
Beyond the Bitcoin bubble - npalli
https://www.nytimes.com/2018/01/16/magazine/beyond-the-bitcoin-bubble.html
======
v64
It's strange to me how there are many among the Hacker News crowd who can read
an article like this and have doubts about its thesis. You lived through the
80s and 90s right? I can't count how many times in my life I was told no one
would ever need a computer in their house, we've gotten along for decades just
fine without them. No one will ever buy books online, that's ridiculous, you
can go to the store and have one right now. The internet is just a niche chat
program that will never have any use in business, etc.

Our uses of cryptocurrency and blockchain technology now are similar to how we
once used the power of the web to create Geocities pages with nothing more
than MIDIs, scrolling text, and under construction gifs, because we didn't
know what we were doing yet. But the early computer and internet pioneers were
able to see past the proofs of concept and build on those ideas, to create the
modern internet we have today.

Bitcoin may cease to exist as a software product, but I think the innovations
that it has spurred on will be with us for some time. This technology has the
possibility of making business much more efficient by reducing costs that are
associated with distrustful parties having to rely on (and pay money to) third
party escrow/auditing services. If I want to send a large sum of money to
someone else now, I have to rely on third party services such as banks or
Western Union to facilitate that transfer.

If you still continue to think "well that can be done with a SQL database
now", you're completely missing the point. There's nothing wrong with relying
on third parties, but now we have technology that allows us to choose not to
if there's a need for it. In that regard, cryptography shares many of the same
characteristics. We could communicate securely before public key cryptography
was invented, but it broadened the scope and security of such operations, to
the point where we espouse using https for all websites, not just ones
requiring security. When the time comes, why would you trust a third party if
you didn't have to?

~~~
bigdubs
Not sure the parallels are as strong as you're making them out to be; there
are deep, deep flaws with proof of work as a concept because of the energy
consumed.

There will probably be a better end state for distributed trust, but we're
legitimately not there yet.

~~~
v64
> there are deep, deep flaws with proof of work as a concept because of the
> energy consumed

What is the energy consumption of all the bank offices and computer systems in
the world? Even without this comparison, I think the amount of energy required
is not a flaw in itself, but rather an aspect of the technology we should seek
to improve upon (for instance, proof of stake is an attempt at this). I don't
think it's sustainable long term (2400 baud internet wasn't sustainable long
term either), but that doesn't mean we don't have the kernel of a great idea
today. I agree with you 100% that we're not there yet, but I disagree with
those who say this road leads to nowhere.

~~~
Rebelgecko
Bitcoin mining (not even counting other cryptocurrencies) uses more
electricity than most countries in the world. If you look at transactions per
Watt, I would guess that the banks are doing better by multiple orders of
magnitude

------
catbird
I don't understand the transit example presented in this article. I feel like
I am missing something fundamental about the utility of any of these
distributed services backed by their own type of coin.

For the transit example you have some people who want to request rides, and
some people who want to provide rides. OK. Someone develops an application to
process these requests, in some kind of bidding system...

How are the rider and driver matched up? I assume there needs to be some
publicly accessible list of all open queries. Is that list what would be
stored on the TransitCoin blockchain, and would that imply that all records of
requested and completed rides are public, such that someone who knows your
TransitCoin address can read all your previous trips, which are stored in this
immutable chain until the end of time?

Would the TransitCoins be 'mined' by people running a 'node' that does the
ride matching? Then in order to pay for a ride you send a TransitCoin to the
driver? The driver would then have to sell his earned TransitCoins on an
exchange for USD (or GroceryCoins) at the end of the day?

In the end I don't see why a new currency needs to be included in every
proposed use of a blockchain, if the people who want to participate as a
consumer and as a service provider are the ones running the nodes of the
blockchain.

~~~
tomaskafka
This - all things that can by done by SomethingSpecificCoin can be equally
well done on smart contract platform ala Ethereum.

There is no reason (except for rewarding founders and early investors) someone
who want to provide taxi rides own specialized mining equipment for
maintaining blockchain of a proprietary coin.

I rode a taxi few months ago, and I don't remember having to change my
currency for a TaxiCoin which would be the only token the taxi driver accepts.
In fact, it is illegal for him not to accept the national currency.

~~~
mhb
_it is illegal for him not to accept the national currency_

According to the United States Department of the Treasury’s site[1], there is
no federal law requiring that businesses accept currency or coins as payment
for goods or services.

[1][https://www.treasury.gov/resource-
center/faqs/Currency/Pages...](https://www.treasury.gov/resource-
center/faqs/Currency/Pages/legal-tender.aspx)

~~~
frgtpsswrdlame
Yes but not accepting currency[0] or coins is different from not accepting
USD. In the United States a creditor may choose to only accept certain forms
of USD (ie. no $100 bills at some stores) but they still must accept USD in
some form.

