
The Fintech Bubble - tosh
https://joi.ito.com/weblog/2016/06/14/-the-fintech-bu.html
======
astrodust
The comparisons between Bitcoin and IP as in the internet are always
infuriating because of their insulting simplicity and ignorance.

Bitcoin and block-chain technology may well prove to be analogous to Gopher,
an experiment that seemed like a good idea at the time but was ultimately
crushed by a superior idea, the then World Wide Web with HTTP. It's too early
to say.

The other thing to keep in mind is IP is a language, it's not a _currency_. IP
addresses might be a sort of currency today, but during the explosive growth
of the internet these were pretty much free, all you had to do was ask and you
were given thousands of them.

Imagine what the internet would be like if you had to "mine" IP addresses. If
a handful of early adopters controlled 80% of the IP space, if they were the
ones now charging rent to those seeking to utilize that space, would there be
such rapid uptake? Would you be happy leasing your IPs from some third party
who was simply fortunate enough to be there first and stake a claim?

The thing that's made the internet so prevalent, so pervasive, is how little
friction there is on using it. In many cases using IP was significantly less
fuss than going with competing protocols. Bitcoin is not always easier than
the alternative, it's not always better, it's just _different_ and that's not
necessarily a good thing.

~~~
rossng
> If a handful of early adopters controlled 80% of the IP space, if they were
> the ones now charging rent to those seeking to utilize that space, would
> there be such rapid uptake? Would you be happy leasing your IPs from some
> third party who was simply fortunate enough to be there first and stake a
> claim?

This is effectively exactly what happened with IP. There are a bunch of (many
now-defunct) companies allocated huge portions of the IPv4 space, and they get
to sell those addresses to people that need them. It's not ideal, but you can
hardly claim that it has hurt adoption.

I think the ownership distribution issue is the least of Bitcoin's problems.
There will always be people who are rich for no justifiable reason.

~~~
astrodust
The impact so far has been minimal despite the constraint of supply, the cost
of IPs is still marginal. It's also a situation that has unfolded recently,
long after the rampant success of the platform.

It's also possible to make more efficient use of limited addresses now either
through NAT, or IPv4 to IPv6 bridges, where once again IPv6 permits large
numbers of addresses to be issued with zero cost.

> There will always be people who are rich for no justifiable reason.

There are a lot of people that profited in a huge way on early internet plays
"for no justifiable reason", but that didn't hinder growth because it didn't
constrain supply. Someone hoarding Bitcoin does.

~~~
Jtsummers
And someone hoarding Bitcoin can seriously disrupt the Bitcoin economy by
releasing it in massive amounts at a later point. Even an uncoordinated
(deliberately) collection of hoarders can screw it all up, see market crashes.
Bitcoin, having little in the way of a stable economy to be valued on, is too
closely tied in value to its current exchange rates. This leads to it being
more of a commodity (like stocks) than a currency. So if someone sees the
price drop, they sell (at the now reduced price), which triggers others to
sell, and others still.

This is not the mark of a stable currency or even a potentially stable one.
Until a significant population can conduct the vast majority of their business
in BTC, it's not a viable currency.

~~~
astrodust
Yeah, it's things like that which make the dynamics entirely different. If
someone flooded the market with IP addressees there wouldn't be people losing
their minds about the collapsing value of their holdings, they'd be
celebrating.

~~~
theseatoms
Interesting. Naive "econ 101-ism" would suggest that Bitcoin's marketplace is
"better," with its finer-grained and more evenly publicized price discovery,
(i.e. efficient markets.) But it seems this situation is worse for Bitcoin
itself, since mass-involvement in price discovery can induce bubbles and
panics, and therefore less confidence in the underlying product/service.

~~~
astrodust
The thing that was so revolutionary and powerful about the internet was the
elimination of scarcity. No longer were things walled off behind pay-by-the-
minute systems (Compuserve) or provided on a cripplingly expensive
subscription basis (LexisNexis), instead it was made free, open, and
accessible to everyone with a way to connect to it.

