
Up to Two-Thirds of Bitcoin Transactions Have No Economic Value - mancerayder
https://www.bloomberg.com/news/articles/2018-07-26/up-to-two-thirds-of-bitcoin-transactions-have-no-economic-value
======
paulmd
They are just arbitrarily declaring various things to be non-economic
transfers. They have enough economic value for the participants to pay to
execute them.

If you are going to slice it like that, there are plenty of ACH/SWIFT
transfers that are actually just people moving money from account to account
or institution to institution too, rather than actual inter-party
transactions.

And specifically, if mining pools distributing rewards to participants don't
have economic value, then neither does Uber. Mining pools are literally just
"the gig economy" for computational power.

I'm as critical of Bitcoin as anyone else but this is just an ad for
Elementus's services. "If you want to understand what you're getting into, pay
us!".

~~~
frgtpsswrdlame
Well you could define 'economic' transactions as those that leave one of the
participants with less bitcoin and another participant with more bitcoin.

In that sense mining pool distributions are double-counting - the distribution
of the mining reward to the pool and then the distribution of that same reward
from the pool to an individual member. (I understand that correctly right?)

A mixer is just shuffling it's coins around so it's non-economic. Spoofed
trades are obviously non-economic. 'Market Manipulation' could mean lots of
stuff but I wouldn't be surprised if there are bots that enter lots of
offsetting trades on both sides of the orderbook to generate volume around
specific events. If they're offsetting that's non-economic.

Now maybe 'non-economic' isn't the best term but I do think those sorts of
activities should be given a meaningful distinction from the other third of
the volume that is 'normal transactions' of individuals buying and selling
from/to each other.

~~~
Canada
> In that sense mining pool distributions are double-counting

Let's say I have a customer who pays me, and I pay a bunch of employees or
contractors who helped me deliver services to that customer, keeping some
profit for myself. Does that have no economic value? Because that's what
mining pools do.

> I wouldn't be surprised if there are bots that enter lots of offsetting
> trades on both sides of the orderbook to generate volume around specific
> events.

There is no order book on Bitcoin, Ethereum, and others. The order books are
on web based exchanges, and yeah, there's a lot of fake trading. Most of it is
clearly generated by the exchanges themselves and is completely fake. That
stuff is so obvious when you look. In those cases the volume dwarfs the depth,
so most orders miraculously attract counter parties instantaneously while the
rest of the orders just sit there. Exchanges fake it to get a better rank on
coinmarketcap, which blindly trusts the trade data from the APIs. And there's
wash trades by users of these web based exchanges, but I believe it's
significantly less volume than the pure fakes because those guys have to put
up real funds so it's only useful to make shitcoins look more popular. In any
case, none of that actually makes a transaction on a blockchain. It's just
shifting balances in some centralized database.

~~~
frgtpsswrdlame
>Let's say I have a customer who pays me, and I pay a bunch of employees or
contractors who helped me deliver services to that customer, keeping some
profit for myself. Does that have no economic value? Because that's what
mining pools do.

Again we're really getting hung up on the term 'economic.' Okay you're the
pool, you receive 50 BTC and you pay 45 of that out to miners. Have we
transacted 95 BTC or 50 BTC? Is the 'economic value' of our transaction 50 or
95? The best thing is it doesn't even matter what you answer because what's
best for everyone is if we know both numbers. Right now all parties interested
in BTC can see is the 95. But if I'm investing in BTC I don't care about the
95, I care about the 50 because 50 tells me how much BTC actually changed
hands here. And this firm is just trying to find all the double counting and
completely fake transactions and remove them from our number.

>There is no order book on Bitcoin, Ethereum, and others. The order books are
on web based exchanges

I mean yeah? I don't understand what difference you're trying to draw here.

>yeah, there's a lot of fake trading

>It's just shifting balances in some centralized database.

Exactly and it's the same way in a mining pool as per the above example. 45
BTC is getting counted twice because we shifted it twice.

------
cateye
This reminded me of this joke:

Two brokers walk on the street and suddenly one of them proposes: if you eat
that shit on the ground you get a million dollars. He eats it very quickly and
is amazingly happy with his profit.

A moment later the guy who had eaten the shit proposes the other: if you eat
this shit you get a million from me. He also eats it without thinking. After
10 minutes one of them asks: why have we eaten all that shit?

The other replies: Don't you see we have created two million trading volume?

(Apologies if it isn't funny. Don't remember exactly the original and I'm also
not a real joke teller type. )

------
cwkoss
I'd be curious about the figures for a similar analysis with the US dollar.

Ex. for a credit card transaction, the 'economic value' of the transaction
(purchase price) would be half or less of the total amount of dollars moving
(price from CC to merchant, payments from customer to CC). Even if a customer
pays off the balance instantly, two transfers of the amount of the purchase
price are made: 50% economic value transactions. If making minimum payments,
economic value seems like it could constitute less than a third of total
amount transferred.

If CC, merchant, and customer all use different banks, there may be more
transfers necessary behind the scenes.

