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I’ve changed my mind on Bitcoin (gradually.co)
42 points by davefreiburger 2 days ago | hide | past | favorite | 65 comments

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We're in a world where nothing means anything anymore. Stock valuations are meaningless. Take Alibaba for instance. What exactly are you getting when you buy a share of BABA? Voting rights? Dividends? Liquidation value? Nope, none of that. You're getting a meaningless piece of paper that hopefully everyone else agrees is worth something in the future.

How about Chewy. 30 billion market cap for a random ecommerce site running a multibillion dollar loss for 5 years? Sure why not. Or Quantumscape. 20 billion for a battery company with zero revenue that doesn't even have a factory? Of course. Money is a complete fiction now. In this environment, if the investing class agrees that Bitcoin is worth $35k, then it is.

Might as well through TSLA into the absurd valuation sphere...PE ratio north of 1000 and projected to be >100 for at least the next 3-4 years. Competitors with PE ratios of 10-40 that produce 50X the vehicles...TSLA market cap higher than the top 9 car makers combined. Musk went from being worth 27B to 185B in a year. The valuation makes no sense...sure long term they could be a giant, but so many other car companies are producing electric vehicles and new battery technology now their competitive edge in the space may not last long.


Yes and no.

But today all the advance financial tools are making money into a clay, and people wielding those tools can shape it however they like.

Reading about relation of USD to european currencies back in post war (pre- and post- Bretton Woods system) was eye opening to me.

But without those 'tools' money, while still fairly virtual were more concrete. Coins were made of valuable metal, you could take it and melted it down.

Yes. The economy is broken. Democracy is broken. Journalism is sort of broken. Healthcare is broken. What a world we live in.

EDIT: I even forgot about the climate.

Frankly, I think the only thing that is broken are the people who are quick to write off something as "broken". It's been this way in software engineering for a long time, too.

The economy just has a lot of technical debt. Plans to clear it in the next sprint however without a management change clearing by starting over isn’t on the cards

Now I don't know where you live, but please don't speak for the entire world because of your own personal experience. I've experienced both good and bad of all of those things, and some places are excellent at all of them. The world has its bright spots.

Yeah pretty much. In a world where the following scenario is actively working all bets are off really.

Buy BTC convert to renBTC (skip this by just buying renBTC on an exchange if you can) Put in keeperdao and earn ~19-30% APY. Claim profits as ROOK convert to renBTC put them back into keeperdao and compound keep your exposure to BTC.

On a personal note I was a doubter for a long time. Now not so much given the money printing of the past year. The past year every time I read about NFTs I think they are stupid. This is why I’m forcing myself to research and experiment with them as I don’t want to let my doubts about things get in my way again.

You're conflating financial value and the abstract concept of value. Financial value is really just a function of supply and demand. Food and clean water may be a lot more important than megayachts, but they're also also far more abundant than megayachts.

It happens that maximizing financial value also does a good job of improving people's lives, so we treat as truth. Right now, we're starting to see this fall apart as certain valuations stop making sense and certain negative externalities start coming to light. That said, I still think in general, valuations tend to be more right than they are wrong.

This has always been the case for all items of value. You might just consider some of those things "meaningful" if people have been valuing them for a very long time (like coins or other physical items which represent a standardized currency) or if the reason people value them is closely tied to features of nature which we aren't likely to change in the imminent future (like requiring scarce things such as food and shelter to survive). But at the end of the day, people are still choosing to value those things and that is all there is to it.

From the article: If Bitcoin's market capitalization were to match that of gold, it would be worth over $500,000 a coin. This is why some investors are so bullish on Bitcoin.

Perhaps it's more accurate to say that investors are increasingly bearish on the dollar.

That has nothing to do with the dollar. If bitcoin were to match the market cap of gold irrespective of any money printing, it would be $500k a coin. Which is to say that people consider Bitcoin to have properties similar but superior to that of gold.

It’s very arbitrary. Silver or palladium are more similar to gold than Bitcoin, but no one even tries to compare the er... “market caps” of the mined metals to each other.

