
After the Bust, Are Bitcoins More Like Tulip Mania or the Internet? - pseudolus
https://www.nytimes.com/2019/04/23/technology/bitcoin-tulip-mania-internet.html
======
filleokus
I knew about Bitcoin quite early and always believed (absurdly incorrect with
20/20 hindsight) that the price ought to correlate to the "actual" utility of
bitcoins, i.e how many transactions were performed to purchase goods and
services. I imagined a future where bitcoins would be used for micro
transactions online, illegal purchases (drugs/≈Wikileaks/banned stuff in
dictatorships) and by people in hyper inflationary economies. I speculated
that if the price would reach multiple thousands of USD per BTC, we would have
seen massive adoption for even mainstream uses.

It's so strange, because I love the ideology behind it and the decentralised
technology, and by many measurements bitcoin and other crypto initiatives
would be considered a somewhat success if we didn't have the price to look at.
That I can pseudo anonymously (or completely anonymous with stuff like
zCash/Monero) transfer a token of wealth over the internet without a central
party is so cool.

But I'm afraid that almost all of the price increase is simply a
hype/speculation/hold-cycle that inevitable never will survive.

~~~
bernardlunn
You missed one use case which is digital gold, which accounts for most of the
price.

~~~
codebolt
The perceived value of gold as a store of value comes in part from the fact
that humans have been using it as a means of trade/store of value across a
vast span of cultures for many millenia. Bitcoin has been around for 8 years.
With Bitcoin there is no guarantee that competing technologies won't spring up
to replace it in the mid- to long-term. Gold will always be gold.

Also, gold is shiny. Personally, I'd much rather have a gold bar in my safe,
that I could take out and hold in my hands, than a memory stick with some
Bitcoin on it.

~~~
deegles
This is a weakly held belief but I feel it’s risky to buy gold for long term
holding because asteroid mining will render it cheap and abundant in my
lifetime. :)

~~~
coldtea
Forget "asteroid mining" in our lifetime (and the next 2-3 as well).

~~~
coldtea
"But I want it to happen, so it must" \--> downvote.

------
apo
Tulip Mania lasted a few months during 1636/1637:

[https://en.wikipedia.org/wiki/Tulip_mania](https://en.wikipedia.org/wiki/Tulip_mania)

Yet this episode continues to be trotted out whenever the Bitcoin exchange
rate does something... unusual. It's been happening for eight years now.

Time to move on and either develop a new analogy, or finally decide that
Bitcoin is unlike anything that's come before it.

~~~
rootusrootus
Not all speculative bubbles follow the same schedule. The 2000s housing bubble
in the US, for example, took years to play out. Just because tulips played out
quickly does not mean BitCoin is not a speculative bubble.

~~~
oarsinsync
I think what GP's trying to say is maybe it's time to retire the tulip
analogy, and per your own point, maybe it's time to start referring to the
Bitcoin bubble in terms of the housing market bubble instead?

I suspect a headline like "are bitcoins like the US housing market" probably
wouldn't go down well though.

~~~
braythwayt
This comes down to deciding whether mentioning "Tulips" is a memorable
shorthand for discussing all kinds of bubbles, or if we are attempting to use
tulips as a model that we can reason from ("If it's like tulips, then since
tulips X, we can expect Bitcoin to also X").

Personally, I take all mentions of Tulip Mania as a kind of memorable
shorthand for "Hyper-speculative, with little or no trading on the basis of
the underlying utility."

Why Tulips instead of houses? Because we as a society have been using the
tulip analogy longer, that's really the only reason. It's not an assertion
that tulips fit better than houses.

It's much the same as expressions like "Grandfathered in." Nobody worries
about whether a particular law or regulation is actually being enacted as a
way to deprive ex-slaves of their right to vote while guaranteeing it for
illiterate whites. To almost everybody, it's just a phrase.

------
nemild
I was in YC during the same time as Coinbase (where I now work), and
personally, I think cryptocurrencies are transformational. Having grown up
during the Internet era and hearing from my parents about the Mainframe -> PC
era, use cases and viable businesses take time. Even founders in early,
disruptive spaces have a hard time figuring out the use cases.