Bitcoin seems to be following the "classical" economic model where preserving
scarcity is paramount, it only has any value whatsoever because of the
artificial constraints placed on the currency. If Bitcoin's transaction ledger
was instead simply a record of exchanges (e.g. A paid B $40, C paid D £30) and
worked as a proof-of-payment system it would probably be more successful.

Locking people into Bitcoin as _both_ a transaction tracking system and a
currency will likely be its downfall. Consider a free-market alternative:
Anyone can provide their own currency or facilitate conversion to an existing
fiat currency, but they can use the blockchain to manage transactions and
resolve disputes. Blockchain participants (miners) are rewarded for their
contributions by a small share of the transactions performed in whatever
currency was transacted. They're free to be selective about which transactions
they're willing to process: It's a truly free market.

There's no incentive to destabilize the blockchain, history can't be re-
written, double-spends can be ignored by the parties providing the endpoint of
the transaction. There's no stored value at all to steal. There's also no way
for a single entity to dominate the network and dictate terms, a significant
problem now with Bitcoin being driven by mega-miners in China with peculiar
requirements that are often contradictory to the long-term health of the
network.

~~~
mjevans
I like the idea of preserving public records with a block chain. However if
the 'currency' of that block chain is in fact based on it tracking other
assets as securities then it calls for a constant need to evaluate the actual
value of those backing securities. This makes it so that there is not one
value (BTC or equivalent) but instead a portfolio of assets (like
stocks/bonds).

~~~
nickpsecurity
Archive.org concept + Backblaze storage appliances + replication. Way more
efficient than Bitcoin or a blockchain in preserving public records. Also, has
been working for some time in real world under large usage even without the
Backblaze boxes. :)

------
inglor
I don't understand, at TipRanks (our FinTech startup) we have been busting our
asses off to get a steady revenue stream and partners. We've been at it for
years and we finally have something we're proud of and works well - but it was
certainly not what I remember the .com bubble days as.

We won a lot of big awards like Finovate (twice!) and Benzinga awards and we
won sevaral events (like a large IBM Watson one) - but that doesn't translate
directly to success. We're only now starting to see "real" success 4 years in
but we're in no illusion that 'we made it' or anything like the "good ol'"
.com bubble days.

Working with banks is hard, working with brokers is hard, working with
financial institutions is hard - contracts take over a year to sign and
consumers are very skeptical when you ask for their money.

------
dahdum
A lot of the press and mindshare goes to the public blockchains like Bitcoin,
but a ton of investment and work is being done on decentralized ledgers and
solutions for financial institutions.

Digital Asset Holdings[1], for example, is building a distributed ledger for
Australian Securities Exchange (ASX) to process post-trade settlement using
HyperLedger.

[1] [https://digitalasset.com/](https://digitalasset.com/)

~~~
bendbro
Why is this better than what already exists?

~~~
dahdum
Post-trade settlement is a very manual and time consuming process, a new
solution built on a distributed ledger has the potential to drastically cut
costs and reduce settlement time.

~~~
discodave
For a financial institution, why is the blockchain better than existing
distributed systems like paxos or gossip protocols?

~~~
dahdum
I'm not an expert in those protocols, but since the blockchain is essentially
just a shared ledger, it maps cleanly to their existing needs.

------
mankash666
Some comparisons in the article are outright preposterous. If a Cisco for the
blockchain emerges, it centralizes infrastructure and negates the benefits of
using the blockchain.

The Blockchain is supposed to leapfrog the status quo, directly jump to SDN vs
go through the Cisco --> SDN cycle again, metaphorically speaking

------
mxuribe
I can't really speak to comparisons in fintech or blockchain-related
technologies as I'm no expert in this field...But i do agree in the general
case that more attention should be placed on the infrastructure as opposed to
only edge/applications.

