>"To deliver a peer-to-peer alternative to cash that, through decentralization, did away with the need for trust in financial institutions, which the 2008 crisis showed to be unscrupulous, and often corrupt."
The sort of activity which led to the financial crisis would not be mitigated by the establishment of a decentralized currency. Decentralization would not do away with the need for financial institutions (or the toxic incentives that can drive them and the ecosystem in which they exist).
The USD is pretty decentralized already. Sure the money supply itself is centralized, but the USD is a functioning currency because all people who accept and deal in dollars accept the fact that the dollar is a currency. We're all decentralized nodes in the Fiat network.
(author here) I agree! I was calling out Bitcoin's initial goals in the article but don't 100% align with them myself. Financial institutions came to exist for a reason and I'm really not on board with everyone "being their own bank" as I feel it'd be a step backwards from what we have today.
What I do agree with is the need for more audit-able, accountable systems so the institutions we trust are less susceptible to corruption.
What I never understood with the blockchain is the idea that it would change the politics of finance in favour of the little guy.
As far as I can tell, financial institutions are exceedingly well practiced at co-opting new monetary systems, as they have been doing exactly that for a very long time, so I never thought that a new model of ledger was ever going to really faze them.
I don't think anyone wants unregulated markets for everyone, just like no one really wants anarchy. There are criminal, or rebellious elements in every group, but co-beneficial arbitrage is what we've evolved to.
Absolutely, and that's what is happening right now. I honestly don't have a solution for this problem... other than trying to make it as least appealing to these institutions are possible.
The only 'solution' I can see to this problem, is to develop an alternative to the floating monetary unit, of solving the calculation of exchanging goods and labour.
Money is useful, because it solves for the 'n' of a given trade by using all the pricing of transactions as a form of parallel computation, so the fact that it may often give sub-optimal results is outweighed by the fact that it has such a low overhead, compared to the traditional alternatives, such as planned resource based economies, which have historically been plagued by both sub-optimal results and a very high overhead.
The revolutionary work in economics isn't being done on the blockchain, or in any other new currencies for that matter. It is being done in the world of AI and big-data, when applied to logistics.
If you really want to revolutionise money, you have to try and make it obsolete.
edit: Also, seeking sources of funding may be problematic for such an enterprise - "Please can you invest in this plan to destroy capitalism." - being a particularly difficult sell.
Perhaps if it can be reframed as - "Please can you invest in this plan to destroy capitalism that also has excellent quarterly returns." - then it might get somewhere.
>The only 'solution' I can see to this problem, is to develop an alternative to the floating monetary unit, of solving the calculation of exchanging goods and labour.
That was an attempt at it, though one made in bad faith by many of the leading proponents. If you are genuinely making something obsolete, you don't usually need to go to the bother of banning it.
They are doing that now with Ripple/XRP but I don't see it as a threat but more as a welcome competitor to other crypto currencies. Not every coin needs to be decentralized and anonymous.
Are you sure that was Bitcoin's initial goal? Or just speculation from early adopters?
In the actual white paper, Satoshi does not mention any of this, although like you, I do remember these motivations being used very early on. I don't know their origin, but Satoshi simply talks about non reversible transactions, in the context of payments over the Internet.
>The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.
What's really fantastic, though, is that cryptocurrencies are currently in a large bubble themselves. Privacy of the exchanges is no better as you literally have to send them a picture of your ID. And several exchanges have been hacked with the money stolen. So far, I'd say cryptocurrencies (for the average joe/jane) are WORSE than regular banks. And, on the last point about micropayments, well Bitcoin now has such massive transaction fees and massive overhead that micropayments are even more impossible (without adding more layers).
The ideological/theoretical purity of cryptocurrencies is completely negated by using exchanges and by the perverse incentives of proof of work leading to enormous returns to scale for those who have developed custom ASICs.
Decentralization requires more effort than centralization, but something that requires effort doesn't generally grow very fast... And so we've centralized cryptocurrencies in a haphazard way, making them a lot easier for people to use--thus enabling cryptocurrencies to grow very fast--but also negating all the theoretical benefits.
Something useful will eventually come out of the current mess (and there are various initiatives that help address many of these flaws), but probably not before the Zeitgeist becomes disillusioned with cryptocurrencies.
If we went back, like 100 years...banks were not these secure, Federally-insured institutions with complex regulations, etc. Banks were robbed. There were runs on banks. They went out of business, people lost their deposits or their accounts. Just look at "It's a Wonderful Life" for a fictional example.
Everyone criticizing the current state of crypto as being worse than banks is missing the forest for the trees. These systems are early tech. Ethereum is barely 2 years old. It was easy to criticize dial-up internet, too. I'm sure Barnes & Nobles scoffed at Amazon at one point. Easy to do this, and assume this "dot-com" thing is just a bubble that's going away at some point.
Decentralization is ONE feature of crypto currency. One of several. It's not decentralization alone, but the combination of features that brings value to crypto, including programmable economic incentives (a powerful concept we're just learning the implications of).
To answer some of your other points: even exchanges are being built on the blockchain now. We have 0x, EtherDelta, etc, which allow you to trade tokens without revealing your identity. So, that problem is starting to resolve itself.
We have Proof-of-Stake coins like Qtum, which avoid the Proof-of-Work issues (Ethereum will be moving to PoS soon).
Still not sold on the idea that proof-of-work is inherently bad though. I consider that system very secure, as Bitcoin has proven. The blockchain itself has proven quite resilient to hackers, DDoS attacks, government intervention, etc.
I like your view as it's progressive. I think you're right to imply that the current state of crypto is a mere glimpse of better and more mainstream things to come.
+ the genesis block included the text "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks" (Source: https://en.bitcoin.it/wiki/Genesis_block)
As others are saying, Satoshi made some political-sounding statements about financial systems around the time of release, but the paper only refers to facets of traditional financial institutions in measured, objective terms.
Then again, given that Satoshi's true identity is unknown, a lot of this is necessarily speculation by interpreting a small set of clues.
Satoshi worked online with a group of developers for more than a year while keeping perfect operational security. Developed a solution to the byzantine generals problem, but has no published maths papers, otherwise something would have come up through text analysis. Designed bitcoin as a financial instrument, indicating inside knowledge of the banking industry. Has mined enough bitcoin to be on the list of the world's 100 richest people, but hasn't shifted them.
Satoshi is a team employed by something very rich, probably a government.
>Designed bitcoin as a financial instrument, indicating inside knowledge of the banking industry.
what
Bitcoin is just the clever but natural progression from previous cryptographic cash systems like b-money. The cypherpunks mailing list had long been interested in making more decentralized cryptographic cash systems along those lines. The fact that one of them finally combined the right cryptographic primitives in the right way to make such a system is hardly a sign of any insider knowledge or outside influence.
The creation of Bitcoin was by someone who had been following the cypherpunks' progress in the area for a long time, and finally noticed a clever way to combine standard tools to get the job done. There's certainly nothing superhuman about it. It hardly looks like a problem that was solved by a government throwing money and a team of pros from out of nowhere at it.
Governments are not superhuman either. I am not talking specifically about the difficulty of writing bitcoin, but the collection of circumstances along side that.
Governments undermining their own monetary systems is hardly novel, both for stupid reasons and occasionally for clever ones. Governments often implement new economic systems or currencies, with fairly mixed results.
Hey! I definitely agree that accountability is important. How do we improve accountability though? I'm skeptical about bitcoin or any other cryptocurrency doing so.
From what I know about the financial crisis, it wasn't the nature of fiat currencies that led to the crisis, but rather the complexity of financial instruments obscuring the weakness of underlying mortgage assets combined with incentives driving industry players that turned out to be toxic in the long term.
It doesn't seem to me that a distributed currency will eliminate financial complexity or perverse incentives.
But as an aside, I remember laughing about Dogecoin with friends back in 2014 when we first discovered it. It must feel awesome to have created something people around the world know about.
> From what I know about the financial crisis, it wasn't the nature of fiat currencies that led to the crisis, but rather the complexity of financial instruments obscuring the weakness of underlying mortgage assets combined with incentives driving industry players that turned out to be toxic in the long term.
Bitcoin wouldn't prevent the mortgage fraud, it would prevent the immoral bailouts that happened after that and that told the industry "don't worry, you're too big to fail, feel free to try harder next time".
They did come to exist for a reason: geography. Primarily, they served as a way to deposit money in one physical location and withdraw it at a different one at a different time. In the modern era, more and more of the economy as a whole flows through these institutions who do nothing more than shuffle numbers down a network link - and yet they charge a percentage cut of the transaction. It costs no more to transmit a larger number, yet they see fit to take more and more depending upon its size. Payment processors are taxing bodies. Mostly unregulated and entirely non-governmental bodies that have as much, if not more, control over the supply of money in the economy than the Federal Reserve.
If the Federal Reserve sought to increase the supply of money in the economy, but the payment processors disagreed, who would (or even could) stop them from raising their rates for payment processing to directly counteract the actions of the Fed? No one. They could do it, and they will do it eventually. How anyone could be comfortable with middlemen who provide nothing of significant value sitting in on almost every single transaction which occurs in the entire economy and skimming off the top I have no idea.
