
The cryptocurrency bubble is strangling innovation? - prostoalex
https://techcrunch.com/2018/01/07/the-cryptocurrency-bubble-is-strangling-innovation/
======
Robotbeat
Reading the original Satoshi paper, the point of Bitcoin is to be
decentralized/trustless and to enable microtransactions by lowering
transaction fees.

Both these goals seem to have failed in practice, the latter spectacularly
(although other cryptocurrencies have done better in this regard).

To truly be trustless, you can't generate keys/addresses on some website like
bitaddress or use some other online wallet, as you're clearly trusting
bitaddress to not be copying your key (and/or have the ability to fully and
carefully audit their code... few people have this capability and even fewer
have the patience to do so). You have to do something like this: generate them
offline using a computer which can never communicate with the Internet after
you use it. And you need to do it at least twice with two completely different
implementations to ensure your public and private key truly match.

In practicality, I have to send a picture of my ID to some third party
exchange in order to use it. REALLY? Why don't I just use PayPal?

In practicality, Bitcoin is only /ritually/ trustless and decentralized. And
it's worthless for microtransactions. (Etherium is better, but not perfect.)

I really do think the whole industry has become too enamored with the cloud
and with centralization, but these steps toward decentralization seem self-
defeating as they rely on (centralized!) apps from a centralized appstore in
practice. Might as well trust PayPal or Apple or whoever. Or even just a
regular bank. Or even better, a credit union that you, as an account holder,
have voting power over.

If I'm using Windows, I trust Microsoft. If I'm using Ubuntu, I trust
Canonical. If I use Android or Chrome, I trust Google. If I use iOS, I trust
Apple. On some level, I also trust Intel and/or AMD and/or NVidia and my
chipset provider, too. Trustlessness only exists in theory (and even then,
only with certain assumptions--like a distributed mining pool or stake that
hasn't become centralized), and you can make a good case that in practicality
cryptocurrencies actually INCREASE your trust attack surface area.

It all starts looking like a lot of overhead for transactions.

~~~
powvans
This is a great analysis. The lack of trust as a feature in cryptocurrency is
really a bug in society.

Bitcoin rose out of the previous financial collapse by appealing to people who
have lost trust in institutions. The problem with building a trustless answer
to that problem is that (assertions ahead) life isn't compatible with an
absence of trust.

Trying to build a trustless financial system is a quixotic undertaking at
best. It really smacks of a utopian dream where fundamental aspects of human
nature are blithely ignored.

Of course, as you point out, no one is really trying to do it. Most people
will have to trust Coinbase or whichever exchange they choose.

~~~
sol_remmy
Our current financial system does require end-users like you and me to trust
each other either.

It only requires us to trust the legal system

------
leroy_masochist
> Look at the dot-com boom. A lot of people lost a whole lot of paper money,
> but it brought us a cheap worldwide fiber backbone and companies like Amazon
> and Google.

If the point the author is trying to make is that Amazon and Google were made
possible by the dotcom boom, and that the collapse of the dotcom bubble was
part of the price we as a society had to pay to have the services provided
these companies, that's a really really bad argument.

Amazon was founded in 1995 and IPO'ed in 1997, before the IPO market got
crazy. Google was founded in 1997 and IPO'ed in 2004 when tech stocks were
still a punchline. Neither of these companies is an example of any kind of
silver lining for your Uncle Bob losing thousand of bucks after buying into a
rapidly appreciating security (or currency) whose underlying value he does not
understand whatsoever.

~~~
qaq
Google bought a ton of dark fiber for cents on the dollar. So the bust did
enable Google to develop much more rapidly and with much smaller $ investment.

~~~
leroy_masochist
Yes, and the boom times of 1998-2000 inspired a bunch of young people to spend
more time learning about tech, and some of them grew up to be programmers who
added significant value at Google and Amazon. There are lots of these kinds of
secondary effects and many of them were significant, such as your fiber
example, which is a good one.

