
Why are all my friends buying an overhyped digital currency? - gk1
https://theoutline.com/post/1924/why-are-all-my-friends-buying-an-overhyped-digital-currency
======
AndrewKemendo
I find the recent popularity of cryptocurrencies very interesting as I spent a
lot of time in 2009^ studying and researching Bitcoin from the academic
perspective of economics (My undergraduate degree).

In 2009^ I downloaded a BTC miner and had everything set up but then never
started the machine because I was running folding@home and thought that was a
better use of my distributed compute. Doh!

In my mind you can look at cryptocurrencies, and the idea of blockchain
generally, in two ways. Either you evaluate it as how well it acts as Money or
what it can do as a distributed ledgering system.

In the former case you need a comprehensive understanding of:

1\. The history of money, which comes down to war and politics,

2\. A deep understanding of what makes money work in it's three uses (store of
value, medium of exchange, unit of accounting)

3\. How it forms a scaffold in a modern economy.

The cryptocurrency-as-money perspective fundamentally has no legs, for
numerous reasons, but primarily because it has no coercive power behind it
enforcing it's use like all other currencies. A few people are trying it but
it's no serious contender for legal tender anytime soon.

All of the "coin" that is created in these markets is effectively derivatives
trading and should be avoided at all costs in my opinion.

From the digital ledger perspective there seems to be real value in that use
case.

^Corrected year

~~~
hello_marmalade
It doesn't have to have a coercive power behind it enforcing it's use. It has
a natural benefit, which is anonymity (when used the right way). People want
to use Bitcoin as a currency. It doesn't need to supplant normal money, just
be an addition to it.

~~~
acdha
It's dangerous to push anonymity as a benefit of the current implementations:
if you make a mistake or traffic analysis links you to any transaction, every
transaction you've ever made is de-anonymized. That's a far worse failure mode
than cash and it'll take more than a tumbler to fix to the point of
confidence.

~~~
hello_marmalade
I did say "when used the right way".

For various activities it allows you to mask your identity while making
purchases online far better than the alternative of using your credit card or
PayPal or something.

~~~
acdha
What do you define as “the right way” and how hard is it for the average
person to follow?

Given the high opsec requirements, I think it's irresponsible to advertise an
anonymity service which fails in a way which provides an irrevocable public
record of every transaction.

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reckoner2
People seem to believe that cryptocurrencies are either a scam/waste/bubble or
that they are an amazing technology that the future of financial tech will be
built upon. And there is this battle between the sides.

I think that both are equally true! Prices are obviously driven by
speculation, there is tonnes of fraud, and no regulation. It is a wild wild
west goldrush situation right now. Maybe this is unfortunate but I'm also not
surprised by it. Isn't this how all markets get started? I don't have great
sources but I think the situation was similar for the securities markets for
many years.

I also think the blockchain is an incredibly remarkable piece of technology
that it will be put to use in increasingly important and useful roles and that
cryptocurrencies are here to stay. Both can be true.

~~~
grey-area
Sure there's lots of fraud, excitement, and ignorance right now in
cryotocurrencies, but there are also fundamental problems with the current
attempts. Distributed consensus means eventual consistency and/or slow
unreliable transactions, I'm not convinced that's a good idea for a payments
network.

The article makes the point that many people putting money into these schemes
know nothing about the tech involved or the possible applications/drawbacks,
they're gambling based on hearsay.

As with most bubbles, what comes after probably won't resemble what got
everyone excited, and early investors will lose their money. So it's
understandable many are sceptical.

~~~
hello_marmalade
There are designs for much better implementations that are completed or in the
works.

Cryptocurrency is here to stay, whether or not it will be Bitcoin specifically
is another question.

------
imhoguy
Shoeshine boy indicator is flashing red for me [1]. Some chaps are calling me
at midnight to lure me into the last occasion to become awful rich by buying
some one/das/last-coin mining licenses. After quick research it seems their
"cryptocurrencies" are not even distributed but hosted at "secure datacenter".
Speechless, I had a same feeling pre-2007 when overnight trained advisors
tried to get me into some miracle funds. Cryptocurrencies have a future but
euphoria period is usually followed by crash and purification phase - lots of
money will be lost, but the proven solution will stay.

[1]
[http://archive.fortune.com/magazines/fortune/fortune_archive...](http://archive.fortune.com/magazines/fortune/fortune_archive/1996/04/15/211503/index.htm)

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ivanbakel
Ignoring the opinionated part of the title for a moment: because there's money
in it, pure and simple. That money comes from the buyers, in a kind of pseudo-
Ponzi scheme, but it's still the basic motivator for getting involved in ETH.

~~~
rb808
Absolutely, I wish people would call it out as a Ponzi scheme more.

A good example is if ETH or some other ccy takes off and BTC withers. What is
a BTC worth? nothing. But people are buying it because it'll be worth more in
the future. That is the definition of a bubble. Given that the original owners
make the money from new entrants - that is the definition of a pyramid scheme.

~~~
dallashoxton
>Given that the original owners make the money from new entrants - that is the
definition of a pyramid scheme.

By that criteria, any company that undergoes an IPO is also a pyramid scheme.

~~~
rb808
A company has real assets, and profits that can be distributed to owners.
Crypto currencies have neither.