But also those large bodies provide a certain amount of safety when transferring money, so you can see where it went or if a transfer got lost. That's not true with crypto always, people are on their own. There are endless stories of big banks screwing customers over, often because of uncaring bureaucracy, but I do believe a giant bank will set things right, even if I had to complain - I've never had a problem really, but I have heard of people who do, and don't forget Wells Fargo.
On the surface that can be a beneficial exercise. 400+ years of financial dogma and cruft has accumulated in the world's financial system(s). If the sole eventuality of this period of cryptocurrency development is that some of the "sacred cows" stood up in the four centuries since are torn down, and outdated models are discovered and updated to better serve people of today, I consider it worthwhile progress.
Except that's not what's happening. What's happening is that some people are relearning the hard way why those "sacred cows" are so sacred. We've become so used to having them that some people take them for granted and forget why they exist, like the "raw water" people forgetting why municipal water systems exist.
e.g.
"Why do we need all these regulations anyway? It's just statist slavery!"
It is kind of funny, actually. Engineers rediscovering by doing, and wall street having these existential self-doubts about whether there is some hidden sophistication which is entirely absent.
> The sort of activity which led to the financial crisis would not be mitigated by the establishment of a decentralized currency.
It actually would deal with the issue that led to the GFC.
Remember --- the problem wasn't that there were fraudulent mortgages -- it is that these mortgages were packaged and repackaged in ways that deliberately obscured the risk involved so that people were buying stuff that had no underlying value. The lack of transparency is what encouraged the fraud and created the incentives for it, which is why the behaviour only stopped when there was a 65% fall in the value of pretty much all mortgage-backed-securities.
A mortgage CDO built on something like Ethereum would be programmatically transparent and anyone could look in real-time to see the value of their tranche. It would be trivial to distinguish between good and bad investments. And while there's still the potential for people to purchase things that do not have value, it becomes pretty much impossible for 2008 to happen again in a financial system run on crypto fintech -- intermediaries in the financial system would simply not be able to deliberately obscure transparency into which assets were owned and covered by which securities: if you wanted to check repayment rates you could script something to do the work in real-time by simply monitoring the blockchain.
This seems to me to be naive at best. Risks were obscured due to the mathematical structure of CDOs, not by hiding money transactions.
You could spend all day real time looking at the fact that few of the mortgages in your CDO are failing, and then when they fail systemically, you could watch in real time that a lot of assets that were thought to be pretty robust are not.
Your argument seems to be simply that radically more data would enable better predictors. Whether that is true or not, it's unclear whether bitcoin et.al. could help much with delivering that data. If we agree to a contract that I will pay you 5 bitcoin tomorrow in return for 4.9 bitcoin today, that contract is not publically available on bitcoin. Nor is, the fact that a certain money stream is part of a mortgage.
So unless you force every contract to be public, blockchain technology will not help you that much. And if you force every contract to be public, then you don't need a blockchain.
> Your argument seems to be simply that radically more data would enable better predictors.
The point is that transparency enables markets to accurately price risk and prevents the sort of market paralysis that caused the liquidity crunch.
Yes, it's true that people COULD have spent weeks figuring out the status of at least some of the CDOs on the market. But in reality no-one was reading 200 page long prospects that listed the exact mortgage originators and housing complexes of their CDOs. Buyers and sellers did not necessarily even have this data in peer-to-peer marketplaces. Financial institutions and their brokers bought securities based on their ratings, and dumped them ASAP once it became clear the entire sector was poisoned and they were doubtless overvalued.
> unless you force every contract to be public, blockchain technology will not help you that much
Smart contracts are public BECAUSE blockchains are open access. All parties can see the transfer of tokens on the network for the contracts that matter to them. No-one in the public necessarily knows what any contract represents, but if I am sold one I can monitor it in real-time. That was not possible with mortgage backed securities in 2007.
The problem with this is that overall losses were nowhere near 65 cents on the dollar -- only 20 percent of US mortgages were subprime at the peak of the GFC.
If the market was rational and had full insight into the performance of its securities, losses would have been no more than 20-35 cents on the dollar. That is enough to cause a major crisis, but it wouldn't trigger the paralysis of the global financial system.
Bitcoin would prevent the immoral bailouts that happened after the burst and that told the industry "don't worry, you're too big to fail, feel free to try harder next time".
Real-time (compared to equities) pricing as you know it does not exist in mortgages and would not be enabled by what you're describing. Transparency in something like this also does not help in the case of massive gaps downward in price which happened with a lot of these instruments and in fact would probably accelerate sell-offs. Transparency of the underlying was not the issue. Anyone investing in this stuff could have figured it out if they wanted to.
Transparency was absolutely the underlying issue. Read "Too Big To Fail" or "The Great Short" or any of the other histories of the Financial Crisis. The way CDOs were bundled and tranched made it effectively impossible for purchasers or banks to know which properties were actually covered by any CDO.
No-one knew what was in them -- the value was asserted by the ratings agencies and they were purchased based on expected rate-of-return. Even the people who went short on the market ended up using heuristics: there is a wonderful passage in The Great Short which describes a character who tells his broker that he will short anything bought by one of the people he has just met.
Once the extent of fraud became clear the entire market dumped down to 35 cents on the dollar. The fact that transparency was an issue is also apparent right here, since nowhere near 65% of consumer mortgages failed. But no-one would buy because no-one could tell if any particular CDO was backed by anyone who was still capable of making payments.
With Ethereum and smart-contract based mortgage systems this completely disappears, since the blockchain broadcasts every single payment made in real-time and it is possible for anyone to simply look and see if whether defaults are rising or falling among the mortgages that underpin their collateralized securities.
The fact that CDOs were trading 35cents on the dollar is largely a part of default EXPECTATIONS resetting up. Smart contracts cannot expedite this process of resetting expectations. Ethereum (which, by the way, is too slow to run CDO pricing models) can only broadcast what the latest market price is. Ethereum helps price dissemination no more than a Bloomberg terminal can.
> is largely a part of default EXPECTATIONS resetting up
Yes, exactly! But take the next step and ask what sets EXPECTATIONS about the worth of a security in a smart-contract environment? It stops being generalized market fear and it starts being actual DATA about performance.
> Ethereum (which, by the way, is too slow to run CDO pricing models)
You don't run the monitoring software ON the blockchain (you could but it would be inefficient). You run that off-chain using blockchain analysis software.
You're right that it was possible for people to consult the original (think, paper-based prospecti) in at least some cases, but most people relied on the ratings agencies and they claim to have essentially greenlit their ratings on what the Black–Scholes equation told them, using assumptions that were convenient but untrue (i.e. Gaussian cupola -- that defaults would not be correlated).
> it is not possible even in principle to tell if the ibank has rigged a CDO to have more than it's share of lemons!
Yes, you can purchase a bad CDO on a blockchain just as easily as you can purchase bad real estate in real life. Nothing prevents humans from misrepresenting data. But that isn't the point of the blockchain.
The point is that the transparency of the blockchain lets you (and others) know when you're holding a lemon, because you can see in real-time that no-one is paying off the mortgages in your CDO. What you do when that happens is a good question and the blockchain can't help [1], but it doesn't crash the entire market because people can tell the difference between your CDO and the quality ones that are still 100% good.
[1] it actually can help in one important way -- it provides an indisputable record of contract execution and payments that is not contained within the computer system of your counterparts (the bank). So if there is fraud it will be much easier to prove it to the courts than if you need to subpoena records out of the bowels of a corporate banking system.
It actually would deal with the issue that led to the GFC.
It really wouldn't. The decisions that led to this were made by people who had access to all the data they needed to achieve better understanding, but that didn't help.
The idea that it would become trivial to distinguish between good and bad investments seems to me to be incredibly naive.
> The idea that it would become trivial to distinguish between good and bad investments seems to me to be incredibly naive.
It is not naive. It is exactly how smart contracts work.
If you purchase a CDO on a blockchain, you are purchasing a share of whatever revenue paid into another contract. You can monitor those contracts, and the ones that are programmed to pay into THEM, and the ones that are programmed to pay into THEM ad infinitum.
That's a fantasy. The problem with 2008 for example wasn't the inability to make simple algorithmic decisions based on metric, it was that the fundamental risk was obscured (intentionally). Smart people mis-analyzed this and made poor decisions, because to some degree the instruments were designed for that purpose. Smart contracts do nearly nothing to mitigate this problem.
> The problem with 2008 ... was that the fundamental risk was obscured
Yes. And this is impossible with smart contracts. You can commit fraud by pricing the asset, but you can't prevent the market from demonstrating its quality in real-time.
With smart contracts there would have been a housing bubble, but there would also have been an inflow of capital when the market-value of the majority of CDOs crashed below about 80 cents on the dollar.
Bitcoin wouldn't prevent the GFC, it would prevent the immoral bailouts that happened after that and that told the industry "don't worry, you're too big to fail, feel free to try harder next time".
