Wow, this is one of the most confused articles about cryptocurrencies that I have ever read. He runs off the rails almost from the very beginning:
"currencies are systems of value exchange"
No, a currency is a physical token issued by an institution that is a proxy for money, usually bank notes and coins. Money is the system of exchange. The dollars in your bank account are money, but they aren't currency. The dollars in your wallet are both. Old Zimbabwean dollars are currency but not money.
The writing quality was grammatically poor and he resolved with an outrageous conclusion without actually presenting any evidence - just a bunch of poorly-understood generalizations about history. Stating you're basing something on evidence usually infers you will present some. There are too many squatters in this space who sense an opportunity but have no idea what it is yet.
Currencies are systems of value exchange. It is the reason why the term is derived from the word "current" as in a river's current because if you follow the exchange of money over the domain of a given money, eg. the US Dollar, you see its "current" or flow as units of money are traded between customers, retailers, banks and exchanges. A currency is defined by the domain of its value in relation to other currency and its exchange. Money is a "mostly" static value, this dollar is worth this much bread. Currency is an algebra of the domain of money measured over the economy of that money's exchanges including the changes in inflation in relation to the money value of a dollar in relation to bread.
No. That's money. Not all currencies are money. Zimbabwean dollars, for example, are a currency but they are not money. "Worthless currency" is not an oxymoron, but "worthless money" is. Money has value by definition. Currency doesn't.
> It is the reason why the term is derived from the word "current"
The etymology of a word has very little to do with its current meaning. "Calculate" is derived from the latin word for "stone", but that doesn't mean that calculating has anything to do with stones. (It did at one time, but not any more.)
> Currency is an algebra of the domain of money measured over the economy of that money's exchanges including the changes in inflation in relation to the money value of a dollar in relation to bread.
That might be a useful definition, but it's not the one used by economists. "Currency" is a proper subset of "money", which also comprises bank money [1], cash-equivalent securities [2] and commodities [3], all of which are money and none of which are currencies.
A currency (from Middle English: curraunt, "in circulation", from Latin: currens, -entis), in the most specific sense is money in any form when in use or circulation as a medium of exchange, especially circulating banknotes and coins.[1][2] A more general definition is that a currency is a system of money (monetary units) in common use, especially for people in a nation.[3] Under this definition, U.S. dollars (US$), pounds sterling (£), Australian dollars (A$), European euros (€), Russian rubles (₽) and Indian rupees (₹) are examples of currencies. These various currencies are recognized as stores of value and are traded between nations in foreign exchange markets, which determine the relative values of the different currencies.[4] Currencies in this sense are defined by governments, and each type has limited boundaries of acceptance.
Twenty US dollars is just "money", an agreed upon medium of exchange. A twenty dollar bill is currency, i.e. a physical token representing that amount of money.
"A currency (from Middle English: curraunt, "in circulation", from Latin: currens, -entis), in the most specific sense is money in any form when in use or circulation as a medium of exchange, especially circulating banknotes and coins." [Emphasis added]
"The money supply of a country consists of currency (banknotes and coins) and, depending on the particular definition used, one or more types of bank money..."
See also the caption on the first figure:
"A sample picture of a fictional ATM card. The largest part of the world's money exists only as accounting numbers which are transferred between financial computers. Various plastic cards and other devices give individual consumers the power to electronically transfer such money to and from their bank accounts, without the use of currency." [Emphasis added]
It's like the difference between "car" and "vehicle". Not all vehicles are cars. Not all money is currency. The boundary is not precise. Is an SUV a car? Maybe. Is a semi truck a car? Definitely not. But it's still a vehicle.
Is a dollar bill currency? Yes. Is the balance in your checking account currency? Maybe. Is a check currency? Definitely not. But it's still money.
> Also, are cryptocurrencies not currencies?
No. It's arguable whether or not they are money. The U.S. government treats them like a commodity for tax purposes.
A guy who advocates blockchain solutions yet dismisses cryptocurrency surely misunderstands both.
Also whatever main "fallacy" (to use author's word) is at work in both of these is ultimately rooted in confused and ambiguous notions of decentralization.
