate crypto. I hope this isn't why.
Yes, the USD is backed by the most absurd proof of violence the world has ever seen. No organization of human civilization has ever been able to summon as much death and despair as the United States.
However, most of the ability of the United States to execute such power is centralized in Washington D.C. and New England. Centralization brings immense efficiency, but also vulnerability. Those geographic regions are a potential target that takes a lot of energy to defend. Why do you think the 9/11 terrorists chose New York and D.C.?
Meanwhile, China just fully outlawed cryptocurrency and mining, and it was a minor hiccup in the network. Bitcoin's hash rate as already recovered. The price has doubled. It's stronger than it's ever been.
That's what makes bitcoin such a potentially powerful store of value. It's security mechanism is incredibly anti-fragile. There's no throat anyone can choke. It's also globally available and permissionless, so it accepts everyone and anyone without judgement. These traits are powerful, in a different way than the power that backs the USD.
> Yes, the USD is backed by the most absurd proof of violence the world has ever seen. No organization of human civilization has ever been able to summon as much death and despair as the United States.
That has nothing to do with the currency. I'm not saying its good, or bad, I'm saying you've stapled together two unrelated concepts.
The US army is a small fraction of GDP and exists to support the defense of the US as a nation, and to further its interests abroad. That will remain the case whether the currency is fiat, gold, BTC or shoelaces. Unless you think that the army will be disbanded because BTC is going to make Xi Jinping come to the table with Tsai Ing-Wen over Baijiu and apologize, that the Sudanese are going to lay down their arms, Kim Jong-un is going to find Jesus and so on. However that's completely unfounded.
The US army predates the fiat dollar by two hundred years. World wars were fought on the gold standard.
Further, the backing of dollars is only in limited part due to "the army" - fractional reserve lending means that each time supply is added, demand for that supply is also created as the loan issued must be repaid with those same dollars. This is what actually fully backs the dollar.
It's also why countries that use the USD, like El Salvador, have their own armies. And why some countries that use fiat dollars don't have armies at all, like Japan and Iceland. There is no causative relationship between fiat money and armies. There is a causative relationship between the existence of militaristic states and armies. There are hundreds of years of proof that the backing of the currency has little or no bearing.
This theory is a pile of misconceptions stacked on top of each other.
Without the aircraft carriers, any mildly malevolent nation could print dollars. Some already try. There's no question that a large military is necessary to preserve USD as a world currency.
You can't ignore this cost. Maybe the US would cut military spending, maybe not, but as long as it wants USD to be the coin of the realm, there's no choice in the matter.
(1) Domestically, the US Army does not enforce law or make sure the dollar is the "coin of the realm." That would violate Posse Comitatus act. US domestic law enforcement enforces laws, domestically - including legal tender laws. I agree you can apportion some of the strength of the US dollar to its legal system, which makes sense, as the currency is an emergent property of the state. However, shifting to BTC instead of USD will simply reallocate the expenditure not reduce or remove.
Counterfeiting is an issue broadly. A small one. Of course, the expense of a Bitcoin transaction (literally 60 days of power for an average US household and 1 iPad of e-waste) far, far, far outweighs the expenditure of the secret service whose job it is to act on counterfeiting. AML and KYC rules, and a counterfeit detection pen will prevent this fake money from turning into a digital representation.
The army isn't generally called in to stop counterfeiting because nation-states have basically zero incentive to counterfeit on a large scale. What good are a few fake paper bills, when the Treasury would just cut you off from the entire world financial system?
(2) How do you explain that countries that do not have armies at all, like Iceland, are able to issue their own fiat currency with value?
(3) If you cannot draw a direct line between switching the currency and reduction in military spending, does it really make sense to apportion value that way?
Counterfeit USD is a small, inexpensive problem because of US military might. The biggest guy in the playground never actually needs to fight.
Imagine for a moment the world suddenly adopted the Nicaraguan Córdoba as the common reserve currency. How long before it gets printed everywhere? Who is going to stop it? And how far do you think Nicaragua's AML/KYC regime would actually reach?
Iceland's currency wouldn't work as a world reserve either, for pretty much the same reasons. You can get away with being small and isolationist if your currency isn't that important.