Here's my own thoughts on why rational people — and media — get disruptive
markets (like crypto) wrong:

> As someone who had worked in banking and and microfinance, I got excited
> about the idea of credible digital scarcity, programmable money, and open
> financial systems. I didn’t quite know the use cases that would follow, but
> it was clear to me that the world would never be the same.

> Mostly though, everyone I respected thought cryptocurrencies were stupid.
> One MBA classmate haughtily wrote off cryptocurrencies as only useful for
> drugs and pornography. My old management consulting friends—all from elite
> American universities—pooh poohed Bitcoin and other open cryptocurrencies as
> they fixated on the needs of their lucrative banking clients. The vast
> majority of successful, rational people disdained everything about
> cryptocurrency.

[https://www.nemil.com/crypto/rationally-
irrational.html](https://www.nemil.com/crypto/rationally-irrational.html)

~~~
jpm_sd
"They laughed at Columbus, they laughed at Fulton, they laughed at the Wright
Brothers. But they also laughed at Bozo the Clown."

\-- Carl Sagan

~~~
dralley
Columbus deserved to be laughed at. People of the time period knew how big the
Earth was, and they knew that he would never make it to India like he wanted
to do, and they were right. Columbus got lucky that there was a giant unknown
land mass there (which he incorrectly thought was India) because if there
hadn't been he would have starved to death.

------
seibelj
If you are a software entrepreneur, raising money by selling digital assets
(“tokens”) is a legitimate option that flips VC on its head with instant
liquidity and value based on the success of the network.

Ethereum raised $15 million to fund their network, which now has a market cap
around $18 billion.

Cosmos launched their mainnet yesterday, and now has a market cap over $1
billion. All of the employees can exit if they choose, who were given tokens
rather than illiquid stock.

[https://cosmos.network/](https://cosmos.network/)

To be perfectly honest, this is a much fairer system for the average employee
at a startup than our current ISO situation, where employees are diluted,
forced to pay ridiculous AMT taxes on exercise, and basically screwed by the
founders.

~~~
jfk13
> All of the employees can exit if they choose

That's assuming there are enough willing buyers around who'll offer them cash
for those tokens. I don't know anything about Cosmos in particular, but it
often seems much easier to find facilities for exchanging fiat money for
crypto tokens of some kind than vice versa.

Obviously, _someone_ is selling the tokens and getting real money in exchange,
but if we don't all have equal access to that market _as sellers_ , something
smells fishy...

~~~
seibelj
They did an ICO a few years ago, and 1100 people bought in at 10 cents. Now
they can sell at $4.50. Not a bad return, and they actually delivered a
valuable product, which is shows not every ICO was a scam.

~~~
Nursie
I'm not seeing a product there, just another page full of blurb about
frameworks and blockchains layered upon blockchains.

After scanning the front page I'm no wiser as to what they're trying to
deliver, what problems are addressed, what any use-cases might be. I'm getting
the exact same architecture-astronaut feeling I get about most blockchain
companies.

We have a highly scalable bar of interconnected, interchangeable fleems which
will allow flurbles to foo more efficiently and faster!

~~~
seibelj
[https://cosmos.network/intro](https://cosmos.network/intro)

We are still in the "creating the low-level protocols" phase of blockchain
development, but essentially Cosmos is an SDK to create Proof of Stake
blockchains easily, which has traditionally been extremely difficult. Then
their SDK allows each chain to communicate easily, which is another extremely
difficult feature.

~~~
Nursie
Yeah, like I said, not seeing much of a product there.

Doesn't mean it won't be successful, whatever that means in this space, but it
doesn't look much like a 'product' to me.

~~~
seibelj
I work professionally in the space, and not understanding nitty gritty
blockchain protocols is like saying you don't understand how audio drivers
work, or media codecs, or database locking mechanisms. You won't understand it
unless you put the time in to study it.