[0] It is obvious from your link that the Treasury intends "currency" to be
interpreted as paper money, see this:

 _There is, however, no Federal statute mandating that a private business, a
person or an organization must accept currency or coins as for payment for
goods and /or services. Private businesses are free to develop their own
policies on whether or not to accept cash unless there is a State law which
says otherwise._

~~~
mhb
I'd be interested in your reference. I think it's obvious that businesses
aren't required to accept credit cards, checks, ACH transfers, whatever else.
If they also aren't required to accept bills or coins, it would seem as though
they don't need to accept payment in USD in any form.

This creates a problem for them, but why do you think they must accept USD in
some form?

~~~
krrrh
The policy is stated on every bill: “this note is legal tender for all debts,
public and private"

You can put your question in a search engine and find many references.
Businesses in the US must accept dollars, but can choose what form they come
in.

------
nabla9
I hope the technology matures beyond 'blockchain' and marketing drops the
'coin' moniker and the gold rush dies down.

Cryptographically verified distributed log files should have negligible hype
value and be hidden part of the infrastructure. I predict that 10 years from
now normal relational databases have infrastructure for shared, authenticated
and verified rows and columns and we laugh at the ICO era.

~~~
decentralised
You are not seeing the whole picture and don't understand the goal of the
"coin" in a "blockchain". I would strongly urge you to do some research so
that you can make up your mind from a place of knowledge instead.

[http://github.com/jpantunes/awesome-
cryptoeconomics](http://github.com/jpantunes/awesome-cryptoeconomics)

~~~
thisisit
I tried some of the introductory stuff and even that is difficult for me. How
about an ELIF of the goals of the coin?

~~~
vec
There's two separate things that get conflated in these discussions.

The first is the blockchain, which is a technical innovation that allows a
client to decide which version of a shared event log to trust, even if it
doesn't trust any of the servers attempting to perform the update. The ELI5
version is that the record that took the most total work to generate is
correct. Since generating a fraudulent record requires doing more total work
than was done to generate the correct one from the point of the fraudulent
change forward, creating a fraudulent record quickly becomes computationally
infeasable as changes get older.

The second are cryptocurrencies, which are an attempt to mint a currency (a
literal, if not physical, coin) independent of any government by, essentially,
reintroducing the gold standard. Except instead of gold we're using
blockchains, which it turns out can be engineered to behave economically like
precious metals do under the right circumstances.

Separating the two concepts, and specifically avoiding putting on your
engineer hat when you're thinking about the half that's more political
manifesto than anything else, will go a long way in helping you get a toehold
on what's going on.

~~~
DSMan195276
The problem with the 'blockchain without a coin' idea is the incentive. Why
would people spend money to mine a blockchain which provides nothing to pay
them back for it? Without the incentive, why would you care who is mining the
blocks, and why would care about mining blocks faster then other people? You
wouldn't.

But at the same time, without having that race to have the most mining power,
the argument that it is computationally infeasible to change the blockchain
becomes incorrect. There is now no guarantee that the amount of 'work'
currently keeping the network going is actually enough to be computationally
infeasible to change if someone buys enough computers.

Bitcoin technically doesn't guarantee the last detail either, but by paying
miners it becomes worth it to them to keep buying the fastest hardware and
most hardware they can.

~~~
vec
It's true miners have to have _some_ incentive, and Bitcoin chooses to make
that incentive a financial reward, but it's not the only possible incentive
structure.

For example, imagine banks wanted to replace their clunky old ACH system with
a blockchain. They could design their protocol such that it refuses to process
transactions from or to an address that hasn't contributed a block to the
chain in, say, the last 24 hours.. That requires each bank to contribute some
minimum amount of computing power to maintaining the chain, even though it
doesn't directly reward them for it.

(I've spent literally 2 minutes thinking through this example. I'm sure it has
some glaring holes in it. Still, I hope it illustrates the point.)

~~~
DSMan195276
> For example, imagine banks wanted to replace their clunky old ACH system
> with a blockchain. They could design their protocol such that it refuses to
> process transactions from or to an address that hasn't contributed a block
> to the chain in, say, the last 24 hours.. That requires each bank to
> contribute some minimum amount of computing power to maintaining the chain,
> even though it doesn't directly reward them for it.

