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> Bitcoin is a poor currency and a crazy investment -- but the technology behind it is a real breakthrough.

I feel like that should be the other way around. When all the "blockchain startups" and ICOs blow up, Bitcoin will be left standing. The true innovation behind the "blockchain" was its decentralised consensus mechanism. That mechanism is only secure as long as no single entity controls over 50% of the hash rate. Some of the largest Bitcoin miners have so much hash rate today that they could attack any (SHA-256 based) blockchain but the Bitcoin one.

"The Internet is a poor network and a crazy investment -- but TCP/IP is a real breakthrough."... Sure!




> Bitcoin is a poor currency and a crazy investment

Bitcoin has long moved away from being a currency and is now more of a value store like gold. Yes, Bitcoin is horrible as a currency, and that has been the fact for a long time now. This just shows how little Wall Street understands Bitcoin and crypto in general, and is struggling to find their footing.

It's also not a crazy investment. It is about as crazy an investment as gold is. This current 'bubble' is akin to the gold rush days, but look where gold is now, and the purpose it served since.

Crypto currencies are still in its infancy, and I have used them to make purchases and it has been a smooth experience. The fact that I can make purchases from other countries without paying cross border transaction fees and currency conversion fees... let's just leave it at that.


Gold has centuries of historical data as a sensible value store. The 'gold rush' didn't RAISE the value gold; gold rushes happened because the value of gold was already high. If anything, gold rushes devalued gold because of the increase in supply. That's very different from what's happening with crypto, in which the run-ups now are happening from speculation. And speculation run-ups ALWAYS burst at some point.

While Bitcoin might have some floor as an investment at this point, it's nowhere near as stable as gold. Equating the two makes very little sense. It would more accurate to compare this to the Tulip bubble than to the gold rush days.


I think a more apt analogy would be all the nonsense web 1.0 companies that got tons of investment from people not savvy enough to understand what they were doing. Much like all the tech nerds who think they are great currency traders because they are riding a lucky streak.


the problem many praising blockchain minus bitcoin people forget, is that blockchain strength (distributed reconciliation) is possible only because of incentive (sth you get in exchange for doing all the etahashes per second).

The moment you take incentive (bitcoin) out of the equation, whole blockchain will lose its strenght.

You can not take out greed^H^H^Hincentive out of the picture.

p.s. this is black and white written in bitcoin whitepaper.


The need for incentives is true, but the community has—erroneously, in my opinion—conflated 'incentive' with 'currency'.

Follow this:

- The core technology here is a crypto-backed distributed ledger. We call this the 'blockchain'.

- You need a unit of trust to enable the blockchain to work. We call this unit of trust a 'bitcoin', or to be more precise, the smallest divisible unit thereof. (1 Satoshi = 0.00000001 BTC)

- These units of trust have value, which also gives you incentive to create ('mine') them.

If we stop here, that's all well and good. The problem with 'bitcoin' and the currency argument is that we're basically going back to the barter system. Instead of gold or foodstuffs, we're trading one good (a unit of trust) for another (whatever you're buying with BTC). Then, on top of that (and as a result), we've created a speculative commodities market in BTC. There's no true scarcity here.

This is why the arguments get so confusing. I could transfer any currency on the blockchain and get the so-called benefits of bitcoin: immutable transactions, low transaction costs, etc.

-----

Then you also get gems like this, from the article:

  A more radical idea is to use digital currency, issued 
  and supervised by the central bank, at the retail level 
  to replace physical cash.
What percentage of retail transactions today are in physical cash? What percentage of USD holdings (bank deposits, etc.) can be backed up with physical notes and coins? (Hint: not 100%). USD is already a digital currency.


> This is why the arguments get so confusing. I could transfer any currency on the blockchain and get the so-called benefits of bitcoin: immutable transactions, low transaction costs, etc.

If you really think that, you don't understand bitcoin.

How do you load your USD on to this hypothetical block chain? How do you prove you destroyed the physical notes? Is there a mechanism to turn it back into physical notes? How do you hand out a block reward without creating counterfeit USD?

For bitcoin to work, it needs to be its own currency.