------
zallarak
Stopped reading at: "I think that as a community we need to increase our
collaboration and diligently eliminate bugs and bad designs without slowing
down innovation and research."

~~~
nickpsecurity
Why? It's true. Most tend to go to one extreme of the quality spectrum or
another. A small number of companies and people find middle grounds that knock
out serious problems while maintaining time to market. Then, can keep fixing
stuff in reasonable time before it becomes a big problem due to design &
policies being made to do that. These groups trying to go all in on unproven
stuff _really should_ dial down the innovation a little bit for caution and
peer review in its place. Smaller-scale experiments before the big ones (eg
DAO), too.

~~~
zallarak
A middle ground wasn't advocated, he was basically saying "let's keep the pace
of innovation constant, but improve quality". Putting incremental effort into
quality and testing probably requires you slow down your rate of
experimentation, no?

~~~
nickpsecurity
Well, sure. How much depends on what you're working with. Adding a single
design or code review step in an otherwise feature-driven company is shown to
knock out all kinds of issues. DAO came down pretty quickly. That much time
for review with some bug bounties might have prevented some issues it had.
They could still be developing on it in the process. Just not putting money in
for real until it passed what peer review they could get.

Of course, it's an example where there's all kinds of potential for problems
that could take a serious amount of time to work out. Can't keep innovation
pace high with something like that plus ensure quality. So, the trick is
usually to leverage as much proven stuff in one's innovation as possible. Easy
to do with software at least.

~~~
zallarak
Great point! What you're saying is that we can get some benefits for 0 effort
if we employ the right software tools. Totally agreed.

------
bdcravens
3 weeks old, which is an eternity in FinTech/cryptocurrency. Doesn't even
address DAO "hack"

~~~
Jtsummers
It's addressed as both a potentiality (before it occurred) and as a
footnote/update.

------
jomamaxx
Bitcoin has no real use or value.

As a means to 'store wealth' \- not really. There are 100 other things that
make more sense than bitcoin.

As a 'medium of exchange' \- it will never be a common currency so it has no
real value there. (A shopkeeper cannot price his 5% margin Milk in Bitcoins as
the price fluctuates too much vis-a-vis the dollar, which he must also price
his milk in).

The only real advantage of Bitcoin is total privacy, which 99.9% have no
problem with, only people doing illegal things generally need this.

The small benefit of the fact you can bypass credit card charges etc. is
entirely offset by the lack of de-facto security in Bitcoin - although it is
'technically secure' \- for the laymen, using it and securely storing
'bitcoins' is not straightforward. That major Bitcoin repos have been hacked
is evidence of that.

The banks are into 'block chain' because they saw how quickly Bitcoin spread -
and they can't afford to not be part of a wave if it happens, but it won't.

It's funny that so many of bitcoins backers have absolutely no understanding
of finance, currency, monetary policy etc..

It's also funny how ideological people are about bitcoin:

" I thought that Bitcoin was similar in many ways to the Internet. The
metaphor that I used was that Bitcoin was like email - the first killer app -
and that the Bitcoin Blockchain was like The Internet - the infrastructure
that was deployed to support it but that could be used for so many other
things. I suggested that The Blockchain was to finance"

This is not particularly rational.

What we need are strong, well backed, resilient and responsibly managed
currencies.

The only real systematic problem with today's currencies are:

A) the oligcarchy of payment systems like visa grafting 1%-ish off the top and

B) monetary policy decisions that ultimately favour the banks.

It would be nice to get rid of A, but with bitcoin there is no 'monetary
policy' and that's a much worse position than having central banks with the
ability to do some degree of intervention, even if it's not perfect.

The article is a good example of this - everyone talks about technology, but
don't bother to even mention finance, likely because they don't have a clue.

Fintech of the blockchain sort is in a 'bubble' because bitcoin does not solve
any 'problem' for 99% of people.

Even in 3rd world countries with scam currencies, the solution will migrate
towards simply using the currency of the nearest nation with a credible
currency, namely dollars, Euros, and possibly in the future, RMB.

~~~
atemerev
> As a means to 'store wealth' \- not really. There are 100 other things that
> make more sense than bitcoin.

Not much. Wealth storage medium has to be rare (with predictable rarity),
easily divisible, easily transferable, easily verifiable against forgery.
Bitcoin fits the bill perfectly. It's hard to invent better medium of storage.