Cosmos is a very interesting and novel technology, and it makes creating an
application-specific blockchain perhaps 100x easier (2 orders of magnitude).

~~~
Nursie
I'm not claiming this is my specialism, just contrasting the claims of a
delivered product with a webpage full of nebulous uncertainties.

I mean, to say that this project has delivered where others haven't, yet say
what it has delivered is _yet more blockchain infrastructure_ is odd to me. I
could, sure, I could put in the time to learn the ins and outs of these
protocols as you say, but I'm not sure why I would absent any actual use
cases. And I'm not seeing any here -

It makes flurbing the flooz 100x easier!

OK, so .. what use is the flooz?

This question is still unanswered AFAICT, and cosmos does nothing to answer
it. Or at least its front page does nothing to answer it or anything much
else.

~~~
seibelj
The same use cases as always - decentralized applications with no central
authority operating it, scarce digital assets, global money transfer,
elimination of middlemen, and so on.

Of course, skeptics such as yourself will say, "all of that is worthless!" But
I could not disagree more.

~~~
Nursie
If cryptocurrency and blockchains have shown us anything so far, it's that
middlemen will still get in there real fast and take the lion's share!

------
tim333
They could be like Tulips and still do ok. Global flower sales are $67bn and
that's product to end customers, not just speculators flipping things to each
other.

~~~
pavlov
Is there some kind of decorative value to random hexadecimal strings that I’m
not aware of?

~~~
belorn
The point is that even a small 1-2% of all transactions would still be a huge
amount.

The question that we should ask is if bitcoin serves to a market need. From
what I have seen, yes it does, though banks did react back when bitcoin
started to gain traction and for example here in Sweden a free service to send
and receive money instantaneously through a mobile app became extremely
popular. Now the banks are trying to introduce fees into that service, and
time will tell if the market will tolerate it, or if it will slowly fall in
popularity until another free alternative (like bitcoin) replaces it.

~~~
notahacker
Did banks introduce money sending services via mobile apps in the last decade
because a handful of people acquired a speculative digital asset that isn't
actually capable of free, instant transactions, or because _the average person
acquired a smartphone_?

~~~
belorn
What does "handful of people acquired a speculative digital asset" have to do
with the market need of "send and receive money digitally"?

There reason people want to send and receive money digitally has many sources.
The cashless society change that Swedish governments and bank started a while
back created a need for digital alternatives for activities that previously
used physical cash. Transactions between individuals, flea markets,
collections at church services, fees for clubs, sale of drinks/food at events.
Credit cards are costly, includes minimum fees and use systems that tend to be
slow and hard to use. A church collection does not work if a 1$ donation cost
1$ in credit card fees. Even donation services today like patreon currently
looks down at such low donations as all the money get eaten by the credit card
fees.

The benefits that people who advocated for Bitcoin in the early days talked
about was mostly those. Ease of use. Cheap. Physical cash alternative. It was
a time where paypall was the only alternative to credit cards and for many
places the only way to pay unless you used direct bank transfer that take a
minimum of 1 weekday transaction time.

Smartphone penetration is a relevant factor, but it was not the only one. The
new bank service fulfilled a need which credit cards and paypall both did a
poor job with. The question is if banks/government are willing to continue
support what the market needs, or if systems like bitcoin will utilize the
hole that remains when physical money is phased out.

~~~
notahacker
Can't say I'm an expert in the Swedish situation specifically, but I'd think
the fact that every other European banking system was already working on free
instant bank transfers in the 2000s and smartphone penetration probably had
more impact on instant krona transactions via smartphones than cryptonerds
hyping their low-penetration speculative asset that doesn't actually do fee-
free instant transactions as the future of money. It's not as if the average
church is or was better set up to take collections in Bitcoin than credit
cards anyway...

------
latchkey
Every time I see Bitcoin compared with Tulip Mania, I'm reminded of this
article:

[https://www.smithsonianmag.com/history/there-never-was-
real-...](https://www.smithsonianmag.com/history/there-never-was-real-tulip-
fever-180964915/)

------
ketsa
What Bust? I mined bitcoins for a few weeks years ago and their value today
makes me happy...

~~~
viraptor
It's all relative to something. During the Wall Street crash in 1929, Dow fell
down only ~30%. Bitcoin lost ~70% from the peak. It's definitely a bust. (as
in fall in value / no growth) You could say instead that it's just back to
normal value after a period of abnormal pricing - but then what kind of asset
has so much uncertainty that people can pump up the price 4-5x for months?