The point though, is that both Google and Amazon were able to get themselves
off of the ground without taking advantage of all the stupid money that
flooded the Valley in the 1998-2000 time period, quite to the contrary of the
argument I quoted in the parent comment.

------
rasengan
I think people will come up with good sharding and safe off chain solutions to
mitigate transaction speed latency. I think the bubble actually incentivizes
that.

~~~
malux85
We have this with our "Hybrid nodes" they are doing exactly that -
compensating for the chain weaknesses until the technology catches up, and we
have systems in place to easily migrate this functionality on-chain so that
we're ready ahead of time

~~~
xur17
Are there specific projects that are using hybrid nodes? I'm curious to read
more about this.

------
fortythirteen
More than anything, the cost to transact with Bitcoin or Etherium (which this
article weirdly focuses on), stagnates mainstream adoption.

Sure, I could create my own coin to use as an in-app currency for my project,
but _why_? A coin is only worth what you can buy with it, and nobody is going
to sell anything worthwhile with some random, in-app coin.

Even Bitcoin was just abandoned by Microsoft, because it's so overpriced you'd
have to be insane to trade anything for it other than high-risk investment
cash.

Until this bonkers hype cycle gets to the peak of productivity, the blockchain
has no real world purpose other than as a shared database.

~~~
cantrip
I don't think it's weird to focus on Ethereum as, as the article correctly
states, most new currencies are not a separate chain themselves but are simply
tokens on the Ethereum blockchain. Ethereum is also the only blockchain with a
real developer community, and the article focuses on building applications.

Microsoft didn't abandon Bitcoin because it was overpriced, they abandoned it
because it was volatile.

One could argue that a blockchain's _only_ real world purpose is as a shared
database, just as http's only real world purpose is the transfer of data
between computers.

~~~
fortythirteen
> Microsoft didn't abandon Bitcoin because it was overpriced, they abandoned
> it because it was volatile.

It was "volatile" when they adopted it. It's now volatile and overpriced. If
MS thought that Bitcoin was a good investment, volatile or not, they would
have stuck with it. "Volatile" is acting as an excuse for their real
sentiment, that it's time to short Bitcoin.

~~~
cantrip
You don't generally hold onto Bitcoin when you take it as payment, you sell it
immediately, so no, Microsoft was not "investing" in Bitcoin by taking it as a
payment for their products and they're not shorting Bitcoin either.

The volatility is what makes it untenable as payment, as you can't sell it
fast enough to ensure that you get the same exchange rate you gave to the
customer.

~~~
fortythirteen
> The volatility is what makes it untenable as payment, as you can't sell it
> fast enough to ensure that you get the same exchange rate you gave to the
> customer.

Absolutely false. Speculation has driven the value of bitcoin so high that the
average transaction fee, at the time of writing this, is about $31. Buying a
$59.99 game for Xbox One will cost you $90 in Bitcoin. That is an individual
hash, that _must be consolidated into a larger wallet for MS to sell off_.
Consolidating that hash will cost a transaction fee, meaning that, on a $60
game, MS will lose over 50% of the gross profit in a transaction fee.

That alone makes it not worth it. The only thing that would allow them to
retain a higher percentage of the transaction would be for the Bitcoin bubble
to burst, making that whole $60 worthless.

Bitcoin could be wholly volatile within it's 2016 prices and MS would be just
fine. It is directly because of it's exploded, _overpriced_ value that it's
untenable as an actual currency.

~~~
debaserab2
I have a question as a relatively uninformed spectator: where do these
transaction fees go and why do they have to be so high?

~~~
rlanday
A miner that successfully mines a block collects all the transaction fees for
transactions in the block. They are high right now because many people want to
send transactions, but blocks are capped at 1 MB, limiting the number of
transactions that can fit into one block. Blocks are produced approximately
once every ten minutes, so a transaction that contains a fee that’s too low
will constantly get passed over in favor of higher-fee transactions.