Make no mistake, "cut off from the entire world financial system" requires the threat of violence. Banks get fined, countries get sanctioned, warrants are issued for people that have never set foot in the US. I don't know exactly how to apportion the cost of that enforcement, but I know you can't ignore it.
> Counterfeit USD is a small, inexpensive problem because of US military might. The biggest guy in the playground never actually needs to fight.
[citation needed]
> Imagine for a moment the world suddenly adopted the Nicaraguan Córdoba as the common reserve currency. How long before it gets printed everywhere? Who is going to stop it? And how far do you think Nicaragua's AML/KYC regime would actually reach?
Why would any state on earth illegally print Nicaraguan money when they can instead print their own legally? What's the goal? Is this really the easiest path to achieve that goal?
> Make no mistake, "cut off from the entire world financial system" requires the threat of violence.
It really doesn't. In this case the carrot is way bigger than the stick.
Please tell me, what stops North Korea (or Iran, or any other US-hostile nation) from printing as many USD as it likes? Don't tell me "risk of being cut off from the US financial system"; they already are. Furthermore, NK already tries:
> Why would any state on earth illegally print Nicaraguan money when they can instead print their own legally? What's the goal? Is this really the easiest path to achieve that goal?
You seem to have just asked "Why would any state on earth illegally print the world reserve currency when they can instead print their own legally?" That seems pretty self-evident, but you can look to Venezuela or Zimbabwe for answers.
He is right in the figurative sense that the government's power to tax and spend in its own fiat currency is what drives demand for the currency. W. Mosler, one of the founders of MMT, has this allegory: If we are in a room full of people with a single exit and I am blocking the exit with a gun in my hand and tell you you need one my business cards to exit the room, then my business card has value.
Sure, but the issue is not demand but supply. Enforcing the scarcity of USD requires a large military. Enforcing the scarcity of BTC merely requires electricity.
Proof of stake is just a fork that'll happen whenever there's enough force applied by the power providers.
This excess low cost energy that can't be moved easily to other areas is often the only kind of energy bitcoin can use to win the economics of btc mining. It in fact subsidizes a lot of green energy and makes it more viable in the longer term.
Not following this line of thinking now. How does the military enforce scarcity? Also, scarcity of fiat currency is relative to the amount of goods and services available for sale in the economy and the demand for them.
The reserve status of the dollar is absolutely dependent on the might of the USA military. Ask Libya what happened when they ventured down the path of trying to not use the petrol dollar to sell their oil.
For the vast majority of use cases, the answer is no, though I'm certain someone will dig up an outlier use case or vaporware implementation of blockchain though.
There were timestamping services which people paid for before bitcoin.
So, there is some price people will pay in order to be able to demonstrate in the future that some data existed at or before a given time.
A decentralized ledger also provides this purpose.
Of course, at current transaction fees on most blockchains, it would be wasting quite a bit of money to make a transaction just to timestamp a single thing.
This is why there are services (one of which, iirc, has gotten a, uh, endowment(?) in order to provide the service for free?) which collect large quantities of (hashes of) data that people want to establish existed before a given time, and produce a Merkle tree of all of that, so that all those people can demonstrate that their data existed before a given time.
So, that's one useful service.
Is it enough to justify all the stuff that goes into blockchain stuff? That's a different question.
But, if the question is "Do they have any genuine use?", the answer is "yes." .
The blockchain is a pretty terrible timestamping service as the block time varies based on the current hash rate and difficulty. From as little as 5.5 minutes to as much as 15 minutes. [1] It's at best a coal-powered monotonic counter. Given the massive variability you have to correlate it with an actual clock you trust lol, and if you trust the clock you may as well just use that.
by timestamping I didn't mean in terms of, getting the most precise time possible, but in terms of a very difficult to fake-in-large-ways timestamp.
I have at least slightly more trust in the bitcoin blockchain not having the times be falsified in a major way than I do for any of the centralized timestamping services where you are trusting the security of those companies' timestamping servers.
The reason why I say "slightly more" is because I do have a pretty large amount of trust in those timestamping sources.