Bitcoin - Because the problem with global finance is too much regulation.
It baffles me how seemingly capable people have had the idea that a cryptocurrency would counter 2008 style stuff. It seems like a reasoning short circuit: Big institutions failed us, so something without big institutions must be immune.
The big institutions failed us exactly by allowing each other to do too much. By not regulating (which is by definition centrally imposed).
> It baffles me how seemingly capable people have had the idea that a cryptocurrency would counter 2008 style stuff. It seems like a reasoning short circuit: Big institutions failed us, so something without big institutions must be immune.
I think you misunderstood what people mean by saying "counter 2008 style stuff".
The aim isn't to prevent 2008 from happening again, but if 2008 were to happen again, then be in a safe situation.
Also you're taking the input from your opponents, but plugging that input into your own model, without realizing that bitcoin proponents do not share your model.
Your model is: "Lack of regulation caused 2008 to happen", but not everybody agrees with that model.
There are multiple models, but the most common model is that central bank inflating the money supply, and manipulating interest rates caused 2003-2007 to happen. 2008 was merely the well desired correction.
Same model applied to today, it means that we are currently in a major bubble and this bubble will pop in the coming years. Alternate financial systems such as bitcoin and smart contracts, are 'customizable' enough (For lack of a better term) that they give people a fighting chance.
1. Capital controls can't be imposed
2. Bank accounts can't be confiscated
3. If regulations have to be bypassed to make trade happen, then they should be more easily bypassed (for instance minimum wage laws).
So when the next crises happens, people are able to flee nations with their capital, their bank accounts will not be able to confiscated, and they will side step any regulation which screws people over. This is the aim of cryptocurrency proponents, irrespective of what is being said.
What you outline is the libertarian/neoliberal case for crypto, and while more coherent (and is built into the currency with the whole "fixed total supply" structure) it seems to me no less of a fantasy.
The state can damn well impose capital controls and confiscate accounts. You transfer the money elsewhere continue to use it? The state now has perfect transparency to see that. Did you own any assets in the country you're fleeing? They're confiscated. Does the state you're fleeing to have an extradition treaty with the state you're coming from? To bad. You refuse to hand over the account that has been confiscate? You go to jail until you do.
Just carrying gold seems a better choice if that's your game plan.
However, I haven't heard that case that much (and never as explicitly as you put it here).
There are multiple models, but the most common model is that central bank inflating the money supply, and manipulating interest rates caused 2003-2007 to happen. 2008 was merely the well desired correction
Regardless of it's truth value, that is not clearly the most common model.
FWIW, there's a plausible argument to be made that the 2008 crisis was aided (although not fundamentally caused) by excessively loose monetary policy in the mid/early-2000s, followed by sharp tightening.
That isn't to say the mortgage industry wasn't propped up on fraud, etc. But it wasn't irrelevant.
It wasn't "The sort of activity which led to the financial crisis" that inspired bitcoin.
After the crisis happened the US government funded the massive bailout by printing more money. It turned out to be a "good" decision since it prevented a catastrophic economic failure but it did cause more inflation and some people weren't happy that a government can just print more money on a whim.
So that's how the bitcoin came about to make a currency where there are no central governing body that can just print more whenever it wants.
The banks seem to have won the propaganda war about bailouts preventing economic collapse pretty well. I guess once the government makes the bailout and the banks accept the bailout, both parties are pretty committed to ensuring the public thinks that the bailouts were required.
What we really got was a tacit approval for bankers that they could make highly leveraged bets in the 7 years that the markets were going up, make shitloads of money, feel like geniuses, and then when it all inevitably explodes the government would bail them out and then QE like crazy to pick up the pieces. The QE would be given not to citizens, but to banks to inflate equity markets, and start the whole cycle again.
Now we have a whole new generation of financial "geniuses" overhyping every asset class, making shitloads of money off it all, thinking they are geniuses, and when it all collapses again they think the same thing will happen. It may do, but this time I don't have to be involved in that bullshit. My money is now unprintable. They can devalue the USD shitcoin all they want, but there are still only 21 million possible bitcoins and that's all I care about.
> After the crisis happened the US government funded the massive bailout by printing more money. It turned out to be a "good" decision since it prevented a catastrophic economic failure but it did cause more inflation
Inflation was near zero for the whole time.
Also, Bitcoin was released in January 2009, before anything but the very earliest trivial reactions to the collapse, it absolutely was not inspired by the much later criticisms of the reactions that largely hadn't yet occurred when it was released, no matter how amusing your theory is that the motivation for Bitcoin was literally people pissed off that an entity existed which had power to act to prevent a catastrophic economic collapse.
The government didn't actually print any money, the central banks just acted as a "lender of last resort," which works just as well in Bitcoin as it does in cash.
Isn't it already a common knowledge when someone says "the Fed prints money", they're flipping digits in their computers and not actually printing paper bills?
The Fed doesn't print the paper bills anyways. The Treasury does it.
But the point is that they could still do this with bitcoin. Even if they don't have the ability to create a bunch of bitcoins out of thin air, they do have the ability to credit their accounts. As you said, "So that's how the bitcoin came about to make a currency where there are no central governing body that can just print more whenever it wants," but the bailouts absolutely could still occur, because you don't have to directly control the money supply to be able to act as a lender of last resort.
What do you mean by "they do have the ability to credit their accounts"? So the Fed will print more dollars and buy bitcoin? The total number of Bitcoin still doesn't change and it will raise the value of Bitcoin while devaluing dollars.
The bailouts can still occur but it will occur in dollars since that's the only currency the Fed can print. If the Fed prints more dollars, it will devalue the dollar and everyone who holds dollar will have less purchasing power while if you had Bitcoin (or gold or any other currency), you're purchasing power won't be affected.
The decentralized aspect of using dollars in cash form(!), is something I would rather call permissionless. And that is exactly what Bitcoin set out to approximate for the Internet age.
(Indeed the "cash" reference in the whitepaper title refers to fungibility and permissionlessness, not tangibility or pictures of old presidents. This idea is much older than Bitcoin.)
> The sort of activity which led to the financial crisis would not be mitigated by the establishment of a decentralized currency.
I can't speak for every ideological bitcoin supporter, but you and I may differ on what constituted the "crisis". I agree that it would not deal with the activity which led to the financial crisis. But to many, the crisis was not that the banks all failed, but that they were not allowed to fail, and were bailed out instead. The genesis block doesn't say anything about addressing irresponsible behavior on the part of the banks. It says "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks"
People can do stupid and irresponsible things, and they can do stupid things with other people's money, but they have to bear the consequences.
Sure, if the government in question has the funds on hand or can borrow them. But they can't just literally increase the number of Bitcoin by a factor of 5 [1] in order to give trillions of dollars to people who have demonstrated their incompetence at handling that money.
> But they can't just literally increase the number of Bitcoin by a factor of 5 [1] in order to give trillions of dollars to people who have demonstrated their incompetence at handling that money.
Sure you can. It's code, why wouldn't you be able to change it?
There is no reason that cryptocurrency has to be inherently deflationary, rewards can easily be issued at a constant rate or any other rate. You are mixing up Bitcoin, the libertarian implementation, with the abstract cryptocurrency in general. This is an implementation detail.
In fact, there is actually already a rather storied history of centralized interventions to bail out failing institutions. See: the DAO hack and the subsequent rollback...
Could Vitalik just as easily have said "JP Morgan now has +5 million Eth?" Absolutely.
Nobody else necessarily needs to accept that version of the blockchain (see: Ethereum Classic) but there is a network effect here: if everyone else agrees to accept that version of history then sucks to be you, everyone wants to deal with Eth not PaulCoins. And people tend not to be willing to accept calamity when offered an alternative. Ethereum Classic is the version of history which best upholds those high-minded libertarian ideals, but it's also the version of history where a single attacker has 15% of all the ether.
> Sure you can. It's code, why wouldn't you be able to change it?
Fair enough. I'd expand that to say "code + consensus", which is what the rest of your post expands on. If the Bitcoin (for example) community really buys into the idea that we need to bail out some set of organizations, it's possible to execute a fork to do that. And the number of validating bitcoin clients out there is pretty large, so it would require a lot of buy-in.
It would have to be a hard fork (it would be possible as a soft fork, segwith-style, but the new coins issued would not be able to mix with pre-bailout coins unless clients updated).
To be honest, though, you're probably right. In my mind, depressingly so. The biggest takeaway from "too big to fail", even amongst progressives, seems to be that we have to shrink or break up the organizations that are too big to fail, rather than letting them fail -- only diehard libertarians and outcast Austrian economists believe that. The next time we hit this, we'll give the money to AIG to give to Goldman and buy Chris Dodd another house and move on with our lives while we get busy creating the next bubble (I think retail this time; that seems to be where the easy credit has relocated).
I think if cryptocurrency were ever "officially" adopted it would be a centralized model anyway. Something like Ripple or that proposed Canadian cryptocurrency.
With a centralized model, there's no need for miners or mining, because you trust the system that you run. And transactions could be extremely fast.