------
DennisP
He claims the gas price mechanism doesn't help Ethereum because the fee market
is driven by supply and demand. Of course it is, but that supply and demand is
independent of the ETH price; it will govern the _real_ cost of fees and that
will be translated into some amount of ETH depending on the ETH price.

We can see this when network usage drops, or the gas limit increases. Fees
drop to low levels in dollar terms, even if the ETH price stays up.

There is one way that the ETH price sets a minimum on gas costs: miners race
each other to make blocks, processing transactions causes delay. The more
valuable the block reward, the higher the expected cost of that delay, and
miners demand compensation for that. But this doesn't seem to be a large
effect since gas prices are sometimes quite low. (Full proof of stake would
eliminate this race dynamic.)

------
api
There's another issue that I don't see mentioned much here. I was
contemplating writing a blog post about it.

Over the past year I've seen a serious decline in early stage angel
investment. I've talked to a lot of people who have said similar things. What
I've heard and in some cases observed is that it's all going to crypto. All
the people who would be making speculative angel investments are now buying
into cryptocurrency coins and ICOs in the hopes of riding the bubble.

This is really awful for two reasons:

(1) Few if any of these ICO systems have any utility at all, while many early
stage startups end up creating things of actual value. It represents a shift
in investment from value creation to pure speculation.

(2) When -- not if, but when -- this bubble pops, a lot of that wealth that
_could_ have been used to fund angel investment will be vaporized. Yes most
startups fail but at least angel funding tends to support attempts at value
creation. In this case we're losing tons of money to support nothing but the
burning of coal to heat the atmosphere.

Everything else this article says is spot on-- any value that could be present
in cryptocurrency is being harmed by its relentless appreciation. Hyper-
deflation is not a desirable characteristic in a currency.

I lived through the dot.com bubble and that one was much less vapid. Even
though many startups were over-funded and speculation ran the stock market
into crazy land, a lot of actual value did get created. In this case I see
almost none.

This whole thing feel like a _reductio ad absurdium_ of financial capitalism,
which ironically is the system Bitcoin was created to replace.

~~~
pyb
Furthermore, we're starting to see that all those crypto startups have made so
much money from their ICOs that they're starting to distort the job market as
well.

The kind of engineers who'd be naturally drawn to smaller startups and didn't
want to work for Google or Facebook, are now being attracted to the crypto
space in ever greater numbers. For that reason, it will become even harder to
start a non-crypto startup in the near future.

I think this will become more and more obvious throught 2018 and 2019.

~~~
api
Yet what have any of these startups delivered other than tools for the crypto
world? The whole thing seems almost 100% self-referential. It's like a
financial MMORPG.

Does the crypto world have anything to offer the real world?

Personally I've only seen one common use case: currency and wire transfer. As
the OA correctly points out this use case is being harmed by currency hyper-
deflation and fee inflation. Even the black market use case is faltering for
these reasons.

Few ICO projects are even _usable_. Most don't even _exist_. Of those that are
usable I can off the top of my head think of only one that seems to have any
utility that doesn't recurse into crypto: Siacoin. Siacoin apparently works
but it's not a compelling alternative to Amazon S3 or Backblaze, so its
utility is minimal at best.

~~~
pyb
I am not saying these crypto startups are doing anything useful ! 90% + of
them aren't. Which is why their increasing hiring power is getting to be a
problem.

------
dragontamer
No? Because before cryptocurrency, dumb money was in dumb apps like "Yo".

The problem isn't cryptocurrency or fads. Its stupid investors spending money
on stupid things. I mean, its fine, its their money and all. But obviously, if
investors spent the money on more useful things, it'd be better innovation for
everyone (and those investors would surely get better returns).

At the moment, we're in an "everything bubble" and people just don't know what
to put their money into. Bonds have low yields, the stock market has a
dangerously high P/E ratio, and everything in venture capitalism has the word
blockchain in it (even Hooters and Long Island Ice Tea). I'm sure there are
some smart investors out there who have figured out what is truly useful, but
like the old rule says: 90% of everything is crap. And that includes
investments...