It's really not the tech that's the problem, it's the assumptions and premises it is derived from, which is why every year blockchain tech spirals into greater and more layered complications in the hopeless pursuit of resolving this impossible conflict; very much a modern day geocentrism-epicycles disciplinary failure mode.
I used to be a believer in cryptocurrency, and I still it think it has practical applications, but not as currency. When my credit card got skimmed and the thief started to make unauthorized transactions, I was immediately informed of this, called my bank and eventually got my money back. This is the moment where I realized if I have my all my money in crypto, when it gets stolen or otherwise, I will never get it back.
You are advocating for crypto insurance. With regard to banks, if a thief withdraws cash from your ATM card, that money is gone. The bank has lost it. An outside insurer (or, if a large enough bank, self insurance) pays out the bank the amount they lost. Same is true if a thief is able to do a wire. ACH transfers may be a bit easier because typically the receiving bank won't allow withdrawals before the sending bank's chargeback period, but if they do, then their insurance will compensate for the loss.
I agree that crypto doesn't have a solid financial system backing it and that is necessary to be a replacement for the current one.
I'm not a huge crypto-believer, but I do think your criticism here is ultimately not really a criticism of crypto itself, but the financial system around it. Plenty of real-world currency suffers from the same lack of solid financial system. For example, I imagine you would be hard-pressed to find the same guarantees from banks dealing with venezuelan bolivars.
That being said, I think the best use case for crypto is still not one where every single person runs their own wallet. Rather, most people would use depository institutions who could run settlement on the blockchain. The main contribution and innovation is removal of red tape that is typically incurred when one wants to become a depository institution (mainly obtuse technical interfaces, slow clearing houses, etc).
I think you are focusing on the specifics of that complaint and not the general reasoning behind it. It is a problem if cryptocurrencies need a mature financial system built around them to be usable when one of the primary selling points that people were hyping about cryptocurrencies was the ability to circumvent the current financial system.
> one of the primary selling points that people were hyping about cryptocurrencies was the ability to circumvent the current financial system
Perhaps you primarily heard relatively uninformed people. "circumvent the current financial system" would probably be called some out of touch with reality woo-woo by many.
Many would instead say decentralization is the primary selling point.
Specifically, the inability of a small group to affect monetary policy, particularly the inflation rate, or to prevent access to the system.
The exisiting settlement system serves the banking, regulatory and foreign policy interests of the US better than a distributed ledger would, so those institutions have no incentive to switch.
The only people who have reason to use Bitcoin (or have ever used it) are individuals wanting uncensorable transactions. Bitcoin isn't intended to be used for carrying your life savings around on your smartphone. It's a fast, cheap and secure way to send money over long distances.
This is the risk of "being your own bank", but I don't think it means crypto is destined to fail. You can have managed services that provide insurance to end users. I think cyrpto-currencies have a lot to offer the world. Prime example is Monero, it offers a digital equivalent to cash which is a rarity in this age of ultra-surveillance.
The same is true of cash. Almost all of the complaints I have seen with regards to cryptocurrency limitations are in the ways in which it resembles cash. The transactions are untraceable and permit criminals to hide transactions - same as cash. If lost to fraud or theft, no one will replace it - same as cash. If you are in legal trouble, the government cannot freeze the assets - same as cash. Compare cryptocurrencies to cash, rather than a balance claim made by a bank. With a credit card it's even closer, as nothing whatsoever would prevent someone offering credit backed by cryptocurrency rather than backed by USD offering a credit card with the same capabilities. Your credit card isn't 'your money' and you're not transferring money when you make a purchase with it. You are requesting a loan from a company, and that company is handling paying for the transaction. You then later settle that debt. It's quite different from cash in many ways.
That is a feature of the regulatory framework, not the credit card.
The bank cares and takes quick action because they are liable for fraud in most cases. In other situations, like compromised PIN transactions or ACH fraud, their level of attention is very low.
A credit card means you’re spending your bank’s money, so having your credit card hacked means basically nothing because by law you aren’t liable and it’s not actually your own money that is being spent.
Well the card got skimmed targeting the store/machine that attracted the thief in the first place, as a consequence of being a giant honey pot. So you fell victim thanks to the system and you're thankful for it?