But that is pretty much exactly my point. All that does is encourage people to
mine _just enough_ to keep the chain going, which does not ensure the security
of the chain. There is no incentive to mine more blocks then anybody else.

With that said, I think the exercise is a bit futile to begin with - if banks
have a serious dispute between them, they're going to handle it in the courts,
so at the end of the day the existence of the blockchain only serves the
purpose of holding the transactions and hopefully allowing then to be done
faster and more efficiently. Which, a regular database could do just the same
- you could even use Merkle tree to hold the data to ensure you could verify
that older data has not been changed (By having banks keep their own synced
copy of the database). Basically a blockchain without the mining. It requires
a certain amount of centralization, but since the only parties are banks it
wouldn't be extremely hard to handle that part. Which, you could technically
still call this a blockchain, but without the mining and a decentralized way
of deciding which chain is correct I think that's a stretch for what _most_
people think when they're talking about blockchain. Specifically, per your
definition, the blockchain requires some type of PoW/proof-of-whatever and a
decentralized consensus, which this doesn't have.

And the above isn't actually all that theoretical. Ripple is a blockchain
without a coin, but they fix the mining problem by not having any mining at
all and instead having a central blockchain that they control. It's basically
just an immutable database. So again, per your definition, they aren't really
using a blockchain at all. And I'm not saying I disagree with your definition,
but currently there are no examples of a decentralized blockchain using PoW
that doesn't use a coin, even though there's basically everything else in-
between.

I'm honestly not convinced that that there are really any situations that
don't involve a coin where the blockchain with mining is a viable option, and
where there aren't any better alternatives that would make more sense.

------
vthallam
This was a necessary phase. Mass adoption couldn't have been achieved without
the exponential price rise of various cryptocurrency tokens. There would not
have been media coverage of this proportion, had it not been for the gains.

People now talk cryptocurrency, read more about the underlying technology and
accept that it will positively affect the industry in the upcoming future. I
hope the market stabilizes and some of the tokens actually become useful.

~~~
gizmo385
> People now talk cryptocurrency, read more about the underlying technology
> and accept that it will positively affect the industry in the upcoming
> future.

Do they really though? I don't hear anyone outside of people who have actively
bought into the cryptocurrency hype saying that it is going to have a positive
affect on the industry. I hear a lot of people saying things like "it's a
bubble" or that "the rules these currencies are designed to circumvent are
there for a reason", etc.

~~~
vec
Right, this.

I think cryptocurrencies are here to stay. I'm not convinced that's actually
going to "positively affect the industry in the upcoming future".

I don't think cryptocurrencies are going to remove the need for some big
middleman like Visa to sit between individual consumers and their partners.
Things like reversible transactions and on-demand small loans are too
attractive to the median consumer, so someone's going to be layering them on
top of the underlying currency, whatever it may be.

I don't think they're going to have a big impact on the financial sector. They
can trade and leverage and loan with cryptos just as easily as they can with
fiats, just with a lot of the safety rails like bankruptcy pulled off.

I don't think they're going to impact most governments' ability to levy taxes
and to borrow. There are dozens of governments that don't mint their own
currencies, and by and large they still maintain taxing authority about as
easily as they maintain the rest of their infrastructure and bureaucracy.

I do think it's going to prevent central banks from doing their thing, but I'm
not convinced that's a good thing. Central banks have their issues, to be
sure, but I'm pretty sure they're better than the huge boom & bust cycles they
replaced.

Cryptocurrencies will certainly make the world _different_ in meaningful ways.
Different doesn't necessarily mean better.

~~~
wu-ikkyu
>Central banks have their issues, to be sure, but I'm pretty sure they're
better than the huge boom & bust cycles they replaced.

Are you implying central banks are not cyclically prone to "booms and busts"?

~~~
notahacker
Not in the "all the depositors discover all of their money is worthless
because it actually can't be redeemed for gold like the bank note said" sense,
no.