> As a 'medium of exchange' \- it will never be a common currency so it has no
> real value there.

It _is_ a common currency _now_. I earn my living in Bitcoin. I can spent it
easily through BTC-linked debit cards. Today morning I bought a pack of milk
with such card, and it was debited in BTC. In the country I live in, some
municipal payments and bills can be paid by Bitcoin _directly_.

> The only real advantage of Bitcoin is total privacy

Bitcoin is 100% transparent. All transactions and balances are visible to
everyone. When the money source is established, it almost impossible to
"launder" it, as it is fully trackable. As of now, there is almost zero
privacy (not that it is a good thing). You still can buy Bitcoins for cash in
some dark alleys, but the price will be worse, and amounts are limited.
Whatever privacy protections Bitcoin had in its beginnings, now almost
completely eliminated. It is tax collectors' dream.

~~~
jomamaxx
"Wealth storage medium has to be rare (with predictable rarity), easily
divisible, easily transferable, easily verifiable against forgery. Bitcoin
fits the bill perfectly. It's hard to invent better medium of storage."

No - this is completely false. All of it.

Owning bitcoins is effectively speculative. It fluctuates _wildly_ against all
other currencies, commodities. It has no basis for appreciation, or
predictability.

Your position is totally upside down - it's hard to imagine a _worse_ store of
value than Bitcoin.

\+ Real estate, commodities, government bonds, equities, standard currencies
are all 1000x better than 'Bitcoin' as a 'store of value'.

"It _is_ a common currency _now_. I"

NO. It is _not_. Can you pay your rent in Bitcoin? Can you buy milk? Can you
walk down to any car dealer and buy a car? Can you report your earnings in
bitcoin? Can you pay your taxes in bitcoin? Less than 0.01% of goods in the
USA can be bought with 'bitcoin'\- it is _not_ a currency either in the
technical or common sense.

Bitcoin is not 'legal tender' or 'de-facto tender' in _any_ economy of the
world, ergo, it is _not_ a currency.

Why are you paid in bitcoin? Why not gold? Why not Diamonds? Why not porc-
futures or T-Bonds? You have to transfer your Bitcoins/gold/diamonds/corn-
shares into a real currency in order to use it. It seems pretty crazy to be
'paid in bitcoin' unless you were trying to skip on taxes. Otherwise (assuming
you live in the USA) - you should rationally want to be paid in USD.
Rationally - it makes more sense to be paid in almost any currency over
Bitcoin. Dollars, Swiss Francs, Danish Kroner, Euros, RMB - they all make
'more sense' to be paid in than Bitcoin even for a US resident.

"Bitcoin is 100% transparent. "

Technically - I agree with you - but in practice, it is not, because it is not
tracked or regulated, ergo, it is effectively anonymous, which is why so many
'black market' sites use bitcoin as a medium of exchange.

In fact - without 'black market' exchanges, bitcoin would probably not exist.

There is absolutely no reason whatsoever to use bitcoin.

Also - I suggest you might not know what a 'store of value' or a 'currency'
is, these are established financial concepts.

Most people behind bitcoin has no grasp of what currency is. They often
compare it to 'internet technology' like IP. The lack of financial literacy
among the Bitcoin bloggers is staggering.

~~~
CyberDildonics
If you were in Venezuela and everywhere accepted bitcoin, would you rather
have bitcoin or Venezuelan bolivars?

~~~
jomamaxx
"If you were in Venezuela and everywhere accepted bitcoin, would you rather
have bitcoin or Venezuelan bolivars?"

If Bitcoin were the de-facto currency of Venezuela, sure bitcoins would make
sense. But it's not, so it doesn't.

Moreover, there is no reason for anyone in Venezuela to use Bitcoin when they
can much more easily and rationally use USD. Like I say - the rational
alternative for a bad currency is a strong currency of a nearby entity. In
Venezuela, the default 'hard currency' is dollars. In Algeria it's Euros.

~~~
CyberDildonics
They can't get USD because of capital controls, why else do you think they
can't get food?