Basically, it would look a lot like a bank with an API and public/private key signatures, running on a regular old database. Governments would probably love this, in fact, since it would prevent the cash economy from stealing their tax revenue.
You may or may not consider this "cryptocurrency", but then again most "blockchain" companies these days are just using it as a fancy database. Why do IOT devices monitoring production of $PRODUCT need to sync a blockchain? Why not just have them hit a REST API that is controlled by the client? Again, you can presumably always trust yourself/your company, so the trustless part doesn't add much value, and for a lot of this stuff there is no real need for consensus-resolution type functionality that the Bitcoin part provides.
If all you need is Merkle trees... those have been around for what, 40 years now? Bitcoin didn't invent them, Ralph Merkle did.
> If the Bitcoin (for example) community really buys into the idea that we need to bail out some set of organizations, it's possible to execute a fork to do that. And the number of validating bitcoin clients out there is pretty large, so it would require a lot of buy-in.
With crypto, you are essentially switching the authority figure from an elected government to a bunch of faceless miners forming an oligarchy.
I don't think you understand how that works. The government didn't literally print more money, they bought securities from the banks in exchange for credit in the central bank's account. No actual money was printed. The increase in the BASE is because the Fed was reducing its reserves.
This is entirely possible to do in Bitcoin, you can still have a "lender of last resort".
Not "credit" in the sense of a "line of credit", but "credit" in the sense of "increased the amount held in their account" -- the banks, if they so desired, could ask the Fed to deliver, as cash, the money held in reserves, so long as they upheld their reserve requirements at the same time, and the Fed would have, by law, been forced to instruct the Treasury to deliver the specie.
Of course, the plan was that the troubled assets would be purchased by the Fed, an sold in a non-firesale fashion, and cancelled against the increase in the money used to cancel that out, to return the held reserves back to the trendline that predated 2008.
Congress had instructed, through TARP, the Fed to purchase "troubled assets" and had authorized amounts, but the Fed ignored those instructions and restrictions entirely and purchased none of the troubled assets, instead bolstering the reserves through the standard open market operations, and later, through quantitative easing, which is just an acceleration of the standard open market operations, with the purpose of creating enough inflation to allow the economy to recover. But that inflation didn't happen (still hasn't happened) for reasons that literally no person on earth can explain. Then the Fed did some balance sheet gymnastics (mark-to-market is a glorious thing) to show that all the TARP funds had been repaid (with interest!).
Yes, but it could remove the need to bail out the banks, which is really the crux of the issue when you get down to it. As it stands today, _not_ bailing out the banks would have crippled or destroyed the world economy (at least, that's my understanding). The banks are, literally, too big to [be allowed to] fail.
Cryptocurrencies could eventually remove enough power from banks to render their failure absorbable by the global economy.
Granted, I find it very unlikely that any cryptocurrency could remove the need for banks in general - they fill too many roles in the financial system - but it could reduce the market's reliance on them in general.
There's a lot of "could"s in all of this and I'm not an economist myself, so, grain of salt and all that. I will say that this is all based on things I've read from people that are, to the best of my knowledge, actual economists, but you should do your own research if such a thing interests you.
If a tbtf bank algo went haywire when trading with the intent to maintain some position in cryptocurrencies because of some market spike/error/or w/e over an exchange and lost alot of money, yet others who were on the other side of the trade safely moved their gains to private wallets, the exchange wouldnt be able to negate those trades and claw back funds (like they did during the gfc) and those tbtf banks will be out of their desired positions; such that even if they were bailed out by some CB QE program, they'd still have to spend those bailed out funds to re-enter their previous positions.
Meanwhile those who came out on the otherside of the trade with their desired positions will still have more resources to allocate at their disposal than had they been clawed back/reveresed.
My assumptions about being bailed out are that it comes down to CB's inflating the currency supply to aquire assets that burden some privileged actors balance sheets.
And what it means to not be bailed out means to pay more on ones mortgage than market value of such asset.
To take the biggest example, AIG's owners did bear the consequences. Their equity was wiped out in the bailout. Do you believe individuals who did business with AIG are the ones who should have born the consequences for bad decisions made by the owners of AIG?
Well, first of all, yes, 100% certainly -- if you try to buy insurance for uninsurable things, then you are taking a risk, and risks can have downsides.
And as for bearing the consequences, we simply do not have the capacity within the rule of law to make them bear the consequences. The people who made the decisions were extremely well compensated even outside of equity up until the moment when the house of cards came crashing down, and those people have now moved on to equally lucrative jobs -- hell, they can probably put on their resume that they managed to convince the government to give them billions of dollars to cover their asses, which is more than anyone else gets when their bad decisions come home to roost.
Without the bailouts there would at least be grounds to sue the individuals who created the situation when things unwound, because there would have been consequences.
I'm getting a little up in arms here because nothing triggers me more than the idea that macroeconomics is a science -- all the actions around the bailouts, and this narrative of "economic collapse" and "too big to fail" -- the same people who disastrously failed to predict the future before we're now trusting to predict the future. Einstein said in response to the fact that hundreds of scientists thought his theory was wrong by saying "if I were wrong, one would be enough". In economics, nobody would even consider their models to be incorrect, no matter how much they have been falsified.
The vast majority of people who did business with AIG had nothing to do with subprime. Your whole answer seems to assume that the consequences of AIG going bankrupt could have been neatly contained the subset of their business that caused the problem.
No, it would not have been neat. It would have been incredibly messy. Their life insurance in particular, was mostly shielded by statute, but the remainder of their business would have been fair game -- that would have had wide-reaching implications, both in and out of the financial sector. The collapse of major investment banks that would have inevitably followed would result in many companies not being able to make payroll. That would have exacerbated the already existing problems with the real estate market collapsing, as meeting payment obligations would be more difficult for people, further depressing the values of mortgage-backed securities, as financial companies would have sought to mitigate their losses and cover their reserve and capitalization requirements by selling things at firesale prices.
It would have been a disaster of epic proportions. Would it have been worse than what happened? I don't know -- and neither do the economists who insisted on action. As it was, innumerable businesses not at the scale of AIG were left in the cold to collapse without billions of dollars of free money, and, more significantly in my view, institutions and well-capitalized individuals who correctly predicted the collapse of the market would have been well-positioned to use their assets to buy up undervalued assets (including home mortgages, which, if purchased at fire sale prices, would have made decisions about de-valuing the loans easy, because the effective yields would have been so much higher).
You are correct that the activity that led to all financial crises will not be mitigated in the domain of national currencies. It will be avoided in decentralized money that is uncorrelated, like gold.
Your concept of decentralization is off. The purpose of it is this: How many points of failure are there? How many of these points can break before the cards all fall? If this happens, who pays for it?
This illustrates that the USD is not decentralized.
Cryptocurrency is an exit from this, much like gold or real estate or other investment vehicles. Cryptocurrency is available to anyone with a phone and internet access -- that cannot be said for any other investment vehicle.
This will take the wind out of the sails of financial institutions as there is another option for people.
Switching to cryptocurrency actually makes the problems worse, because instead of regulated entities calling the shots, we have an oligarchy of ASIC-armed miners calling the shots.
Between the two evils, any sane person would rather trust a regulated business than some folks who prefer to hide in the shadows.
Possibly, but the space requirements for crypto shouldn't be underestimated. I think Satoshi kept 1MB blocks because he realized it would quickly become untenable for most people to run full nodes. ETH has similar problems.
What does the end game for this situation look like? Will people just create Bitcoin Zero, which is identical to Bitcoin but preallocates the existing coins starting from the genesis block? (A manual GC, as it were.)
Otherwise it seems like crypto will be around 100 years from now, but probably not BTC. At least not in a form where non-miners can participate.
Bullshit. Have you ever done wire transfer ? Every SWIFT transaction goes through US. Let’s say you want to transfer USD from one Vietnamase bank to another Vietnamase bank; even local USD transfers has to go through US and people get charged a lot for that. Just for transferring 25k USD between two local banks, I got charged $150. It’s ridiculous to claim “USD is decentralized” in a world where developing countries can not even trade with eachother without paying US a cut.
>”The sort of activity which led to the financial crisis would not be mitigated by the establishment of a decentralized currency.”
Indeed, the ‘sort of activity’ which led to crisi is simply called greed. As far as I can tell, crypto currencies have simply become new fuel for greed thus far, and the result will likely be the same.
A cure for centralized currency != a cure for greed.
The USD is one of the most centralized currencies in the world. Just because everyone has some does not mean its decentralized. It is still minted and distributed through centralized silos owned by the government, and policy enacted by the government ON the currency is still effective.
> it is still minted and distributed through centralized silos owned by the government
Money can be created by privately-owned banks, which adds a significant decentralized element to the mix. Cash settlement is also, if done physically, a totally de-centralised transaction mode.
In modern systems money can be created by banks lending money. That's an interesting property as money creation is tied to the course of the economy. However, this can lead to inflation if the amount of money created actually exceeds the growth in economic activity.
In the gold standard model where the amount of money is completely uncorrelated with economic activity, you have inherent deflation. Deflation is a serious threat, as it pushed people to hold onto their currency (as the real value automatically rises) instead of spending or investing it.