------
kylehotchkiss
I love Stephen Johnson, the author. His show on Prime/PBS "How we got to now"
was an incredible series about how small innovations with glass, sound, and
light made the modern world possible, and he does it with a lot of charm.
Highly recommended for the HN audience!

~~~
unnawut
I read his book with the very same title. The history of glass, hygiene, etc.
especially in the context of civilization is definitely eye opening!

------
hesdeadjim
I am personally hoping we can survive the speculation craze and reach a point
where we can use the block chain technology in revolutionary (or even
evolutionary) ways.

Since it’s tax time I can’t help but feel that the true long term danger to
block chain technology isn’t draconian government regulation, it’s the IRS.

For example I have a transaction earlier this year where I purchased some
software for $15 BTC equivalent. Transaction fees back then weren’t as brutal
so I will ignore that issue as I believe it is 100% solvable. What was truly
brutal is that using standard FIFO accounting practices I owe an additional
30% tax on the “money” I spent. My cost basis for that particular coin amount
was 10% of what the current price of BTC was when I made the transaction.

A new user will have no idea that they even need to worry about this. Worse,
Coinbase is fucking awful when it comes to transparent tax information. So as
soon as the IRS starts publicly punishing intentional (or worse,
unintentional) tax evaders it is a very real possibility that the interest
from the broad public will wane.

Now if prices stabilize this problem starts to recede. But even if it does and
prices only fluctuate 1-2%, I STILL need to worry come tax time.

Edit: I understood and knew I would owe capital gains when I purchased the
software. I am not complaining about having to pay it personally, I am
pointing out that this is a pretty significant problem for widespread usage
and that the average user of Bitcoin right now probably has very little idea
of the consequences of actually using a crypto currency for any kind of
transaction that is considered a taxable event by the IRS.

~~~
sethgecko
> Since it’s tax time I can’t help but feel that the true long term danger to
> block chain technology isn’t draconian government regulation, it’s the IRS.

Sorry but no, one country's tax authority is not a long term danger to block
chain.

~~~
hesdeadjim
Unfortunately this one country is a leader in tech and has millions of people
with the disposable income to actually use the block chain. I am not
myopically focused on the US, but to say that it won’t hurt block chain
adoption is willful ignorance.

~~~
bennyg
Might hurt blockchain adoption in the US, but there is much more than BTC out
there. There are specific chains that many Asian companies are adopting for
use that will proliferate and generally stay out of American news. There's a
lot happening in the crypto space beyond BTC/ETH/LTC.

Adoption may still not take off, but it won't be because of the IRS.

------
khabaal
Isnt the author, well, supposed to keep his private key private? It was quite
easy to create a text file with that
1b0be2162cedb2744d016943bb14e71de6af95a63af3790d6b41b1e719dc5c66 key and "geth
account import key.txt" into a ethereum wallet to get a seemingly valid
account. Please tell me that i am missing something very important here.

~~~
lopatin
Uh, do you expect there to be any money in there?

~~~
therein
There is also 1 LUN = 30$ in that account.

[https://etherscan.io/token/Lunyr?a=0x6c2ecd6388c550e8d99ada3...](https://etherscan.io/token/Lunyr?a=0x6c2ecd6388c550e8d99ada34a1cd55bedd052ad9)

------
rm_-rf_slash
I think there is a glaring omission in the structure of the internet as
dicusssed in this piece: the underlying hardware and supply chains that
physically construct the internet, which I will term InternetZero.

InternetZero relies on humongous-scale manufacturing with minuscule margins,
which in turn relies on massive natural resource extraction, transportation,
and refinement. Even the integrated circuit - ubiquitous in contemporary
computing - could have taken many more years than it did to hit the scene if
not for NASA’s shoveling piles of money into ICs for the Apollo 11 lunar
lander.

The “new code” that the article calls for at the end is a start, but is still
just one small facet of a very centralized, controlled, and arguably corrupted
system.

------
lu11
What happens if we end up using bitcoin (or any coin) for currency and then
for some reason (like earthquake) we lose electricity for 24h or more... how
we would be paying for things?

------
singularity2001
can I buy Kraken shares? could perform better than JPMorgan.

------
brndnmtthws
Is anyone else tired of hearing the word 'bubble' applied to everything?
Whether we're talking about tech stocks, chicken futures, tulips, or Bitcoin,
it's become a really tired and meaningless term. You can't know if an asset is
in a 'bubble' until long after the bubble has burst. Bitcoin is far from
having burst, so this article and all those that came before it offer nothing
new or insightful.

Please, let's move past the name calling. Calling something a bubble does not
make it so.

~~~
rythie
We had the dot-com bubble, but it didn't stop the internet from changing
everything in fundamental way. Google, Facebook and Amazon are in the top 10
most valuable companies in the world - all completely dependant on the
internet for the business model. Granted webvan and pets.com didn't make it,
but it didn't mean the internet had failed as an idea.

~~~
acdha
That’s a common marketing claim but the comparison has problems: Bitcoin is
turning 10 without a single application where it has a significant advantage
over the status quo unless you count ransomware. In contrast, as soon as the
internet became available to normal people they had immediate new or improved
options for a bunch of different activities.