It would be just as easy to say that Bitcoin had properties similar to Copper and try to back a valuation out of that. Either comparison borders on silly.

It's not arbitrary; gold (unlike copper) has been money for 5000 years.

And unlike copper, the United State's dollar was backed by gold for a majority of the 20th century while most other currencies were pegged to the dollar.

And finally, unlike copper, there’s $8-$10 trillion dollars worth of gold being used as a store of value globally.

Bitcoin has all of the core attributes of gold with the addition of being digital and having a fixed supply.

It only makes sense to compare bitcoin to gold.

These are all inevitable consequences of artificially cheap debt due to USD "printing". The Cantillon Effect has weird consequences. Bullshit companies can be worth billions, and people will rationally flee the dollar (into e.g. BTC).

Bitcoin has a much more plausible value proposition than most of these bullshit companies. Conflating the anomalously high value of BTC with the anomalously high value of companies is a category error. http://jpkoning.blogspot.com/2018/10/bitcoin-and-bubble-theo... https://www.unqualified-reservations.org/2013/04/bitcoin-is-...

When and how was this ever different?

Isn’t it how trade works since the early days of humanity? We value things, whether it’s sea shells, sheep or a legal entity in 2021 with 10,000 staff and exchange it for what we think it’s worth?

I think the point is the horizon of payoff has previously been a lot more confined. A company was worth a multiple of earnings for example - because you were fairly confident that it would continue to earn, and if necessary could pay out dividends (and shareholders could vote to make that happen). That has gone out of whack in the past, but those were bubbles, and corrections happened.

The current environment started around the 1970s. We went from industrial capitalism to financial capitalism. We are at the end of the debt cycle and most of the worlds governments keep trying to re-inflate it instead of unwinding the mess.

Always has been.

Illusion of wealth

I've also changed my mind about bitcoin. As an earlier believer an enthusiast, I cannot see bitcoin as anything more than a race to spend energy for nothing. It doesnxt scale it's not sustainable, it will fail. I still believe in cryptocoins though just not bitxoin..

Same boat here. I remember all the enthusiasm users had when they were able to spend bitcoins to buy something. The excitement when a new vendor added it as a payment method. Now it seems that the space is occupied by those who would sneer at those who spent thousands of bitcoins to buy a pizza. It seems the only thing that there is to do with bitcoin is to hodl and hope you become a millionaire.

This is a rehash of a previous post of mine regarding electricity consumption:

Back in the days where all our electricity came from fossil fuels, I completely agree that marginal electricity usage was bad for the environment. However I think that thought has persisted with us even though it is no longer true 100% of the time. With renewables sometimes the marginal cost of electricity to our environment is near 0 or even negative (eg, during periods of higher winds and lower demand.)

I predict that in the future as bitcoin mining becomes more and more of an efficiency game that you will see bitcoin mining be kind of a load balancer the grid, effectively turning off during peak demand (or low supply) times and contributing to the base load during regular times.

For example, it may even help the economics of building new wind plants. Eg, currently it may not be profitable to build a new wind plant because base load is too low that the excess power generated would need to be sold off at 0 or even negative prices. However if bitcoin mining could be turned on during these times and off during periods of high demand, there will need to be fewer peaker plants in operation and it would positively affect the economics of opening a new wind plant.

Bitcoin mining only cares about the cost of electricity at a given time, it is not like most other electricity demands that are very time based. With the large variance of electricity generation by renewables, I think bitcoin can in the future help smooth demand according to the real supply/demand curve.

It's kind of like a different implementation of the Tesla utility grid batteries. Instead of deploying power, you force the grid to build more renewable capacity (that the miners are paying for) that you use except in peak periods, where you turn off and effectively provide the grid with more power.

What about a crypto that is working to change from PoW to PoS like Ethereum is attempting to do. I agree Bitcoin is wasting country like amounts of energy right now...

Sometimes spending more energy is a net win even though it's more energy expensive (cars vs horses).

Bitcoin is not one of those times.

Energy consumed is security in the network. Like a giant force field.