~~~
sonnyblarney
All of the things that happen in a regular CC transaction have economic value,
i.e. buying stuff, interest, loans, network charges, transaction fees etc.
etc..

Even BTC-USD trades have economic value obviously.

The article presents transactions which are basically kinds of accounting
functions, i.e. tumblers to hide trails etc. etc..

As far as USD, maybe this would be the equivalent of moving USD from one
account to another.

Now, clearly it wouldn't be done if there was no value to the transaction ...
but it's generally net neutral stuff.

There's now way to compare to the USD because it's generally not something
that is tracked at all with fiat currency because it would be pointless. But
it just happens to go on the record with BTC.

------
ryanmercer
Aside from speculation the bulk of any commerce done is likely for darknet
purchases anyway.

Go look up a list of common darknets, go open a few of the top sellers. Look
at their listings, look at how many reviews each listing has. Go back 2 weeks
later and check again, you'll be surprised. Now look at how many darknets
there are with decent user bases and consider how many sellers each has with
moderate activity. Most of that commerce is in bitcoin, some in monero or ETH
but mostly bitcoin.

I mean, you can pop on and buy several kilograms of cocaine in a single
listing (or any other drug you can think of, some even sell guns and human
bones, most also have cvv2 dumps and other identity theft stuff as well as
stolen uber accounts any all sorts of other things). With the cocaine for
example, you can pull up a 1kg+ listing that will have a dozen or more reviews
indicating tens, or hundreds, of thousands of dollars in sales just for a
single listing on a single market.

People like to make-believe bitcoin is for legit commerce but it's mostly for
speculation and criminal enterprise.

------
nonbel
Its amazing to see how much people waste in general. I did an analysis the
other day and came up with ~ 3 TWh per year wasted just because reddit wants
to use "fancy" (annoying to me) layouts:

>"So about 3 TWh extra electricity is being used each year. This is about the
total used each year by Papua New Guinea, which is ranked 133/219 in
electricity consumption by country."
[https://news.ycombinator.com/item?id=17449349](https://news.ycombinator.com/item?id=17449349)

~~~
paulgb
At 10c/kWh that seems to imply an annual energy bill of ~$300MM just for the
extra bandwidth? There must be a math error in either your math or mine
because that seems like an insane amount to spend just on electricity for
hosting a mid-size site like Reddit. (It's ballpark 3x their estimated
revenue)

~~~
nonbel
I'm pretty sure that somehow everyone who visits the site is paying for it.

------
tunap
Relativey speaking, all the GPU sales and spiking utility bills are of
economic value to the suppliers. /s

------
apo
This article is unfortunately typical of the low quality of reporting on
Bitcoin in the popular media.

It provides no independently-verifiable evidence of the claim in the title,
nor does it even make a small effort to explain the analysis supposedly done
by Cryptocompite, a service whose website consists of nothing more than an
email capture.

FWIW, determining the nature of Bitcoin transactions is not trivial. The
disposable pseudonym privacy model, coupled with CoinJoin transactions and now
increasingly Lightning Network gives users a great deal of privacy power if
they choose to use it.

Many analyses I've seen are based on transactions whose users throw that
privacy stuff out the window, re-using pseudonyms and posting them to social
media.