~~~
overcast
People aren't investing in cryptocurrency, I don't care what /r/bitcoin has to
say about it. People are speculating in hopes of making a lot of money off of
a bigger fool.

~~~
dragontamer
> People aren't investing in cryptocurrency

[http://money.cnn.com/2017/12/21/investing/long-island-
iced-t...](http://money.cnn.com/2017/12/21/investing/long-island-iced-tea-
bitcoin-blockchain/index.html)

Erm, yes they are. And they're doing it in roughly the stupided manner
possible. There's a ton of people who literally hear the word "blockchain" and
then just throw money at it.

That's why these no-name penny stocks go up 200%+ when they change their
Facebook page to include the words "blockchain", even if it makes no freaking
sense.

~~~
overcast
None of those people are going long term, which is what I consider investing.
They are looking for quick money.

------
alistproducer2
Dapps can be awesome when you want to avoid counter-party risk. Ether Delta is
a great example; however, it's super expensive to use ED (every interaction
costs $0.80-$1.60) and unless you're playing with a lot of money it's cost
prohibitive to use.

Even though they had the dns hijacking a while ago, you can still access the
market via direct calls to the contract. When it's time to liquidate a large
alt holding back into ETH, ED is the only place I trust because I don't have
to trust anyone.

~~~
paxpelus
You may want to have a look on Etherdelta Guard Chrome Extension (FYI: I built
it). I open sourced it [https://github.com/paxpelus/etherdelta-
guard](https://github.com/paxpelus/etherdelta-guard) and you can download the
plugin here
[https://chrome.google.com/webstore/detail/etherdelta/beeeoaa...](https://chrome.google.com/webstore/detail/etherdelta/beeeoaadbehhmejefhdbhgmhgfnogiij)

When etherdelta deploys - they call a script of mine that calculates the md5
of their files in github and creates automatically a new version in Chrome Web
Store.

I use my plugin whenever I visit etherdelta so I can be sure that their
deployed version matches the one on github.com

~~~
Tepix
Is there an alternative frontend for etherdelta when the website is once again
overloaded? Also are open orders only stored on the website?

~~~
paxpelus
Open orders are actually transactions that have been made to the smart
contract. It is possible to monitor the smart contract and get informed on all
the open orders.

You may want to have a look on Etherdelta API if you don't want to use
directly the smart contract.
[https://github.com/etherdelta/etherdelta.github.io/blob/mast...](https://github.com/etherdelta/etherdelta.github.io/blob/master/docs/API.md)

------
SN76477
What I have seen is a lot of people in my space have dropped what they are
doing to focus on blockchain/crypto.

They are chasing novelty, they do not seem dedicated to their craft. I think
this is a bit of a problem.

~~~
dopamean
I have a friend who just quit his job on Friday to join a company that just
laid off 2/3 of their staff to do a blockchain project. The company currently
does nothing related to the blockchain and they do not have an idea for a
product yet. It seems like such a weird thing to do.

------
phaser
The incentives for building a crypto product with real intentions of bringing
a product to people vs. writing a whitepaper for fundraising are alarming.

Besides the rising fees (which can be mitigated with added protocol layers
like lightning) the real problem is people understanding cryptocurrencies as
investment. "Crypto investors" and people hoping to get rich quick who don't
understand the fundamental philosophy of Bitcoin/Crypto are strangling
innovation by adding "noise" attention to whatever developers like us "signal"
are making.

Personally, I hope the bubble bursts, everyone lose their money and we go back
to the original community of people building stuff, who see cryptocurrency as
a technology, not an "investment". If Bitcoin drops to $1, I will still write
software for it and won't miss the 'craze' factor.

------
thisisit
> It remains an open question whether even much, much lower fees would be
> viable in the long run.