That's great but nation states and large institutions have access to far more energy than the common man. It's hardly democratising money.

Attacking bitcoin would involve the energy supply of an entire nation and a suspiciously large purchase of mining rigs.

If a country bans bitcoin then the mining difficulty will adjust and the hashing continues elsewhere. Much like other p2p networks, Bitcoin is a borderless hydra that simply cannot be stopped.

Rather than take it offline, another possibility is to size the hashing power and use it to undermine the currency.

Energy consumption is a large red target making it easy for nation states to attack.

I cannot easily target your computer running proof of stake in your closet.

I can easy to cut the electrical wires into your proof of work data center.

+10 Insightful

This so much. I absolutely believe in digital currency and blockchain (albeit not current implementations). However, they need to tie it to something tangible and it needs to be completely detached from USD.

“There is an old story about the market craze in sardine trading when the sardines disappeared from their traditional waters in Monterey, California. The commodity traders bid them up and the price of a can of sardines soared. One day a buyer decided to treat himself to an expensive meal and actually opened a can and started eating. He immediately became ill and told the seller the sardines were no good. The seller said, “You don’t understand. These are not eating sardines, they are trading sardines.” - Seth Klarman

The game theory of end-game bitcoin is interesting and doesn't get enough attention.

I haven't seen a good response to this paper: https://www.cs.princeton.edu/~smattw/CKWN-CCS16.pdf

This was recently discussed on bitcointalk [1]. Some quotes from that thread:

> Because when you have mined a full block and there is a backlog, the difference in income between mining the next block (all full of pending transactions) and going backwards and remining the prior block to take its fees is small (and comes at a cost of decreased chance of eventually being in the longest chain). This is particularly true because new transactions that are arriving cannot be included in the prior block if it is remined.

> A supply cap requires a block reward dwindling to insignificance (long before it reaches 0). So the significant mining reward must come from large fees. Mining stability requires a steady backlog of fee paying transactions, which in turn requires a highly constrained block size.

[1] https://bitcointalk.org/index.php?topic=5306354.0

I was curious, here's what the abstract says:

> Bitcoin provides two incentives for miners: block rewards and transaction fees. The former accounts for the vast majority of miner revenues at the beginning of the system, but it is expected to transition to the latter as the block rewards dwindle. There has been an implicit belief that whether miners are paid by block rewards or transaction fees does not affect the security of the block chain.

> We show that this is not the case. Our key insight is that with only transaction fees, the variance of the block reward is very high due to the exponentially distributed block arrival time, and it becomes attractive to fork a “wealthy” block to “steal” the rewards therein. We show that this results in an equilibrium with undesirable properties for Bitcoin’s security and performance, and even non-equilibria in some circumstances.

> “But Nick, Bitcoin doesn’t have any intrinsic value!” Well, guess what? Neither does gold which has a $10 trillion market capitalization!

Gold has many applications beyond its monetary association. Its electrical and chemical properties make it a key element in building circuit boards, ironically, for the machines that make Bitcoin possible.

What portion of gold's value comes from non-monetary demand (e.g. electronics, jewelry, etc.)?

A few years ago I tried to answer that question and I remember getting a pretty low value, something like 10% or 20%.

I think a lot of Americans are naturally skeptical of crypto because they’ve never lived with capital controls in living memory. But for much of the world, the ability to hide and move arbitrarily large amounts of money is ridiculously valuable.

what's the value in holding bitcoin versus any other cryptocurrency? genuine question here.

i've never understood the value of bitcoin because while bitcoins themselves are scarce, cryptocurrencies aren't.

I highly recommend the book The Bitcoin Standard it dives into this question in depth.

Gist is Bitcoin was the first to market, has the biggest decentralized network, has been around the longest, hasn’t been hacked, has no known owner with any vested interests.

All other cryptos are pretty much piggy backing off of Bitcoin’s discoveries for fun or profit ... or trying to make it better.

On the technical merits, I think Bitcoin is actually rather behind other blockchains. But, remember that money is a Schelling point. There's a huge first mover advantage.