~~~
dallashoxton
Yes, but what defines a pyramid scheme is its unsustainability from a
mathematical standpoint, not necessarily the fact that original owners and
early adopters make money off of new investors. I think the latter property is
present in almost all financial markets -- the "smart money" phenomenon.

I agree that the entire cryptocurrency market is in a bit of a bubble, but to
write it all off as a pyramid scheme seems a bit of stretch to me.

edit: also, "pyramid scheme" to me is a very loaded term with a specific legal
meaning to it as it applies to one single entity, i.e. the person or company
operating at the "top" of the pyramid. There isn't really such an entity at
the top of the entire cryptocurrency market, so I think it's much more apt to
call it an asset or asset class bubble rather than toss around such
contentious terms.

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nxsynonym
I'm curious why so many people are so vehemently opposed to cryptocurrencies,
and in particular ETH.

If you believe it's a big scam/bubble and won't turn into anything, then don't
purchase any. But what's with the influx of "ETH is the worst and you're
stupid if you buy any" articles? They add 0 value to the blockchain culture
and development, and only seem to be thinly veiled "I told you so/I'm smarter
than you" think pieces.

~~~
lmm
I believe in democracy and traditional government, for all its flaws. I think
the ability of the human community to outlaw things, even when there's Pareto
profit in those things, is a really important safety net.

Cryptocurrency takes that away, and there is no way of getting it back. If
cryptocurrency becomes widespread and socially acceptable, then you better
hope all the things that people want to buy and other people want to sell are
good for society, because there will no longer be anything society can do
about the ones that aren't. It's not just a worthless bubble, it's a genuine
threat to civilization.

~~~
ahallock
What about cryptocurrency prevents things from being outlawed? And how has
government eliminated illicit goods and services from being sold right now? As
long as there's a market and the money is greater than the deterrent, people
will buy and sell things that are bad for society.

> a genuine threat to civilization

Hyperbole.

~~~
lmm
> As long as there's a market and the money is greater than the deterrent,
> people will buy and sell things that are bad for society.

As long as such transactions are inconvenient/costly, people will do less of
them; if the inconvenience/cost is high enough to make the transaction
unprofitable then it won't happen.

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brianbreslin
My main beef with most crypto is that there are no sound logical factors
driving price swings. That said, I am a sucker and have a disposable amount of
money invested in them.

However looking at fundamentals (low volume of transactions, niche utility,
liquidity, high-hype levels, etc), there are tons of signs of bubble in crypto
now (and have been for ages).

~~~
toastking
It's also eventually they're going to hit a ceiling and be worthless once
they're all mined. It seems like a huge bet, trying to guess when Bitcoin
value will hit 0.

~~~
mysterypie
> It's also eventually they're going to hit a ceiling and be worthless once
> they're all mined.

There may be huge bubble, but that comment is a complete misunderstanding.
Suppose all the gold in the world had been mined. Would all the existing gold
become worthless? If you think about it, you'll see that just the opposite
will happen. The world supply of gold (or Bitcoin) will become more valuable.

I repeat: I'm not saying that there is no bubble.

An aside: Maybe you're thinking that if no more Bitcoin is being mined, then
the market can't grow or that there won't be enough Bitcoin to support more
transactions. However, there's a plan for that since the original Bitcoin
paper. Bitcoin is finely divisible and the idea is that people will use
smaller and smaller units for a certain value.

~~~
Cthulhu_
Doesn't the Bitcoin network depend on miners to process transactions? Like, no
miners = no transactions processed?

~~~
0x4f3759df
Miners will be compensated with transaction fees when there is nothing left to
mine.

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djb_hackernews
I was recently invited over a friends house to get together with a few others
to discuss bitcoin and bitcoin opportunities. All mid 30s, non tech day jobs
and people I would consider intelligent. They had no experience with equities,
no experience with forex, and were heavily researching bitcoin mining systems.
It seemed as if bitcoin just popped up on their radar and really had no
understanding of bitcoin or other cryptocurrencies and I got the sense that
they felt like they were getting in on the ground floor. Maybe?

+1 to the shoeshine boy indicator reference in this thread.

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googletazer
People are calling cryptocurrency vaporware, but its only partly true, and
definitely not for Ethereum. Check out the hard problems worked on by the
ethereum team -
[https://github.com/ethereum/research/wiki/Problems](https://github.com/ethereum/research/wiki/Problems)

Each one of those would result in multiple patents if solved by a traditional
corporation.

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j_s
Because right now it's on sale!

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throwaway29292
I guess it depends on whether people believe cryptocurrencies have a future,
and if they're confident Ethereum will still exist 10 years from now. I don't
care if the price falls temporarily, it has the potential to make a major
impact on the world and I think engineers will be able to surmount the
challenges it faces today. It's as simple as that for me.

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branchless
Because land prices have detached from land and people are desperate to get a
lottery ticket as their only way to escape wage slavery.

The casino economy where "investors" roll the dice to the muffled cry of
"efficient allocation of resources".

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Cozumel
That author was me with bitcoin, I perhaps understood it on a technical level
better than my friends, but I thought it was silly, they didn't and now
they're bitcoin millionaires.

------
banderman
Greed.