~~~
vibrato
Maybe it’s higher variance and higher expected value than the stock market. I
don’t believe that but it’s certainly a conclusion you could draw from the
price action. The overall return since inception is much better than the stock
market at any similar time frame in history, even after multiple >50%
pullbacks.

~~~
zamadatix
A single entity having higher variance than the average growth of the entire
measured economy is not surprising.

------
kristianc
> Bitcoin’s critics say the digital tokens are like the tulip bulbs of 17th-
> century Holland. They generated a wild, speculative rush that quickly
> disappeared, leaving behind nothing but pretty flowers and wrecked bank
> accounts

Which Tulip bubble? The small one that actually happened and was largely a
small group of wealthy people trying to outdo each other, or Mackay’s wildly
exaggerated account that has seeped into popular legend?

------
j45
Maybe bitcoin is like Napster and will seed future interactions similar to it.

------
coldtea
Bitcoins are more like a fire at a rainforest.

Massive carbon footprint for no benefit...

------
arisAlexis
tulips had no innovation. period.

------
TelmoMenezes
The current price of bitcoin was considered a pipe dream by almost everyone
just a few years ago. What bust?

~~~
netsharc
I wonder how many people bought at 19K USD (or anything between 5.5K and 19K)
and are now in the red, or indeed if they bought at e.g. 19K and sold at 15K,
swallowing 4K of losses.

For sure there are Lamborghinis out there bought with people's retirement
money.

~~~
vibrato
You make a 20% drawdown sound so bad. You know the stock market can do that
right?

Just the fees to get in and out are over 3% total generally. Anybody betting
their retirement on bitcoin deserves their fate, good or bad.

~~~
ben_w
I lost 90% of the value of my Lloyds shares. I’m fine, of course, but just
because other things are worse doesn’t make a bad thing into a good thing. As
for ‘deserves’… there’s a reason why speculation on financial products is
something banks and governments don’t want J. Average to do.

------
granaldo
So are the people who bought Binance coin the only one not broken by this?
[https://www.coingecko.com/en/coins/ath](https://www.coingecko.com/en/coins/ath)

------
tialaramex
Badly mis-characterizes "the Internet", annoyingly common mistake that to me
says I should ignore any further speculation because if you don't understand
the present you've a worse than pure luck chance to correctly predict the
future.

The Internet is the completion of (the latest and vitally important phase of)
the Network. The Network is like the Word, that's how big a deal it is.

Brief pause for definitions: The Word is the idea that makes language
possible. Units of meaning that can be transmitted by one person and then
received by other people, a revolutionary idea that by definition is
prehistoric (history itself is an Application of the Word). The Network is a
way for people to send and receive information over a distance, it works very
well with the Word, and it's hard to imagine the Network without the Word, but
it would actually stand on its own: sharing video of a cat studiously choosing
a very expensive fragile object to knock off a narrow shelf works fine without
the Word if you want a very concrete example from your modern experience. In
our world that video would have a title, and thus need the Word, but truth be
told the video stands on its own if you haven't invented the Word.

Note that the Word is not just the written word, writing is a (big)
incremental improvement in the Word idea, but speech was already a big deal.
Likewise the Network is not just the Internet, the Internet is a (big)
incremental improvement in the Network idea, but telephony, newspapers and
even travelling minstrels are already a big deal.

Anyway, scarcely anything is going to be as big a deal as even these
incremental improvements to fundamentals like the Word or Network. You might
think Money is a big idea, but that's _peanuts_ to the Word or the Network. If
Bitcoin completely revolutionised Money (as if) that still wouldn't be
anywhere near the difference the Internet makes.

So, Bitcoins are more like tulip mania because almost _everything_ is more
like tulip mania. YA Fantasy novels, slogan T-shirts, pizza, marriage, any of
these things is more like tulip mania than like the Internet.