The problem is not fees rather usability. If today I speak to a layman about
bitcoin he is confused. It doesn't help that people start talking about
hardware wallets, multisigs, Segwit etc. Most of those guys find that using
cryptocurrency is a pain and want to stick to real money. Yes, it doesn't stop
them from speculating by putting some money in these coins.

One thing has to be noted, while there is a constant parallel drawn with dot
com people forget that there was at least 7-8 years head start for a layman to
understand "internet". There has been no run up here, things have just
exploded.

~~~
acdha
> One thing has to be noted, while there is a constant parallel drawn with dot
> com people forget that there was at least 7-8 years head start for a layman
> to understand "internet".

Bitcoin has been around for 8 years so it's not like there hasn't been enough
time. The difference is that the internet was easy to explain to people
because it had a number of immediately useful applications: you could almost
immediately send email, read the news or stream audio content (by 1995),
lookup stock information and place trades, download software, buy things,
chat, find a date or adult content, etc. — in most cases things people had
been able to do starting at some point in the late 1970s using online services
like CompuServ or bulletin boards, only easier and cheaper. Most of these were
also easy to explain because they had familiar analogues: buying a book or CD
online in the early 90s was immediately familiar — it's like buying from a
catalog except that you don't have the delays receiving the catalog and
mailing or phoning in your order.

The difference is that Bitcoin doesn't solve a problem which the average
person has. To the average person it sounds like using a credit card except
that most places don't take it, the fees are orders of magnitude higher, and
there's no fraud protection. How many people have a legal reason to prefer it
other than paying ransomware or speculating on its price?

~~~
viggity
Doesn't solve a problem that average _american_ has right _now_.

The key feature of crypto currency (to me) has always been that it can't be
easily manipulated by a government. Specifically with bitcoin, were it not so
expensive and have such high fees, it could be of real use in countries with
hyperinflation and black markets (Venezuela, Zimbabwe, etc). Hopefully bitcoin
and the myriad of alt-coins can fill the gap.

Once it takes a foothold in a failed state, I can only imagine it spreading.

I hope that hyperinflation and/or economic collapse don't come to
America/Western Europe. But i'm not so naive to think that it can't.

~~~
api
But it can absolutely be easily manipulated by a government. Governments have
the resources to pump/dump coins, buy huge amounts of mining hardware, etc.
Even a smaller nation state could, if it wanted to waste the money, launch a
51% attack against Bitcoin or any other cryptocurrency by just buying enough
mining hardware. Beyond direct manipulation you have the ability of competent
intelligence agencies to execute mass cyber attacks. "Code as law" is pretty
dangerous when code is so vulnerable.

Other well-heeled organizations can do these things as well: corporations,
hedge funds, organized crime, ...

People seem to think that currency manipulation and other financial games were
invented in the 20th century with modern fiat currency. The price of gold
absolutely was manipulated in the past in a variety of ways: secret hoarding,
spoofing reserves, false transactions, etc. Every currency or medium of
exchange has been manipulated.

In many ways central banking and fiat currency was invented to _defend_
against many types of market manipulation by non-state or foreign state actors
(as well as against undesirable emergent behaviors in markets). I once read
someone talking about US vs. China trade and Chinese currency manipulation
state that for the US to abolish the Fed would amount to "unilateral
disarmament." We would suddenly have no coherent way to defend ourselves
against other nations armed with the ability to manipulate their own
currencies (and ours!).

~~~
sl33k_
Actually, no.

Current estimates rate the cost of a 51% attack at approximatly 4.656.671.184$
for hardware only which is not a sum which even large countries will have easy
(and certainly not unnoticed) access to.

This estimate is based on the current hash rate at 14.975.580.960 GHash/s and
the fastest mining hardware available which is the AntMiner S5+ at ~2300$ with
a hashrate of 7.722 GHash/s. That means you'll need about ~1.939.340 AntMiners
which will consume 3436W each. At an electricty cost of 0.05ct/kwh (this is
china, US is at about ~0.20ct/kwh) this gives you an additional cost of
~7.996.185$ per day not factoring in any labor/location costs and most notably
no cooling costs which will be high with this kind of high performance asic.