Yes, speculators backed a lot of bad business ideas but that was because
people were getting online in droves because there were so many uses. Those
companies failing didn’t change that, especially since there were so many
examples showing that concepts were solid: e.g. a dotcom losing money on each
sale didn’t mean online stores were doomed since Sears had proven the model
many decades earlier.

~~~
alphydan
> Bitcoin is turning 10.

It all depends on where you start counting. In 2008 it was just Satoshi and a
few cypherpunks. I would argue it looked a lot like Arpanet [0]. So Fast
forward 10 years from 1973 ... and was the internet really useful in 1983?

On January 1st 1983, "every machine connected to ARPANET had to use TCP/IP.
TCP/IP became the core Internet protocol and replaced NCP entirely." [1] ...
hardly a huge commercial success at that point.

[0]
[https://en.wikipedia.org/wiki/ARPANET](https://en.wikipedia.org/wiki/ARPANET)
[1] [https://www.davesite.com/webstation/net-
history2.shtml](https://www.davesite.com/webstation/net-history2.shtml)

~~~
acdha
I don't think that comparison holds so tightly, but if it did it seems to make
it worse: ARPANET had significant dependency delays in availability since
computers cost a fortune, modems were slow, and you had to pay by the minute
for phone calls. In contrast, despite Bitcoin being available to everyone on
the first day most people have never had a reason to use it other than
speculation.

That said, there were still plenty of ARPANET users in the early days if you
look at the subset of people for whom network access was an option. The
benefits of email were obvious and group forums like Usenet (1980[1]) had
similar quick adoption, at least in technical or academic fields where
communicating with people outside of your location was important. Similarly,
FTP (1980[2]) had clear value and the pricing made sense more often than it
might have seemed since all of the other alternatives cost money, too.

The other thing to remember is that this wasn't happening in a vacuum — while
the internet was emerging, there was popular mainstream usage for companies
like The Source, CompuServ, etc. starting in the late 1970s[3] and so again
there was clearly a business opportunity if you could bring the access costs
down. The number of people willing to pay by the minute to chat, shop, etc.
suggested that an even large number of people would be interested as that per-
minute rate dropped.

It's that last part which makes me question the current valuations: even if
you assume that all of the operational problems were solved with Bitcoin, it's
hard to see what value it has to the ordinary person beyond possibly
reclaiming the ~3% overhead of a credit card transaction — and that's assuming
that VISA, et al. wouldn't just lower their rates to beat whatever the
operational cost + fraud insurance costs ended up being for Bitcoin.

1\.
[https://en.wikipedia.org/wiki/Usenet#History](https://en.wikipedia.org/wiki/Usenet#History)

2\. [https://tools.ietf.org/html/rfc765](https://tools.ietf.org/html/rfc765)

3\. There's a great series starting with
[https://www.filfre.net/2017/10/a-net-before-the-web-
part-1-t...](https://www.filfre.net/2017/10/a-net-before-the-web-part-1-the-
establishment-man-and-the-magnificent-rogue/)

~~~
krrrh
> and that's assuming that VISA, et al. wouldn't just lower their rates

They easily could, their current rates contribute a lot toward cashback and
points rewards and other marketing programs. Australia regulated a cap on
rates at 0.4% iirc, and Visa still covered its costs.

~~~
acdha
Their profit margins seem like a good estimate for how low they could go
without much pain, and given the size of the revenue stream I’m sure they
could go lower.

~~~
krrrh
It’s not just their profits because they spend a good portion of their revenue
on customer acquisition and retention. We may have a more stable economy if
there was less customer acquistiin in the consumer credit space.

------
MechEStudent
Paywalled.

~~~
AlwaysBCoding
try pasting in the link to outline.com

------
martin1975
The answer to the fundamental ills of both Ethereum and Bitcoin is addressed
in Cardano, which has been hard at work for 2+ years to create Ada and the
first formally verified PoS type algorithm, Ouroboros.

I wish more people would wrap their heads around the rigid approach to
developing Ada that Cardano's taken so the light will come on... sort of like
seasoned imperative language programmers who get bitten by the FP bug, the
same kind of cathartic effect is achieved once you begin to understand the
fundamentals of what Cardano is doing.

Visit CardanoHub.org for more info and get ready to be processing new info for
at least a week to begin to understand it.

~~~
companyhen
Coin shilling has officially entered HN.

~~~
martin1975
It's more like their tech I'm shilling. But hey, you're welcome to downvote
me.