(Point of pedantic clarification: I'm really using lowercase-B 'blockchain' to really mean 'distributed ledger', of which the capital-B 'Blockchain' is a form. Distributed ledgers that do not rely on mining or 'coins' have been proposed, but obviously haven't been implemented broadly. So let's limit this to the Bitcoin/Blockchain archetype.)

So to answer your question, a couple points:

0. You can use the blockchain without bitcoin as the token of choice. You create your own limited tokens and go from there. This has already happened with various altcoins.

1. You can create private chains. Bitcoin mining and the associated value (currency) therein is one way to create a (public) ledger, but not the only way.

2. You don't 'load your USD' onto the blockchain. That ignores the point of a distributed ledger.

Emphasis on that last word, because what we're talking about here is a trusted record of transactions. That's why the blockchain isn't just about currency, and gives participants a way to immutably record all kinds of things.


Fair points. I'm interested how you see the ledger working if you don't load any USD on to it?

How does the first $1 come to exist on your ledger?

Are you thinking of something like Tether?


Then how do you explain the Maersk blockchain-based insurance trial that they found very successful?

Bitcoin is not the only incentive that can be had in implementing blockchain technology.

There are a number of very promising use cases for blockchain, in education, healthcare, energy... none of which involve bitcoin at all.


All "block chain" is is a Merkle tree. You can do all sorts of productive, interesting stuff with Merkle trees.

If you want to do interesting things with a trust-less, decentralized system, you need the mining and mining rewards.


There are a few file sharing applications that do interesting things with trust-less, decentralized systems, without any sort of mining or mining rewards.

Mining allows for high value transactions in a low trust environment, but lower value transactions are very possible without that.

IMO Tit for Tat is a much more interesting form of consensus building as it can be very low resource. But it's really all about the goals not the protocol.


It's more of a linked-list of Merkle trees.


Were any of these trials interesting enough to be attacked?


>education, healthcare, energy

I'm not asking for dissertations but could someone briefly explain how any of these problems/industries will be effected by blockchain.


Hype, Consultants, Buzzwords baffling executives


My roommate gave me a book to read about blockchain yesterday, and that was my thought exactly. A lot of 'advocates' like to tout the decentralized consensus as useful for all kinds of application, but imo they constantly overlook the -financial- incentive that supports the bitcoin network (you could attack the network with a bunch of hashpower...but it would be more profitable for you to mine).


What was the name of the book ?


> The moment you take incentive (bitcoin) out of the equation, whole blockchain will lose its strength.

This assumes that the compute power of the miners who are left after the incentive is gone will not be sufficient to prevent attacks.

It also assumes that the miners who quit, whose hardware would seemingly be ripe for use in attacks, would have no other purpose to use it for, such as another cryptocurrency.

FWIW I'd also point out that I would not be surprised if a fork were to occur that prolonged the incentive. Consider the finite incentive something that was necessary to create the initial coordination among participants in Bitcoin, but once it reaches sufficient scale if continuing to have an incentive benefits the ecosystem then surely it will (by then).


That is true for one meaning of blockchain - what I observe is that blockchain became a great case of a https://en.wikipedia.org/wiki/Floating_signifier In particular most of the 'serious' business people don't really mean a distributed system that anyone can join at any time - but rather a closed system, a permissioned blockchain, basically a database with authoritative local copies.


Do you mean that if the value of bitcoin goes too low, nobody is going to mine because it won't be worth it vis a vis of the difficulty? If fees are too high nobody will use the system as well.

But then the value would go low enough that the fees wouldn't be that bad and miners would probably still get their worth from it. It would be a strange blockchain though :/


largest bitcoin miners can't attack blockchains whose proof of work algorithm is ASIC resistant or just a completely different calculation algorithm.

Monero is a one good example (feasible only on GPU and CPU, probably needs some R&D for ASICs with memory). litecoin is BTC-ASIC resistant with ASICs tailored for litecoin are coming.


Agree except that Litecoin had ASIC for years.


Blockchain =! Internet

Proponents of bitcoin as well as skeptics love to compare bitcoin to the internet. A skeptic will say "bitcoin is in a bubble, it has to burst because the dot com bubble did". Then a supporter will rebut saying "early internet companies also bubbled, but afterwords the amount of growth far exceeded the initial bubble."