------
simias
I don't think this is particularly surprising or even a very useful metric,
besides I don't understand why for instance "mining pools disbursing coins to
members" is considered to have no economic value (the article mentions that
"Ethereum co-founder Anthony Di Iorio" shares this sentiment but doesn't
justify their choice). Maybe one could expect that trading and speculation
would be higher but I suspect that the average bitcoiner just trades directly
on the exchanges without ever owning a wallet, or maybe just for "cold
storage" if they're wealthy enough. As such I expect most of it is done off-
chain.

What I would be curious to know is what portion of the remaining third is
actually used to buy goods and services vs. speculation. And for those who
actually use it as a currency, how much is for buying legal things. My gut
tells me that the number must be ridiculously low.

~~~
derefr
My understanding is that mining pools could just as well have been implemented
as a feature of the protocol itself. In Bitcoin, for example, this would be a
coinbase transaction with multiple recipients.

If that change changes your reckoning of the accounting, then the difference
between more and less trading volume in the network has come down to how you
represent the ledger format. At which point you need to choose how to resolve
that discrepancy—for example, by always choosing the most compact ledger
format possible.

(Analogy: figuring out how many cycles a series of CPU instructions takes to
execute. If some of those instructions are hints or pragmas that the CPU
consumes without a full cycle, then representing this CPU’s instructions in a
RISC encoding will give you a different cycle-count estimate than encoding the
instructions as CISC, where the hints/pragmas just become part of the CISC
instruction they’re associated with.)

------
panarky
Also on the HN front page today: "close to 40% of multinational profits were
artificially shifted to tax havens"

[https://voxeu.org/article/missing-profits-
nations](https://voxeu.org/article/missing-profits-nations)

What percentage of US dollar transactions have no economic value?

------
wmf
This is all true yet I don't know whether such stats are helpful or misleading
for cryptocurrency investors. All of the value of cryptocurrencies is
currently due to speculation. You can verify this by putting the economic
activity into the velocity of money equation and you get a fundamental value
around 1% of the current price. So even if "real" economic activity were to
increase massively, it's not clear that there would be any discernible impact
on prices.

(And yeah, if my salary counts as an economic transaction then why shouldn't
miner payouts? You can avoid double-counting by not counting coinbase
transactions.)

------
thwd
In the comparison with Ethereum: invoking a smart contract function does not
require value transfer beyond gas (transaction cost). Most such calls carry no
ether attached, this is how it's supposed to be.

------
Drdrdrq
What, more than a third of btc transactions have some economic value? This is
a fantastic result! /s

------
ISL
They sure have value to the miners, and presumably to those who pay those
miners transaction fees. A Bitcoin transaction isn't free.

------
pandler
Out of curiosity, does anyone know of any information on a similar analysis of
fiat currencies? My Google-foo is failing me.

------
wufufufu
As a bitcoin critic, this is a pointless criticism. No one uses bitcoin as a
currency, and everyone knows that already.

------
s_kilk
Two thirds seems low

~~~
aurailious
I would have guessed about 100%.

------
mtgx
Wasn't that the case for most of the internet's history?

------
loco5niner
Just Two-Thirds?

------
aaron-santos
How many cash transactions have no economic value?

------
cam3ham
lol what does this even mean

~~~
sctb
We've already asked you to please post substantively. We ban accounts that
won't.

[https://news.ycombinator.com/newsguidelines.html](https://news.ycombinator.com/newsguidelines.html)

------
api
With things like HFT what proportion of stock market transactions have
economic value?

~~~
mancerayder
Matt Levine talks about this, and despite its obvious pitfalls (in terms of
unfairness amongst players in the market), HFT does provide utility of
arbitrage. Also, all that moving around of stocks theoretically provides more
liquidity - i.e., it's easier to find a counterparty when you buy and sell;
you don't sit there waiting for the trade to execute. I'm no expert, however.

~~~
physguy1123
There's a distinction to be made between many different players in 'hft'. You
have market makers, latency arb, plain old short-term quant trading which all
provide different sorts of 'economic value. Most players are running a mix of
some to all of these strategies - for example, in options, fast trading on
spot moves is really some weird mix of everything from latency arb to market-
making to long-term option pricing.

One could argue that pure latency arb (what flash boys portray as hft) is
fairly useless since it's just trying to catch stale quotes that market makers
would move otherwise, but that's a very small portion of the industry.