Bitcoin is really a digital gold standard. There is no way that a gold standard currency can support a growing economy efficiently.
> Deflation is a serious threat, as it pushed people to hold onto their currency (as the real value automatically rises) instead of spending or investing it.
Why would people not invest (or spend for that matter)?
It's not like people wouldn't take deflation into account the same way they do with inflation today. If you loan out a dollar today and at the end of the loan its worth $1.03 then you simply adjust the interest rate to reflect this difference. Not like its some complicated formula that starts off with "thar be dragons."
Same can also be said about spending. As a contemporary example why would anyone buy a computer today when they know that in the near future they can get a better model for less? The whole computer industry thrives in a price deflationary sector of the economy.
Whenever someone is trying to push one economic theory over another the key question you need to ask is cui bono.
> Why would people not invest (or spend for that matter)?
People will still invest, but risk tolerance goes way down and ROI expectations go way up.
Concretely, your business plan has to compete with "I can get an x% return by putting my money under my pillow", and x becomes very large in a highly deflationary economy. Place yourself in the shoes of a person seeking investment in a productive business, and the problems with a deflationary economy become obvious. Being good isn't enough. You have to be better than "sit on my ass and get rich doing nothing".
In other words, the primary concern in a deflationary economy is discouraging value-producing economic activity.
Also, all of this is wrt deflation in general. Notice that a fiat currency can easily be deflationary. The deflationary nature of gold standards is a major component of the criticism of gold standards, but there are also other reasons that people oppose gold standards.
> Same can also be said about spending. As a contemporary example why would anyone buy a computer today when they know that in the near future they can get a better model for less? The whole computer industry thrives in a price deflationary sector of the economy.
People still buy computers because having a computer today helps capture value that you can't capture by having a better computer tomorrow. For consumers, entertainment tonight. For businesses, automating processes today.
> Whenever someone is trying to push one economic theory over another the key question you need to ask is cui bono.
That's not quite fair. There are people motivated by truth and there are also people motivated by ideology.
You buy the computer when you need the computer. No one buys (or no one with any sense) a computer today if they won't be turning it on for a year.
In an inflationary economy you are motivated to spend the money early, rather than late. And as buyers predominantly drive the economy and not sellers, this keeps things moving at a reasonable tempo (barring extreme inflation).
In a deflationary economy you are motivated to spend the money later. And, again, as buyers drive the economy more than sellers, this slows the pace of the economy. [0]
Right now it is to my benefit to buy a house for $200k and secure a $180k loan at 3% interest because with inflation the real interest rate is actually more like 1% (assuming the target of about 2% inflation per year).
In a deflationary economy that $180k loan at 3% would have a real interest rate closer to 5%.
The lender comes out great, they still get their 3% interest and the effect of deflation. The borrower gets shafted, they're paying back much more than the property is worth by the end of the loan (even worse than under inflation).
However, while buyers get to drive much of the economy compared to sellers, lenders have control of the capital and are in a better position to set the terms than borrowers. So under deflation buyers are doing fine, lenders are doing better than now, sellers are meh, and borrowers are screwed.
[0] Why I say buyers drive an economy more: It is very difficult for seller to force a sale. The buyer almost always has a choice. Now, the seller can set the price but as they want to remain profitable they can only push it so high before they lose sales to competitors who recognize the opportunity to undercut and remain profitable.
> You buy the computer when you need the computer.
But this isn't a general rule for other goods and services so they have to devalue the currency to encourage people to not save? Because monetary inflation is basically a tax on savers.
> In a deflationary economy that $180k loan at 3% would have a real interest rate closer to 5%.
Which is why they would adjust the interest rate to take deflation into account.
I can see this argument in today's economy since inflation is built into everyone's calculations and borrowers would be hurt if they couldn't rely on inflationary pressure to adjust the interest rate downward but that doesn't prove that deflation is inherently bad, only that people are capable of long-term economic calculation.
Lending dynamics are different in a gold standard economy, with a fixed amount of currency, because banks do not have leverage on lending.
Today, banks need only have ~10% of the money they lend in deposits. The rest is new money. With a fixed money supply, banks can't do that. You divide by 10 the amount of money available to lend. In a gold standard economy, money supply available for financing is much, much more restricted.
The modern economy is a constant bet on future economic growth. Failed bets translate into inflation on a macro-scale, and painful leveraged losses for banks on a micro-scale. With fixed money supply, you cannot bet at all and potential growth is, by definition, much slower.
It's always surprising to me when (not-already-on-the-top-f-the-world) software types see virtue in gold standards. The fact that our work -- moving bits around -- produces so much economic value is an epitome of everything that's wrong with a gold standard.
> P2P transactions are accepted with almost anyone in the world
For a startling Exhibit A, consider that North Korea [1] and Iran [2] hold and transact with large quantities of U.S. dollars (in physical cash) despite American sanctions.
Kind of, though in some sense the value of a dollar is a matter of consensus, relative to the consensus value of other currencies and assets, as determined by exchanges. Modifying interest rate and money supply try to change the denominator, but value is technically preserved.
It really depends what you mean by that. If you compare it to currency in a game which can be removed with a bug that sets a few bits then USD it's quite decentralized in some respects.
I disagree, I think that the federal reserve's artificially low interest rates and essentially unlimited supply of money for the banks to loan out at these interest rates were at the heart of the most recent financial crisis in the US. A decentralized currency would certainly mitigate that.
No. The heart of the crisis is people believing they can easily make money by investing in a product they don't understand.
I can sell a CDO on CDS in Bitcoin, and make a lot of money while the buyers are all getting screwed. And they will be even more screwed as nobody will print cash to cover or limit their losses.
What you are describing is a moral hazard. A situation where people will take risks they wouldn't normally take because they know they will be bailed out if they lose money.
What exactly do you mean by 'artificially low'? All short term rates are just a function of central bank policy. The bank will raise or lower rates in an attempt to control inflation (and any other mandate). 'Abnormal' I'd grant you, but not artificial.
DOGE is a pretty good currency to use for moving money between exchanges. That is why its used. If BTC had low/no transaction fees and was fast, people would have less incentive to use DOGE.
Overvalued? Its possible but I think the entire crypto market is actually insanely undervalued. I was talking to my financial advisor the other day and he said pretty much 100% of people now are asking him about crypto and are considering putting money in. This seems like it is just the start.
The figure for the .com crash was around a 7 trillion dollar market cap. Crypto is 0.7 trillion today and its more of an international market then the .com days. Easily cypto could 10x in size over the next year or two.
In the end its super high risk speculation. You can figure the entire market is overvalued but there is no doubt that there is money to be made in several sub-sectors of the crypto market.
> I was talking to my financial advisor the other day and he said pretty much 100% of people now are asking him about crypto and are considering putting money in.
100% of those are not interested in cryptocurrency at all, they are interested in anything that goes from bottom left to top right if charted against their local denomination. They don't want crypto, they want fiat and see crypto merely as a possible means to that end. This translates precisely to "Crypto is only backed by greed", which is exactly what people mean when they call it overvalued.
(I call 100% and not 99%, because those few genuinely interested in crypto would not bother asking their financial advisor)
Somewhere down the chain stocks invest in actual production value, which creates goods or services that people use, and increases the sum total of wealth in the world.
Buying the stock is buying the rights to a stream of income based on that productivity.
These "investments" in cryptocurrency don't have that aspect whatsoever. There is no claim on productive enterprise involved, and for the more niche offerings that have some element of that the economics are so wildly divorced from the fundamentals of productivity to make the link meaningless.
> There is no claim on productive enterprise involved
That's not true. Many coins offer practical solutions to real world problems. Whether they are adopted at scale is the gamble. Very similar to betting on companies with stock.
Theoretically. But it's kind of like betting on a 4 person seed stage company by raising a $3bn Series F round. Except with no actual legal ownership claim on the productive assets of the company. Which means it's actually nothing like buying regular company stock at all.
>Overvalued? Its possible but I think the entire crypto market is actually insanely undervalued. I was talking to my financial advisor the other day and he said pretty much 100% of people now are asking him about crypto and are considering putting money in. This seems like it is just the start.
Ask him how many of those same people consider using it as a currency.
I suspect they will remain interested in it so long as they hear about incredible gains and Bitcoin millionaires. I suspect that when the hype dies off (say if cryptocurrency prices were to stabilize) they would not be holders of any cryptocurrency the same way they are not holders of Yen, Euros, CAD, USD etc. for the purpose of investment.
It is very faulty logic to say that because .coms got to 7 trillion market cap (and as an aside, isn't that whole exchanges, not just technology stocks?) we should expect crypto currencies to go much higher than 0.7 trillion valuation. The analogy between the two things makes sense in that they were both popular investments, but otherwise are different in many ways.
The difference between two bubbles was the float involved in them, and liquidity. Currently a big portion of the market cap is due to "to have 1b dollar market cap, pay 1$ for 1^-10 of the company" phenomenon.