This estimate only holds true though if you buy every bit of hardware
yourself, in reality its probably more practical to simple coerce big mining
pool owners to work for you, but thats another problem :)

edit: relevant xkcd: [https://xkcd.com/538/](https://xkcd.com/538/)

------
pc2g4d
Isn't this driven by the fact that crypto clients use a default transaction
fee rather than dynamically negotiating a good fee on the market?

E.g. if your client's default fee is .001 bitcoins or whatever, back in the
day that was super cheap but now it's $15. But the intrinsic cost of carrying
out that transaction has in real-world terms probably gone down rather than
up. So you'd expect the market to arrive at roughly the same USD-valued
equilibrium regardless of the BTC-USD conversion rate, but this clearly hasn't
happened.

So in practice there is no market for crypto transactions because everybody
just uses some default transaction fee. Yeah?

~~~
Goladus
I believe the real-world costs of transactions are actually going up, not
down. As more miners are added to a network, the difficulty rating goes up and
more CPU cycles are required to compute the next block.

------
temp-dude-87844
I fail to see the article's point. Yes, you can spin your own token on top of
the Ethereum chain, but with transaction prices so high, as the article notes,
what would be the point? If anything, this would incentivize a company serious
about deploying an altcoin to form their own chain unbound from anyone else,
or give some long and hard thought about whether a centralized server-side DB
would suffice.

The people most discouraged by high fees of cookie-cutter coins are the exact
sort of low-effort attempts that are trying to capitalize on blockchain mania,
instead of leveraging the technology for its specialized merits. This isn't
strangling innovation: it's a first-layer filter that separates the wheat from
the chaff.

------
blueprint
Virtually the entire article is about Ethereum. Ok, sure, a poorly and
intentionally differently designed system is choking at scale. But Ethereum !=
cryptocurrencies. In fact I would stay very much away from calling it a
currency at all since it's not fungible. So I am struggling to see how this
article is not just a big false equivalence.

------
Beltiras
There's a lot of infrastructure out there to come up with a solution to these
problems. Someone will and get very very rich off it.

------
narrator
I wonder how many Bitcoin transactions these days are people arbitraging with
the futures market. Tail starting to wag the dog?

------
arisAlexis
what if it is not a bubble? what a conviction of authority from "experts"

------
brndnmtthws
Alternative perspective: maybe cryptocurrencies are valuable and represent
real innovation?

~~~
tqkxzugoaupvwqr
Counterpoint: “Dogecoin, a parody cryptocurrency, just broke $2B for its
market cap” although development stopped two years ago.

[https://news.ycombinator.com/item?id=16096119](https://news.ycombinator.com/item?id=16096119)

~~~
pavel_lishin
Goatse cryptocurrency.

~~~
bobcostas55
If you visit the original goatse domain, you will find exactly that. "Meme
creation on the blockchain", it says.

~~~
pavel_lishin
Right, I wasn't making a joke, I was saying that Dogecoin isn't the most
ridiculous example

------
KasianFranks
Quite the opposite.

------
659087
Depends on what kind of innovation you're talking about. If we're talking
about blatant internet-based scams and cash grabs, for example, ICOs have
fueled _lots_ of innovation in that sector.

~~~
api
That's yet another nasty thing about this-- namely the amount of money
scammers, con artists, and the mob are making off this bubble. That money is
going to go to fund a lot of not-so-good things in coming years.

------
prophesi
It's a bit odd that the articles focuses entirely on Etherium. You can just
build your Dapp on a different blockchain with smart contract support, that
hopefully addresses the issues Etherium currently suffers from.

And, blockchain innovation isn't just Dapps. There are likely many markets
that would benefit from several aspects of blockchain technologies that we've
yet to come up with.