Money, in any form, is only valuable because we expect others to continue to value it into the future. The reason that gold is used as a monetary asset, whereas rhodium is not despite being as rare, is because gold arrived earlier in history.

One could also that the Bitcoin community's conservative nature also lends it credence as a long term store of value. Ethereum as a protocol much more amenable to technical innovation. But if you're in the "stay rich" business, instead of the "get rich" business, than that can be a bug not a feature.

Not any other, but you should only deal in Bitcoin of all cryptocurrencies based on the same proof-of-work algorithm (mostly smaller Bitcoin forks), because Bitcoin miners, having a majority of hashrate, can perform 50%+1 attacks on other currencies using the same algorithm.

The same applies to each other proof-of-work algorithm individually like Ethash (Ethereum), Equihash (ZCash), etc.

The only problem is that the value of said money fluctuates drastically over time. If Bitcoin were stable in value it would be immensely useful as a currency... alas it is not.

It fluctuates drastically over time with a bias to the upside as time goes on. And I agree due to the fluctuations it really isn’t a currency but a store of value... assuming it never gets hacked or considered illegal by all countries lol.

I feel like we have a lot of discussion of bitcoin, and none of it makes me any more informed. There are a lot of people with opinions, there are a lot of people who want to build personal brands. I wrote out a whole set of critiques of the points he raises, but I deleted them in the end- I do think we're re-hashing the same ground as before. If you beleive in the argument of collective delusion as value then that's fine, you haven't convinced me.

I see nothing substantial here, since there were many peaks and crashes before. Is this from someone i should know?

Meanwhile there is a good summary on the influence Tether issuance has on BTC on the front page, which has some sources. Not that it is the definite truth, but having some sources instead of just "Well, there was another peak so i guess Bitcoin is alright after all" is more valuable to me.

Is there a future for a decentralized, secure, private, energy-conscious virtual currency? Right now it seems to me the options are A)The tulip-mania like we have right now, and those are the best of the lot. B) A 'boring' old fashioned currency controlled by the guys with the big guns and spy agencies.

Are there economic models that derive the values of assets like gold and bitcoin from fundamentals? What do they say about where the value ultimately derives from?

There's multiple theories of value.

Labour theory of value contends that the value of an object depends on the "congealed human labour" in that object (e.g. a chair is worth more than its constituent timber because the chair requires you exert additional labour on that timber).

Intrinsic theory of value says that some objects have some objective value, inherent in the object (or as a property of that object, like mass).

Subjective theory of value basically says "value is in the eye of the beholder".

There is also exchange theory of value, which is similar to subjective value. An object has a value decided by what it can be exchanged with (e.g. 2 square metres of linen might be worth the same as 1 coat, even though the coat only has 1 square metre of linen in it)

Did not read the article, but the main issue with cryptocurrencies I see is that everyone is buying them so they can sell it later when the price goes up.

That's a feature not a bug (of BTC anyway). A deflationary store of value....has value.

...until it doesn't.

Why is that an issue? That's exactly why people buy shares.

At least the article didn't say, "I'm not bullish on bitcoin, but I'm bullish on blockchain"

When will the crypto proponents realize that crypto is not taken seriously BECAUSE it is $30,000?

Tell that to the institutions that are starting to pour 100s of millions of dollars into it.

Stopped at Coelho ...

Bitcoin the new gold (or store of value - hint: did you know? gold is a mineral - that's not subjective but objective)!? Sorry, Bitcoin is comedy gold! The internet of money! LOL.

The bitcoin ponzi and the austrian economics bullshit (e.g. value fluctuates based on demand - it's all subjective!) to the max lies get ever bigger. For a good summary published just a couple of days ago of the "state-of-the-fraud", see Why Bitcoin is a Ponzi (Learn how the Investment Fraud Works) [1]

PS: The damage to our planet is not subjective but objective and very very real [2]. Of course, you find nothing in this "Bitcoin Changed My Mind" about the CO2 footprint or the electronic waste etc.

[1]: https://openblockchains.github.io/bitcoin-ponzi [2]: https://digiconomist.net/bitcoin-energy-consumption

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