Minting new coin is not difficult, there is CrptoNote project on Github you can fork and in matter of minutes you can have your own "Coin" and start mining on couple of old Linux boxes.
I understand the network and traction, but this is not very different from each bank having its own currency notes back in the day (1800s?). The biggest problem is they are not stable enough to be currencies their volatility makes them more like commodity/asset and their Transaction speed does not make them huge transaction payment systems. They fail at both promises when they gain traction, of course, there will be ultimate winners in this space. Instead of calling them Cryptocurrencies, calling them DLT (distributed ledger tech) is more appropriate for most the coins anyway.
I'd trust Doge more than most cryptocurrencies, honestly. It's relatively established, the community doesn't or at least didn't take itself too seriously (sounds like that may now have changed), and it took the (admittedly mostly symbolic) decision to allow "mining" to continue indefinitely, ensuring there will always be a Doge supply rather than passing all gains to the early adopters. In a sense it's a lot more functional than Bitcoin - people use it for "microtransactions" and "tipping" that would be impossible with Bitcoin's transaction fees.
Although there hasn't been a release in two years they're currently working on releasing 1.14 this year. In case you're interested the core devs have been doing a pretty good job on keeping people informed on the status of the release on the subreddit. Latest post here: https://www.reddit.com/r/dogecoin/comments/7oxi53/developer_...
> It's relatively established, the community doesn't or at least didn't take itself too seriously (sounds like that may now have changed)
It changed a bit, but not entirely. Check out the subreddit and you'll still see lots of Comic Sans and image macros.
I have Dogecoin to thank (blame?) for getting me initially interested in cryptocurrency precisely because the community was so welcoming and didn't take itself so damned seriously, and even though Dogecoin is more "valuable" now, I'd still recommend it for those looking for a low-risk and relatively simple introduction to the concept.
If you're invested I wish you the best. But here is why I think all cryptocurrency is worthless: It is backed by nothing.
The USD is backed by the courts of the USA, which in turned are backed by people with guns (law enforcement and the military). The YEN is backed by guns. The GPB is backed by guns.
What is BTC backed by? If someone literally steals your BTC, what recourse do you have? There is no court to go to, no one to back it up.
Even the most hard core Libertarians acknowledge the need of a court system and force to back up contract law.
So I will never invest in cryptocurrency because of that. Maybe I'll be wrong and miss out, but that's a risk I'm willing to take.
Distributed ledger is a good thing, but it isn't a store of value in and of itself.
What are you talking about? If someone steals your gold, your recourse is the police force upholding civil law. The situation with Bitcoin would be identical.
When people speak about military backing of currency value, they do not imply that you can expect Her Majesty's Royal Navy to come out in full force should your British Pounds get stolen.
Of all the criticisms about Bitcoin, that was an unusual one. There are no special courts for stolen cars, cattle or currency. There's just the regular ones.
If someone literally steals your BTC, you have the same recourse as if someone stole your golf clubs. The mechanism of law enforcement and the justice system will try to get your BTC or golf clubs back, and this has happened numerous times already. If they take my golf clubs or BTC or USD through fraud then the rules are slightly different, but all of them will be treated the same way by the justice system.
Now it is backed in the sense that if I say that I will not accept USD in payment of a debt, then I am pretty much out of luck. If someone borrows my car and destroys it, and they offer to make restitution in fair value in USD, I cannot say no to that (except to complain about how fair the value is), or demand that they give me a new car in exchange if they are not willing.
There are more subtle differences; if someone takes my USD then they can return the same number of USD, any old bills will do; whereas for golf clubs or BTC the situation may or may not be different.
All of this is just the justice system, though. I fail to see how the military figures into it, except that if another country decides to start printing dollar bills, then our military will get involved, and the cost of maintaining that threat is part of the cost of maintaining the currency. Fortunately, that's a moot issue with cryptocurrency, which has much better anti-forgery systems that do not require the use of guns.
The whole notion of any currency being "backed" by anything dried up a long time ago -- the closest we have now is casino chips, which are backed by the relevant currency and the faith and credit of casinos.
Exactly. There are laws and rules about moving USD from one person to another, and if someone violates those rules, you have recourse in the courts. And if they don't follow the court order, someone with guns will come and force them to follow it.
If that's your definition, I could say that my Bitcoin is backed by mathematics and proof of work because "violating" the rules (by taking my coins without my consent) requires either guessing my secret key or mounting a 51% attack on the whole network
Don't be silly. We've already seen multiple examples of stolen coins with no recourse -- exchanges taking the money and going bankrupt, people issuing new coins and then just taking the money, etc.
And I don't have to guess your secret key -- I just have to steal your computer. Even if I get caught stealing your computer and have to give it back, if I've already compromised your wallet and moved the coins, there is nothing you can do to get them back.
I'm not saying such "extra-protocol" theft of coins is unlikely. I'm saying that it is possible to prevent them (eg I run the key generation algorithm in my head, memorize the secret key, then accept some coins at the public key). I don't place them in an exchange. The only way to get it is to kidnap and torture me, and the US police will try to prevent that from happening, and I can sue you for assaulting me.
The point is not that doing something like this is practical for anyone, it's that in that case, my coins seem to be backed by math and PoW (and the infrastructure that prevents people from getting kidnapped). Basically, it seems weird to argue that the USD is "backed by courts" by your definition because suing someone to get your USD back is only necessary because it's possible to steal USD from someone in ways it's not always possible to steal cryptocurrency from someone.
Also, by your argument, the USD is not fully backed by the courts either; I can steal your wallet, take your USD, sell them for gold, and then abscond to North Korea. Then there is nothing you can do to get them back.
Also I don't completely appreciate the name-calling - I find both cryptocurrencies and "traditional" currencies (monetary policy, how it's linked to state power, metallism vs chartalism, the historical gold standard) fascinating - and I expect we can have an interesting conversation about the latter (specifically, trying to rigorously understand how the USD gets its value) in good faith
Gold bars in a vault are at least something of value, and not just bits on a drive. The physical gold can be used to make things. What can you do with the bits on a drive?
That's not the reason gold is a popular reserve. It's just hard to inflate, and we've decided to pretend it's valuable because the alternative would be inconvenient. Like Amazon shares and the concept of web advertising.
> I feel some are using our rise to illustrate the absurdity of cryptocurrency pricing (http://uk.businessinsider.com/dogecoin-cryptocurrency-has-ma.... for example). To me, in an environment where a cryptoasset with $30 USD equivalent transaction fees has a market cap of over a quarter of trillion dollars, I don't think we're the absurd one. Yes we take ourselves less seriously, but that doesn't mean we're not serious behind the scenes. We're a 4 year old currency with transaction fees barely over a cent and significantly higher throughput than most other cryptocurrencies.
> Once the cryptocurrency price bubble pops and takes all the hype with it, will the community be able to recover the energy it needs to build real, innovative technology once again?
Yeah because most people are putting fun money into the alt-coins.
As long as people bought bitcoin and ethereum, they probably will end up positive.
The people that are riding on 3 month old coins like IOTA or TRON will lose. Those risking everything on the future of Ripple or BCH or 1-2 specific coins will lose.
Those that diversify impartially will come out major winners.
Speculation is worthless because unlike bitcoin it seems to be infinite supply. Tell me that you're able to predict what the cryptocurrency scene will look like 1 year from now and I'll call you a fool.
Your thought process to reach that conclusion might prove more insightful however. So far it seems that cryptocurrencies move alongside each other for the most part, when the big ones go up the smaller follow. If you diversify in crypto and everything crashes at the same time how do you win? How does one diversify "impartially"? What if it turns out that in the end only IOTA remains?
For all the talk about real use cases and replacing fiat cryptocurrencies are 99% speculation and get-rich-quick schemes nowadays. It seems we still have some wild times ahead of us before it settles one way or an other.
They rise and fall mostly with Bitcoin, Ethereum has shown recently to be more independent, but the biggest drops are usually spurred by panic about crypto regulation.
Regarding 2018, I'm your fool...here are my predictions:
Bitcoin will remain top market cap and crypto numeraire. Majority of the newest projects like IOTA, Tron, etc. will be down significantly.
Burned by vaporware projects, investors will become more cautious about "new" ICOs and enormous token issuances. None will rise as quickly as TRON, EOS, and others did.
Ethereum will remain #2 but at least once will have had a great run against Bitcoin, hitting 80% of bitcoins market cap.
Overall crypto market cap will rise 200%-300%.
Ethereum will continue to have most transactions, enterprise, and developer support. Could change in 2019 and beyond, but has a huge lead right now.
Ripple will crash further, but the platform will gain real world usage.
BAT will rise and support becoming common on enthusiast sites, like tipjar services.
Most of the smart contract chains in development will make no real progress, but I expect at least one "ethereum killer" to become a reasonable alternative.
Disclosure: I own Ethereum and Bitcoin, would buy some others but maxed out on my crypto exposure.