Frankly I don't think any of this is relevant. Blockchain is very impressive technology that solves the really tricky infrastructural problem of creating large secure systems. But unless your life involves building these systems, or you are unfortunate enough to live in a region without access to (or operating outside of for legal reasons) existing stable systems, blockchain will have have no noticeable impact on your life. Remember, the internet connected everyone in the world together. The blockchain makes large systems easier to secure. When comparing history to the present, pay attention to the differences, not just the similarities.

On that note I'm going to bring in some more historical context that may also be questionably relevant, but at least is less spoken of. Many people today are still adjusting to the culture shock caused by the internet and computer technology in general. As this area is finally starting to settle somewhat (how many huge companies came up in 2000s vs 2010s?), everyone seems to be hunting for the next big thing. Is it virtual reality? Artificial intelligence? Self driving cars? Blockchain? Some kind of biotech? Investors are dumping money into all kinds of new ideas, hoping for them to change the world. And that's a good thing. But the last 20 years made innovation an expectation, so don't expect another internet just because it feels due.


The reason Bitcoin will never be a replacement for a Central Bank based currency like the USD is the fact that it is in permanent deflation.


I hear this argument a lot, but I'm not sure it's as simple as that.

Orthodox macroeconomics holds that your currency needs to be slightly inflationary, but it doesn't consider what happens in the face of credible competition with a deflationary currency.

It might very well be the case that the economy runs better when everyone uses an inflationary currency. But if everyone wants to hold the deflationary currency instead of the inflationary one (which, all else being equal, they do, for obvious reasons) no amount of theorising will save it.

We haven't yet seen a credible competitor to the inflationary currencies of nation states, but bitcoin is rapidly heading in that direction.

And the cat is out of the bag now. If deflationary currencies do outcompete inflationary ones, then it's only a matter of time until it happens, even if it's not bitcoin.

Switching to a deflationary currency might be "bad for the economy", but if it's good for individuals, they'll do it.


Excellent point.

The truth is we have not had any real deflationary currencies compete against state issued currencies. Even commodity monies like gold and silver aren't deflationary since the existing in-ground resource base is still very large and can continue to be mined for millions of years.

Crypto, on the other hand, will eventually stop creating new coins based on programming. It is essentially the ultimate deflationary currency.

From the end-user stand point, the currency of choice is always going to be deflationary. The end-user has absolutely nothing to gain by using an inflationary currency. The benefits of the inflationary currency is that is encourages people to get rid of their currency as fast as possible because it is losing value. That doesn't benefit the end-user. It benefits businesses and the people those businesses employ. The inflationary currency ideals are mostly based on the socialist ideas that we need to spend our money as fast as possible to "move the economy forward" but that does not benefit the user of the money. It benefits other people.

I believe that most people are self-interested and will do actions that maximize their benefit in most situations. Thus, it is easy to see that users will prefer to keep their money in deflationary currency rather than inflationary. Will it seize up the entire economy? My theory is no it won't and it will have the side effect of encouraging people to wisely spend their money. People will only buy stuff they really want or need rather than this idea of "I better buy it right now before the price goes up (due to inflation)".


See https://en.wikipedia.org/wiki/Gresham%27s_law. If given the choice between holding bitcoin and USD people will hold bitcoin, but they will still want to buy stuff. People then have an incentive to use USD to buy stuff, and since USD is used to buy stuff they will want to have USD on hand to buy stuff when they want to. Hence Gresham's Law.


> People then have an incentive to use USD to buy stuff,

Yep.

> and since USD is used to buy stuff they will want to have USD on hand to buy stuff when they want to

Nope! Starting from a position of only having BTC (because you've already got rid of the USD you had, and you immediately convert any USD you receive into BTC), what is the advantage of buying USD to spend instead of spending your BTC directly?


"Nope! Starting from a position of only having BTC (because you've already got rid of the USD you had, and you immediately convert any USD you receive into BTC), what is the advantage of buying USD to spend instead of spending your BTC directly?"