Still super early days and there are some services that are starting to offer some services for custody or key storage in case safe keeping like Casa and whatnot. Just give it time. There are positive knock on effects to reducing credit fraud and charge backs.
Why not? You just bought a car and paid by sending $XX to $COMPANY. But why are they still waiting for it to settle? OOPS! They were hacked and you actually ended up sending that to North Korea. You think they're going to still give you the car?
You might do something in between "write a dissertation" and "whine about downvotes for an unsubstantive comment". What do you think is a strawman, and why? A paragraph is better than nothing.
And, I don't think HN is "highly anti-crypto". There are quite a few pro-crypto people here, and quite a few skeptics. Each side probably feels that HN is biased the other way, because HN (as a whole) doesn't whole-heartedly embrace what each side considers self-evident.
I also think there are a lot of people who have been both. When I came across the original Bitcoin paper, I thought it was interesting, a novel application of technology. I looked forward to see where it went.
In a decade, though, it has gone approximately nowhere [1], while I've been forced to deal with an incredible amount of hype. I am anti-Bitcoin in the same way I'm anti-Jehovah's-Witness: if they would just stop knocking on my door all the time to share the good news, I'd be happy to ignore them in return. But at least the JWs aren't losing hundreds of millions of dollars of other people's money every time I turn around.
[1] In contrast to, say M-Pesa, which in the same period became a daily-use digital money for millions and millions of people. https://en.wikipedia.org/wiki/M-Pesa
M-Pesa and Bitcoin are completely different things. It says right in that wiki article that "M-Pesa is a branchless banking service". It's used in conjunction with existing fiat currency from what I understand.
Bitcoin's original goal was "electronic cash". As was M-Pesa's. They solve the same main user problem: payment. It's true that they're implemented in completely different ways, and with different philosophies. But my point with M-Pesa is that there are no inherent barriers to digital money. If Bitcoin had been useful to a broad audience, it could have had adoption similar to M-Pesa's. It hasn't, and at the rate it's going, it never will.
My concern with fiat money and the benefits that cryptocurrency provides align very well. My concern with fiat currency is that it is entirely possible that tomorrow we will wake up to discover that the digital systems banks use to trace and account for money, systems we know are antiquated and maintained and expanded with the least effort and expense physically possible, are meaningless. The discovery of a persistent system of exploitation which has made the balance numbers held by all banks into nonsense is entirely possible. If it is discovered that large economic players or criminals have EVER manipulated the values recorded as an 'account balance' to represent instead pure fiction - game over. I would expect this observation to be announced first by a nation foreign to the US, followed by that nation no longer accepting digital transfers of any kind in US dollar denominations, as their basis for value, solely trust in the digital accounting systems of US banks, evaporated overnight.
There is no possible way for a bank to 'prove' that the billion-dollar balance of a Walmart account represents anything of value. They can show that their systems reflect it, but it ends there. They can not prove that, say, $500 million of that balance is invented 'funny money' that represents absolutely nothing. Cryptocurrencies can not have this happen, as they manage their reliance on trust. I can prove a bitcoin is legitimate mathematically, and I need ask nothing of the other party for them to be able to verify it themselves. I can not prove a dollar displayed as part of my account balance at a bank is legitimate. And, as far as I understand matters, neither can anyone else. I must ask the other party to trust my bank, or trust the FDIC, or trust the US governments computer systems, or something along those lines.
The ideal situation, of course, would be a government-backed cryptocurrency with the government guaranteeing that the cryptocurrency would be honored as legal tender. But the political clout of banks makes such a thing very difficult. It would place banks in a position of actually earning their profits through the lending and borrowing of money, rather than actually profiting from garnering nearly every single monetary transaction which occurs (solely those which are conducted purely in cash exempted) in the economy in an act of cryptotaxation (the crypto prefix here meaning 'hidden', not related to cryptography).
"currencies are systems of value exchange"
No, a currency is a physical token issued by an institution that is a proxy for money, usually bank notes and coins. Money is the system of exchange. The dollars in your bank account are money, but they aren't currency. The dollars in your wallet are both. Old Zimbabwean dollars are currency but not money.
It just goes downhill from there.