I want to play too! Here is my prediction for 2018:
Just as 2015 was the year of the altcoins, and 2017 was the year of the tokens (why mess with a software project when anyone can create an ERC-type token effortlessly, plus there's no mining so you can sell every last bit of it day one), 2018 will be the year of the forkcoins. Things like Ethereum Classic and Bitcoin Cash are just too lucrative to pass by.
Expect to see Ethereum Black, Bitcoin Plus and Litecoin Gold. Each with a subtle change from the parent in block times, hard caps or other parameters. More than one will also try to steal old unspent UTXOs (including Satoshi's) for the developers themselves.
Every improvement to the underlying protocol will see a lot of manufactured dissent to lay the groundwork for a fork, even regarding opt-in features (such as segwit and p2sh).
Ethereum and Monero continue to grow in market cap as they work and nail a niche very well.
Bitcoin core starts to decline in about 3 months as volumes on Bitcoin Cash grow. Lightning doesn't pan out because it has strong centralizing forces so it is no better than fiat, and it will still have higher fees than Bitcoin Cash because it adds use, rather than limits it, which further increases demand, and therefore fees.
Bitcoin Cash grows as it takes the mantle from Bitcoin Core.
The market hasn't noticed that real innovation and development is taking place on this chain yet. It has adoption coming in from business that depended on the cash use-case and built for bitcoin core. Bitcoin cash also has features coming that were planned for a low-fee environment, like colored coins.
The success of Bitcoin Cash over bitcoin is an inevitable consequence as the public will prefer a store of value they can transact to one that can't be moved. If you make 20 transactions with $400 in Bitcoin Core, because of fees, it is gone! There will be more forks, but none will gather critical mass.
One or two of the newer crypto speculations delivers and succeeds. The others do not. Most of the DAG cryptos are dependent on "goodwill among men", vs. relying on greed, so if they take the spotlight, they will fall to attacks.
This argument is also true of any equity that doesn't pay out dividends.
Most people wouldn't consider the stock market to be a zero-sum game. Maybe in the ultimate long-term, but not within a time frame that's meaningful for anyone.
You're forgetting book value and future earnings valuation.
If a company earns $X billion per year, even if they don't issue a dividend, if their market cap dropped to fifty bucks an acquirer could swoop in and pay themselves the company's earnings directly for as long as it keeps running, or shut it down and sell off the book value for a profit.
If there's no dividend, any earnings + book value still exists as a potential profit to someone who would own the company. So you just have to assume that in the future someone would be willing to buy $X for $X-1.
Isn't it obvious that buying shares in a public company gives you proxy, fractional ownership of a business that's generating cashflow? You don't get that with crypto. Crypto, on the other hand, literally requires someone else to take you out in order for you to profit.
This is the kind of dangerous thinking that fuels speculation bubbles. Bubbles go up and up and up until they plummet all at once. Everyone looks like they're winning all the way up until everyone suddenly loses together.
Maybe Bitcoin isn't a speculation bubble; maybe it's something new. But if you ignore the underlying tech and just look at the price chart it sure looks like an old fashioned speculation bubble, and those traditionally don't end well for the median investor.
The internet was something new, and it fueled a speculation bubble. I think we are seeing something similar with cryptocurrencies. Are they something innovative and potentially useful? Yes. Do their valuations make sense? No.
Well, a handful of tech companies are some of the most valuable companies in the world right now, a few of them thanks to what was then the untapped power of the internet(Amazon, Google, Facebook), Google and Facebook not only are huge companies but they can also influence elections and public opinion.
There is no question that there was a bubble, but the value of the internet as a platform for building businesses now far exceeds what people expected it to accomplish in the dotcom bubble.
I'm not saying cryptocurrencies will have the same fate, but it's not impossible.
I think their valuations will make sense, but no, not right now. I think this whole pile is breaking ground on new tech, tech that will redefine some of the things in our lives. Will Bitcoin / ETH be what holds on? No idea.
Sure, some cryptocurrencies (which may or may not include Bitcoin) will probably have some long-term stable valuation (which may or may not be above their current market value). That doesn't imply that what we're seeing now isn't a bubble, and it's not going to provide much comfort to someone who loses their savings investing in a "sure thing".
If you're smart enough to pull out profits and diversify then you're fine. It's those that go all in, "it can only go up", that are going to be in trouble. I fear a lot more people are in the latter group than the former.
Dogecoin is kinda like a control/placebo for real cryptocoins. And the fact that it exploded without providing real distinct utility apart from existing coins is an indication that something is indeed wrong.
Originally it was pretty much just a fork of Litecoin, but since then Dogecoin has considered the economic viability of it as a real currency. It's one of the few inflationary cryptocurrencies, it has a block every minute which is good for confirmation times, the transaction fees are very low, AuxPoW has given it a huge network of miners keeping the network alive, and the core devs have kept the stability of the network above all else which includes not adding every new feature that all the other altcoins love.
Here's a reply I posted elsewhere in the thread about this:
Although there hasn't been a release in two years they're currently working on releasing 1.14 this year. In case you're interested the core devs have been doing a pretty good job on keeping people informed on the status of the release on the subreddit. Latest post here: https://www.reddit.com/r/dogecoin/comments/7oxi53/developer_...
Also, there has been lots of updates to the github repo, just look at the 1.14-dev branch instead of master.
Doge is an absurdity. Like "Cards Against Humanity" or the "C'est non un Pipe" paintings. That it can be considered to be 'legit' or anything else is fantasy.
Anyone that is investing in Doge is a fool. Unfortunately, there are just too many damn fools.
Interest in coins are going up, so of course that will spill over to the easier, less risky coins like Doge that people will want to experiment with to see if they like the model.
And with that increased demand inherently comes increased value, not because people are pumping up the meme coin, but just because it's becoming more active, along with the rest of the ecosystem.
It also probably serves as a reliable intermediary coin to use as an exchange or more common coins.
At this point, if you put Dogecoin and Bitcoin next to each other, Bitcoin looks like the joke. It's slow, the fees are too high, and its developers won't address these problems.
Sounds like you're looking at the wrong metrics. Dogecoin had 0 commits to its main repository in 2017. Compare that to 3,277 commits to Bitcoin Core alone. Bitcoin has scaling issues that developers are addressing with second layer networks because tons of people are using Bitcoin. Dogecoin doesn't because it has so few users that the demand for block space is well below the available supply.
The story those numbers tell me is that Dogecoin is already working well enough that it didn't need updating. Whereas Bitcoin developers are scrabbling hard to fix the sinking ship.
I don't think commit numbers alone tell you the full story either (e.g. FLAC going years between releases, not because it's abandoned but because it's basically done). The 1.14-dev branch seems active enough anyway: https://github.com/dogecoin/dogecoin/tree/1.14-dev
Crypto allows people to do 2 very important and useful things:
1) Move money around government currency controls (for a small fee)
2) Invest and speculate on potentially valuable assets. Sure you can't live in, eat, or drive a Bitcoin, but finance/trading is all about creating and betting on abstractions, and virtual currencies are the ultimate abstraction. Crypto is especially attractive given the current easy money low volatility environment)
I am similar to the author in that I was very excited about blockchain and its implications in 2013/2014 and had recently become very disillusioned with how adoption played out in the real world.
I think it's time to move past this disillusionment and face reality instead of continuously being angry at how nonsensical a lot of this is, no matter how "useful" we really think these 2 current uses of cryptocurrency are.
The reality is that we are living in a world (in the US at least) we trust traditional institutions/knowledge to be able to provide common goods and help us raise our standard of living less and less. What do we want to do about that? Getting mad/worried about cryptocurrency speculation is not the answer.
> 1) Move money around government currency controls (for a small fee)
It's also an improvement over PayPal or banking for sellers who don't want chargebacks/bad checks/their account frozen for writing "Nico" in the transaction comments.
It IS possible (but hard) with smart contracts. Integrate with the shipping company API and the payment can be held in escrow until you sign for it plus, say, 7 days.
Caveats:
1. The shipping company doesn't just throw the thing on your porch and SAY you signed for it.
2. You don't sign for it until you've inspected the item.
If you don't sign for it, and seven days passes, the money is deposited back in your account.
Do the same thing in reverse if you choose to send the item back. If the merchant signs for it (upon receiving the return), the money is sent back to your account.
I know it's far from fool proof. There might even be a need for a "cryptocurrency compatible" shipping service in this space.
I think we're on the 5th or 6th one with two more to go in the next ten to twenty years as crypto chews through networks of people at different distances from expertise in bitcoin.
«Once the cryptocurrency price bubble pops and takes all the hype with it, will the community be able to recover the energy it needs to build real, innovative technology once again?»
Of course it will recover. Blockchain technologies are so transformational that you need a lot more than a simple price crash to kill cryptocurrencies. Of all persons, the creator of a cryptocurrency (even a joke one) should understand this. In fact, people always seem to forget that Bitcoin (actually the crypto market at large) has already experienced 4-5 major crashes in the last 8 years where prices lost between 50% or 95%(!), sometimes remaining depressed for months, but the market has always recovered.
> Of course it will recover. Blockchain technologies are so transformational that you need a lot more than a simple price crash to kill cryptocurrencies.