Based on a false premise. Under no scenario will people only have BTC. With regards to what people will be paid in, insofar as people are planning to spend money, they'll want it paid in USD.


Why? If I can get paid in USD or BTC, and the BTC will buy me more when I come to spend it, why would I prefer to get paid in USD?


Think of it this way. For any given transaction, the spender will want to spend USD, the receiver will want BTC. Lets say the receiver gets his way. Then the spender will want to hold onto the BTC anyway, unless the product/service is something they really need. The receiver will have an incentive to give in because if they demand BTC, then for most people they get nothing, but if they demand USD, they'll get USD and could in theory convert it to BTC while holding it.


My thoughts exactly.


What you are describing is an ancient economic law known as Gresham's law: https://en.wikipedia.org/wiki/Gresham%27s_law . It states that bad money drives out good because people hold onto good and spend bad. Bad is really normative saying more valuable is good and less is bad. So deflationary (up in value is good) and inflationary is bad (down in value).

Frankly your argument is incoherent. If something is bad for the economy its bad for individuals. If the economy goes down most people starve.

You also seem to argue that people hold onto more of a currency than another that currency "wins" but the currency that "wins" is the one in circulation. If by "win" we mean the currency that survives, then the one that survives is the one in circulation. Again this is all eco 101.


Crypto is being used in circulation though. There are dark net markets that sell drugs and you can buy various things with crypto. You can use certain websites to buy stuff off amazon while other websites sell gift cards which indirectly allows you to buy stuff in stores with crypto. The gift card is just pre-paid store credit.

In the past, it was difficult to use 100% crypto to live on but now it is a real possibility.


That's a good point, but for the case of illegal online activity bitcoin currently has a kind of anonymity guarantee that no other system does, and is as such an apples to oranges comparison. If the USD had the same anonymity guarantee you'd see those people making the same choice everyone else is: hold onto bitcoin and spend USD.


Note that at this time, bitcoin is still very much inflationary, with 1800 new bitcoins being generated every day. This puts the annual inflation rate at 4.01%. Source: http://www.bitcoinblockhalf.com/

Perhaps real deflationary effects of bitcoin will probably kick in after 3 halvings (about 10 years?), when the number of bitcoin that is being lost naturally becomes greater than the inflation. However, at that stage, bitcoin fees would need to dramatically increase from what they are now.

This is probably a paradox of deflationary crypto-currencies: They need to raise revenue from fees to pay for validation/security, however if there's more incentive to hold rather than spend them, their revenue raising ability becomes constricted. Whenever this is true, I'm excited that we'll find this out in the future.


I didn't mention bitcoin. I was arguing the abstract merits of inflationary vs deflationary currencies, from a vaguely-game-theory perspective.


yep, I was just using it as an example to make a general statement that I made in the third paragraph. Do you agree or not? Was wondering what are your thoughts on that


It's an interesting point.

Already there is an awful lot of money being paid in bitcoin tx fees, and it's rising over time, and I can't see any reason for it to start going down, so I don't think it'll be a problem.


Deflation means the value of the currency is increasing. It does not mean the amount of units of that currency is increasing.


yes, but that's usually the accepted definition in the crypto-currency world (eg. see the source link I've posted where they use it in that context too).

There are different definitions of inflation/deflation, but the price is always a function of supply-and-demand, therefore it all boils down to the supply, where the issuance rate & eventual supply cap is what gives a crypto-currency its inflationary/deflationary properties.


The people who use currency will be the decider of that though, ultimately. Why would you want to hold something that is constantly losing value when you can use something is gaining in value? Also since we are clearly talking about state issue currencies, you also have to factor in counter party risk. Not all governments can maintain the value of their currency so for those people, they pretty much have no choice except to use crypto.

We don't need to debate it because it is obvious what individuals will decide to do.


Is it obvious? That is the kind of arrogance people accuse tech people of having.

The whole point is we DON'T want people to just hold onto a currency. If everyone stops spending their USD and just saves them, the economy will collapse. Think about all the businesses that will go under because no one is buying anything. I could go on but really this is economics 101.