Bringing up the coal-powered is irrelevant to my point, which is not about whether it is worth it, but whether it has any uses.
Agree! If there was no way for ppl playing in crypto to get their hands on bonafide fiat currency, I don't think anybody would really care about crypto. Remember the Gemini exchange adds looking for qualified investors? Why? because such people have US dollars, which is what Gemini wants to bank.
Right now that's the case but there's no guarantee any currency will always remain the one of choice. And BTC doesn't need exchanges, but of course it does help, especially in the early stages.
> Ultimately cryptocurrencies are a negative-sum game in that they take in real money and just move that money around, while spending some on overhead.
I'm no Crypto fan, but this is wrong.
Plenty of new coins get minted which are redeemed for real money. This is basically the credit creation cycle[1] as seen in traditional banking (where banks create money by lending the same deposit out multiple times simultaneously) except in this case there is often no equivalent of a deposit (except sort-of staking in some cases).
The positive externalities from sound money and the concomitant demonetization of other assets (like real estate, oil, etc.) are massive, especially in the long term.
Have you considered that you may simply be failing to comprehend the meaning?
In particular, "monetization" literally means "the process of turning into money" - one of several more specific meanings, which should be clear from context, is the conversion of a non-monetized asset with sufficient monetary properties into a monetized asset. A monetized asset (not monetary - that term is too overloaded, although "monetized" isn't much better) is precisely an asset which has a higher value than would be predicted from its expected revenues, commodity consumption value, etc.
If people are concerned about currency devaluation, where do they put their money? Whatever set of assets people turn to (equities, commodities, whatever) will be subject to additional demand purely qua wealth storage, pushing up the price of those assets beyond what you would expect from a pure discounted cash flow model - i.e. they become monetized (begin to function as money, in addition to whatever asset class one might naively assign them to).
So, with that in mind, let's address:
> Real estate and oil are not money and therefore cannot be demonetized
If people are using real estate, oil, (gold, equities, ...) as a place to stash their wealth to protect it from inflation or whatever, and all of a sudden there's a better option available for this purpose, demand for random "not money" assets qua money is going to drop, and they will cease to behave like money - demonetization.
Humanity is just a negative sum game in that we take in real resources and just move those resources around and then die, all while increasing entropy of the universe.
> imagine investing in, say, a new fast-food franchise joint
Let us imagine instead that you want to invest in Burger King. You buy some shares in Restaurant Brands International (QSR). When you own those shares, what does that actually mean - how is that connected to the purchase of burgers?
I think share ownership is often a better metaphor for many cryptocurrencies than fiat currency. Especially when considering shares like Tesla, Hertz, or GameStop.
Where does the value of a share come from? Can a company steal all your money? What actually records your share ownership? How are profits calculated, and how do you get them?
The value of a share typically comes from the productive assets the company owns. If you buy all 468 million shares of QSR, you get all the restaurants, the brands, the vendor relationships, the employee relationships, the customer relationships. If you have a smaller fraction, you have a smaller fraction of that, plus you are entitled to a share of the profits generated.
But if you buy a Bitcoin, you own no productive asset and therefore are entitled to no profits. At one point the theory was you could trade it for something useful, like other currencies. But it's a pretty bad currency, so people mostly have stopped pretending it is useful for that.
There are answers to the rest of your questions, which are complicated and depend on exchange and jurisdiction, but people can look up the details if they want.
As an unaccredited investor, your investment funds can only be accepted by publicly traded corporations (with all the legal protections and reporting requirements that entails). Investing in GameStop is definitely riskier than putting your money in a savings account, but fraud is substantially easier in a totally anonymous and unregulated market like the crypto sector.
I mean, just think about how hard the Enron execs had to work to defraud their investors! They had to come up with a novel scheme to hide losses, collude with their accountants to avoid detection, and some of them even had to spend some time in prison. Yesterday, I read about an NFT scam where the anonymous developer just transferred funds to his personal wallet and then disappeared.
In contrast, imagine investing in, say, a new fast-food franchise joint. They money you put in there is used to acquire assets that are used to produce goods that people will pay to consume. If it's a well-run business, the value of the outputs will be more than the value of the inputs, making it a positive-sum effort.