Are they transformation? I have yet to see a blockchain application that's not done more cheaply with a traditional database. Most of the practical uses of blockchain are as effectively centralized "distributed" databases (e.g. corporate blockchains), while the rest are cryptocurrencies and other distributed ledgers that are, at the moment, extremely volatile.
A blockchain-based cryptocurrency has 3 central qualities: decentralized, permissionless, irreversible transfers. That's what makes it transformational. No other currency or system can provide these 3 properties (except physically exchanging a commodity, eg. exchanging gold in the real world.)
You claim most cryptocurrencies are "effectively centralized", but that is false. For example if I make a Bitcoin transfer by broadcasting it to the P2P network (ie. assuming it reaches most miners), no single entity can block the transaction, thanks do decentralization (ie. many disparate miners around the world attempting to include the txn in their block.)
Just wait for Wall Street to start building complex derivative products that will be used as a vehicle for these cryptocurrencies and all of a sudden the bubble will reach epic proportions.
The founder who was given the title as "inventor" in this article is not the inventor. He did not mention the developer who help do the C++ source code and actually invent Dogecoin. I would call my cryptocurrency a joke too probably if I saw the price rise exponentially and didn't put the work to make it a viable blockchain. It is easy to criticize from an armchair.
It was a fork of Litecoin (I think?), so yea, someone had to fork it, rebrand everything and publish all the apps. (All the bitcoin derivatives from like 2012-2014 looked exactly the same .. same Android/QT apps .. minor differences and rebranding here and there. The big differences were usually the crypto algorithms and hashing variations...)
But really, your comment goes to something more fundamental in how we look at inventors and Captains of a ship.
Zuckerburge early code leaks of Facebook show it was some pretty terrible PHP, yet we attribute everything to him instead of the hundreds of engineers that made things like Hiphop, Hack, React, etc. etc. Bill Gates was not a good developer. A lot of his early success projects were license purchases and rebrands and not trying to get fucked by IBM. Don't even get me started on the cult of Steve Jobs.
People like to see a Captain of a ship. People like Karl Marx saw those workers rowing the ores. Even people with the nicer more high paying jobs like navigators, sill made a fraction compared to the captain, but it was enough they felt better than the stack below them.
Orwell agreed, but contested that even if the crew men revolt and take control to give everyone a better and more equal share, eventually over time, some people will convince everyone on the boat they should be at the top, and enough people would follow and you'd be back to where you were.
But yes, we always need to have an "Inventor" .. a Tesla or Musk or Ford; the leader of a ship, ignoring the thousands of people that made it happen.
The problem is the use of market cap as a valuation metric. It is absurd to think that your joke cryptocurrency is actually worth $2B just because one person was willing to trade at a price that implies $2B.
To show the absurdity, consider the people who buy used cooking oil from restaurants to turn into biodiesel for their modified 1975 mercedes 300D. They might pay $2/gallon for that used cooking oil. Would it be reasonable to assume that the market size of used cooking oil is now $2 * (Gallons of used cooking oil produced yearly)? No, that's absurd. Someone paid a high price for it, that doesn't mean everybody did or will.
> The problem is the use of market cap as a valuation metric
The currency analog to market cap is money supply [1]. It's a specialized term with less general utility than market cap for equities.
Market cap is a useful statistic because when it comes to shares, the whole is worth more than the sum of its parts. If you buy every share of Apple stock outstanding, you own a business throwing off $60 billion a year [2]. If you buy every Bitcoin in existence, you have nothing of value.
That said, the quoting of crypto market caps is a symptom. Nobody knows what these things are useful for. Dimensionalising the price is better than simply quoting a number. But you can't measure what you haven't defined.
No, money supply is a pure count. Money supply is not quoted in terms of trade, it exists purely outside of market behavior.
Market cap requires a trade market in order for it to be calculated. It is money supply x last trade price. That's why you quote a cryptocurrency's market cap in some other currency, whereas a market cap is quoted in terms of itself.
> Money supply is not quoted in terms of trade, it exists purely outside of market behavior
FX traders absolutely look at money supply, amongst other things, re-priced into hard currency when considering e.g. foreign-currency debt burdens; local rates, inflation and borrowing conditions; and the monetary policy relative to the internal and export-oriented economy. It's a specialist metric, though.
The money supply isn't the currency's value. Of course it is a factor in what traders are willing to pay to acquire it...but weather can be as well. Do you conflate the trade balance with the value of a currency too?
Market cap is money supply * last trade price. It mathematically can't be analog to money supply, any more than density can be analog to mass.
As in take the outstanding money supply and convert it, at prevailing rates, to U.S. dollars and look at that statistic over time. It’s a crappy metric, but it is useful in limited situations, e.g. when pricing rate or FX swaps.
Both market cap and money supply are metrics that sum across the set. In America we can just count dollars, because our unit of account is our currency. For countries with FX sensitivities, however, that sum is less meaningful in domestic currency than as a hard currency value.
And what if 90% of that market consensus is really just 10 different high frequency traders battling for top market making position, with the occasional humdrum buying to "diversify"?
The market depth says a lot more about a currency's value than the market price or even volume does. It's not something that can be summed up into a tidy single number, though. Which means people don't talk about it when when writing glorified blog posts.
This would imply that all cryptos are handled by 10
bots, which isn't the case. Coinbase added 1 million users in June last year, and that's just one exchange, so think if
crypto owners approximating 100 million people. They sure also buy cryptos, not only
bots.
> "In many ways, 2017 marked the year that cryptocurrency stopped being about technologically innovative peer-to-peer cash and instead essentially became a new, unregulated penny stock market."
I don't think it stopped being about tech innovation - there is a ton of stuff happening around proof-of-stake, layer 2 networks, state channels etc. It's just that the stories around the speculative aspects of the cryptocurrency assets have been dominating in 2017.
A copy/paste from /u/palmerstoned on reddit on 2018 Jan 7. What do you guys think?
/u/palmerstoned: There is no fucking limit on how high this can go (compared to traditional stocks where there actually is a limit due to economic indicators like P/E ratio's). When someone says it's overvalued or undervalued, they are automatically wrong because we have not found any method yet to actually value crypto's, unless you compare the value between crypto's. The nominal value of derivatives in the world is estimated at 1.2 quadrillion (probably a gross overstatement and a bad comparison but a man can dream). Let that sink in for a moment.
/u/palmerstoned: We are still far away from large investment bank ETF's where they actually buy Bitcoins or Ethereum. But it will come, they will never let all this money lying around. The problem right now is that exchanges aren't safe enough yet to be buying Bitcoins by the millions. UI interfaces for wallets are way tooo complex for the average Wall Street trading desk. But this will change, eventually. (definitely keep an eye out for investment opportunities in this niche market). Goldman Sachs has already announced they will put up a trading desk by the summer. Things are about to get a lot more crazy!
by my reading, Author thinks we're all better off when we're protected from our irrationality by regulatory entities keeping us from doing stupid shit with our money.
i think the run on DOGE is about how much easier it is to move DOGE between exchanges. i could care less about pump&dumps... that type of behavior will naturally stop if we leave ourselves to discover the risks.
if we use a regulatory mechanism to prevent folks from engaging in that type of behavior, we may very well prevent speculation, but we won't teach anybody anything.
i think it's smarter, on the whole, to let the crazy crypto churn continue, and see where it takes us, than it is to disenfranchise all kinds of folks from learning about markets/currency/etc... by regulating them away from it.
Pretty happy with the DOGE bubble since I've traded out a couple thousand already for other coins... thumbs up But, yeah, I'd wager that eventually the bubble will burst and there will be few remaining cryptocurrencies that hold their value, IMO.
I think that this article has too many anecdotal references to scams and profiteers but there isn't any sense of the statistics or scale. Without knowing if people are behaving worse on average in the crypto world or the fiat world, I don't find them very helpful.
My anecdotal experience has been really wonderful in crypto. I've become part of a really nice online community where people are eager to share ideas and help each other out. I've also found the crypto market to be far more approachable than traditional investments for myself. But who knows, maybe I just have been lucky?
Right now, BTC is the most popular. ETH is second most popular. I know some exchanges support monero, but those are very limited in what can be converted.
Yobit, where dead coin bags are traded with DOGE due to them being worth less than the smallest fraction of BTC or ETH whenever they aren't being pumped.
They do serve a purpose -- pumping and dumping dead coins that can't actually be withdrawn from the exchange. I didn't do my research and sunk about $100 into one. I'm technically up $20 on it (if converting to ETH/BTC, which I can't actually do because there's too many other sell orders at the exact same price necessary for me and others to make a profit ahead), but would be down as soon as I converted it to doge and paid the transaction and withdrawal fees.
The sort of activity which led to the financial crisis would not be mitigated by the establishment of a decentralized currency. Decentralization would not do away with the need for financial institutions (or the toxic incentives that can drive them and the ecosystem in which they exist).
The USD is pretty decentralized already. Sure the money supply itself is centralized, but the USD is a functioning currency because all people who accept and deal in dollars accept the fact that the dollar is a currency. We're all decentralized nodes in the Fiat network.