The ideals you are talking about though are socialist in nature. Based on behavioral economics, people are mostly self-interested and will do actions that maximize their benefit. If you want to use inflationary currency to benefit the economy, that's great for you but I choose to use deflationary currency instead.

Also I don't buy into the economy will collapse argument. The economy will restructure itself to produce items that people want and need. That will never change. You can't eat currency or digital bits. Your arguments are primarily based on FUD.


They are not socialist in nature. Socialism is a system in which workers own the means of production instead of capital holders. I mean this in the friendliest way possible, you are not using the word socialism correctly.

If you have a currency that is increasing in value, and one decreasing, which do you choose to spend? You would not "use" deflationary currency, only hold onto it.

Yes the economy will restructure. People will spend USD and keep Bitcoin in their pocket. People will want to be paid in USD because they can use it to buy stuff. Bitcoin is and will stay relegated to an interesting experiment people invest in, and only use if they need its anonymity.


Perhaps I was using the wrong word. The word I am talking about is something along the lines of self-sacrifice for the benefit of society. Which is pretty much the premise of socialism (workers own the means of production because this benefits society more than private capital holders owning it).

>If you have a currency that is increasing in value, and one decreasing, which do you choose to spend? You would not "use" deflationary currency, only hold onto it.

Like I said, you can't eat bits of currency. I would spend the deflationary currency but I would be more hesitant to spend it. I would buy stuff that I really want or need. People aren't going to starve to death or go homeless because they want to hold on to their deflationary currency. That's not reality.

>Yes the economy will restructure. People will spend USD and keep Bitcoin in their pocket. People will want to be paid in USD because they can use it to buy stuff. Bitcoin is and will stay relegated to an interesting experiment people invest in, and only use if they need its anonymity.

You are seeing the situation for what it is now, not for what it will be in the future. Crypto is gaining more acceptance world wide. Yes, currently people prefer to be paid with USD or similar but in the future it could be possible that people prefer crypto. Also there are lots of businesses and services that directly or indirectly accept crypto.

I disagree with your last sentence. Like all things, bitcoin started as an experiment but it will go on to change the world similar to how the internet changed the world. Entire industries will be disrupted as a result. I have been in crypto since 2011 and to even be having this discussion today already shows me that the experiment has been a monumental success. In 2011, I would have never even imagined that bitcoin would reach 10k per coin.


"Like I said, you can't eat bits of currency. I would spend the deflationary currency but I would be more hesitant to spend it. I would buy stuff that I really want or need. People aren't going to starve to death or go homeless because they want to hold on to their deflationary currency. That's not reality."

Yes but if you had the choice between spending a deflationary currency or inflationary, which would you spend? Unless you want to outlaw USD in general, because USD is decreasing in value you have an incentive to spend it.

"You are seeing the situation for what it is now, not for what it will be in the future. Crypto is gaining more acceptance world wide. Yes, currently people prefer to be paid with USD or similar but in the future it could be possible that people prefer crypto. Also there are lots of businesses and services that directly or indirectly accept crypto. I disagree with your last sentence. Like all things, bitcoin started as an experiment but it will go on to change the world similar to how the internet changed the world. Entire industries will be disrupted as a result. I have been in crypto since 2011 and to even be having this discussion today already shows me that the experiment has been a monumental success. In 2011, I would have never even imagined that bitcoin would reach 10k per coin."

I want to engage with you but I don't see an argument here. You are only asserting that "this is the way things are, but they will change!" without saying why.


> The ideals you are talking about though are socialist in nature.

So?

> Based on behavioral economics, people are mostly self-interested and will do actions that maximize their benefit.

I'm sure you know this, but this is exactly the opposite of what behavioral economics has shown.

> You can't eat currency or digital bits.

True, but if your currency is gaining value, you will be less inclined to spend that currency to start or invest in businesses, e.g.


>So?

That's a big problem because you need to force people to do something. How are you going to force someone to not use an asset that benefits them over an asset that does not benefit them. You have to convince them to use the inferior asset because it benefits society. That's hard to do in reality because most people are selfish by virtue of human nature.

>I'm sure you know this, but this is exactly the opposite of what behavioral economics has shown.

Really? That's news to me. I think you are confused by what the science is actually telling us. It is telling us that people make bad decisions because of biases. The person was still thinking that they are doing something the benefits them but due to these biases they make decisions which are not rational in hindsight. The science is not telling us that people make non-rational decisions on purpose. PBS NOVA did a good documentary on the topic called mind over money.

>rue, but if your currency is gaining value, you will be less inclined to spend that currency to start or invest in businesses, e.g.

I find nothing wrong with that. If businesses want the money then they will need to provide exceptional value to the customer as always.


> The whole point is we DON'T want people to just hold onto a currency.

I understand that that is the point you're making.

The point we're making is that it does not matter what you want. Given the opportunity to hold deflationary currency instead of inflationary, (all else being equal) rational actors will prefer to hold the deflationary currency.

This is economics 101 indeed.


Indeed people will hold onto deflationary currency, and spend inflationary currency: https://en.wikipedia.org/wiki/Gresham%27s_law

Hence in a world of rational actors the only currency in circulation will be inflationary currencies.


You keep bringing up Gresham's Law but I think you're neglecting the fact that it only holds in the long term when the bad money and the good money have the same face value.

If they have a floating exchange rate, the good money will drive the value of the bad money towards 0.

Edit: perhaps read the section of the Wikipedia article entitled "reverse of Gresham's law". It argues exactly the point I'm arguing.


Thats a good point, I was thinking of Gresham's law as simply regarding more or less valuable currencies. Nevertheless in my other reply explain why I think the USD would still drive BTC at least out of circulation.


> Why would you want to hold something that is constantly losing value when you can use something is gaining in value?

You would do neither. You would spend what is losing value, and hold onto what is gaining value.


That's correct, assuming the person doesn't need anything else in their life. For the average joe, they have bills to pay so they will sell the increasing in value asset to pay their bills.


Yep that is exactly my point. Hence USD would stay in circulation and bitcoin would not.


but that's not what is actually happening. People do spend their bitcoins on stuff.


Funny thought: Imagine taking bitcoin so seriously that you signed a union contract in 2012 to pay 1 bitcoin per hour.


Imagine your employer becoming bankrupt well before today, due to that contract...


Along those lines, can you imagine getting a home loan in bitcoin?


We have already figured out how to do that with crypto. You simply use a smart contract that dynamically adjusts to variables. In essence, the home loan lender is interested in getting back the initial value they lent plus interest, another form of value. The price of bitcoin per unit doesn't matter. The only thing that matters is how much value each unit represents. Thus, you can use a smart contract to dynamically adjust the mortgage payment at the time of payment. The contract could be written such that it says "borrower is to pay $3,500 in USD equivalent value in bitcoin each month". Assuming bitcoin price is increasing, your mortgage payment each month would require less bitcoins to pay and the lender would be happy too because they are still getting their $3,500 of value per month. The lender could immediately sell their bitcoins if they want physical cash.

Also this is already being done with point of sale machines that accept bitcoin. The POS machine simply goes to an exchange to see how much one bitcoin is worth then tells the buyer to pay xyz amount in bitcoin that is equivalent to the value that USD represents.


This neatly illustrates why bitcoin is a terrible currency. Thanks.


Would it matter if your employer did all their business in Bitcoin?


Yes, assuming they're transacting business with the outside world, where the value of a Bitcoin has risen.


Read up on smart contracts. You can program the contract such that it dynamically adjusts it self to variables.


If you think bitcoin is a good currency, imagine what happens if you were to have any debts denominated in bitcoin.

E.g. your bitcoin denominated student loans suddenly cost the equivalent of millions or billions of dollars to pay back. Good speculative vehicles and good currencies are not identical sets.


Why Bitcoin? It's a single application of the blockchain. It would make more sense that a platform like Ethereum would remain after the dust settles. That's a better analogy to your internet quote.


It isn't mutually exclusive. The crypto that will collapse are all the little alts that don't have any significant market caps. There are a few scam coins that will collapse as well like bitconnect.


That's why Altcoins moved out of SHA-256 since Doge and Namecoin days.

Find a coin in the top 100 that's not a Bitcoin fork and uses SHA256.




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