Paxos https://en.wikipedia.org/wiki/Paxos has existed for more than 30 years. If it were easy or simple to issue a money with distributed signing, it'd have been done before Bitcoin's PoW<->Difficulty Adjustment<->Fixed Money Issuance novel art was published.
Ethereum has been "about to release PoS" for almost 6 years now and all of the initial critiques (By issuing X units of value, you incentivize ~<X units of energy to be expended)
Summarized here:
https://www.truthcoin.info/blog/pow-cheapest/
By the logic of that article asymmetric cryptography doesn't, because the value equal to what's protected by the key is magically wasted somewhere. Of course, that isn't true, because it's not possible to break asymmetric cryptography by brute force with expenditure equal to whatever is protected. Same applies to PoS.
It's maliciously created nonsense, which is most visible when he slyly equates locked tokens to wasted glucose. Wasted glucose is _real_ energy, while locked tokens are inherently worthless patterns of bits. Locking them is just a _trick_ to convince people to cooperate with each other - a game theory setting where everyone finds it most beneficial to cooperate.
The whole point of the economy is to manipulate real resources - various forms of matter and energy [1] and locking tokens is just a different way of social organization. "Liquidity" (of digital tokens) isn't a real resource. "Money" isn't a real resource. If there's less _real_ energy wasted, the new social organization system is more efficient. That's the objective metric underneath it all, and clearly PoS is a more efficient way of organizing massive human cooperation than PoW.
[1] theoretically matter is a different form of energy, but at the current technological level they are separate inputs to the human economy, except for nuclear power
> By the logic of that article asymmetric cryptography doesn't, because the value equal to what's protected by the key is magically wasted somewhere. Of course, that isn't true, because it's not possible to break asymmetric cryptography by brute force with expenditure equal to whatever is protected. Same applies to PoS.
Not quite. He's arguing that MC = MR implies that PoS is really PoW through obscure means. There's more to securing PoS than asymmetric cryptography -- namely, you have to convince everyone that your keys (and the coins attached to them) are legitimate, and not the next guy's keys and coins on a fork. Convincing people of this isn't a cost-free task, especially if there's wealth to be accumulated through convincing more and more people that your coins are legitimate, and everyone else's conflicting coins on different forks are not.
This game of convincing people that your fork is the true fork is exactly what stake-grinding is. Given a choice, and no a priori knowledge, which history of the PoS chain is the true history? What would convince you that one is legitimate, and the other is not? The article argues that the act of convincing you is, itself, a form of PoW. After all, without PoW, looking at the chainstate isn't convincing -- if you have staked coins today, you could easily create a fork of the chain history where everyone else stopped spending except for you. Without no 3rd party way to verify if that actually happened, you could go around trying to bribe people to accept that your subsequent transactions on this fork are the chain's "true" transactions. There's many tactics for doing this -- you could go on Twitter and spam everyone; you could organize events and rallies; you could even take malicious actions and disable your rivals. You and everyone trying to do the same thing would be in competition to convince everyone else that your fork is the "true" fork.
But regardless of the tactics, all of them require expenditures on your part in the forms of time, energy, health, stress, etc. Hence the "PoW by obscurity" argument. But at the end of the day, you'd be unwise spend any more than you'd expect to receive in return because of MC = MR.
Here's a concrete example. The reason you can tell that there's a lot more belief that ETH is the true Ethereum fork, and not ETC, is because ETH has a much higher PoW score than ETC. Miners can choose between ETH and ETC to mine, and they mine the one whose tokens are worth more. ETH is worth more because more people value it. Therefore, PoW is a proxy measurement of the social consensus -- more people believe in ETH than ETC.
If ETH were PoS at the time of the split, it would be a lot less obvious from the chainstate which one people would choose to use. Both chains' participants would try to make it look like their chains had more users by some other means. But the point in the article is that those "other means" are not only costly actions, but also the marginal cost each fork can afford for these actions is, in equilibrium, equal to their respective marginal revenues.
> If ETH were PoS at the time of the split, it would be a lot less obvious from the chainstate which one people would choose to use. Both chains' participants would try to make it look like their chains had more users by some other means. But the point in the article is that those "other means" are not only costly actions, but also the marginal cost each fork can afford for these actions is, in equilibrium, equal to their respective marginal revenues.
You forget that when the ETH/ETC split happened, the hashrate fluctuated immensely after the Poloniex listed ETC (and ETCs price skyrocketed) and many miners switched to mine ETC.
Now in hindsight it is obvious but during the chaotic days, it wasn't obvious which chain would be worth more in the future. That ETH had more POW done at that moment was unimportant. You had to use other means to decide which chain to use.
In other words, the PoW scores on ETH and ETC after the fork ultimately were predictive of how much one token was valued versus another. You are right that there was uncertainty at first -- and it was reflected in how much PoW each chain got! -- but for someone who's just now coming into crypto with no a priori knowledge of the event, the higher PoW score on ETH is indicative of higher market demand. Which is exactly my point.
>This game of convincing people that your fork is the true fork is exactly what stake-grinding is
Stake grinding is something else, in coins like NXT the producer of the next block was set by the seed based on the previous block, so it was possible to bruteforce blocks until you were also the next generator.
>The article argues that the act of convincing you is, itself, a form of PoW.
He makes a much stronger claim that resources spent on that (+ staking) are equal to revenue. There's an additional assumption in the article: he writes about marginal cost and revenue, but what he actually assumes is a system where average cost is equal to marginal cost, as it is in PoW under perfect competition. It's even equated explicitly in "“Rent” always forces production costs (MC) to always equal sale prices (MR)". He starts from the assumption that PoS uses exactly same resources as PoW and then shows it's true based on the assumption.
>Given a choice, and no a priori knowledge, which history of the PoS chain is the true history? What would convince you that one is legitimate, and the other is not?
What does 'true' and 'legitimate' mean here? The whole point is to interact with other people, so naturally I'm going to use the same network that people I want to interact with use. Same whether it's PoW or PoS - no real difference between choosing forks from some block height vs choosing networks with completely different genesis blocks and names.
Once the network is chosen a node has to follow it. The question of 'how long it's safe to be offline to reproduce the behavior of being online all the time' has a complex answer of percentage of slashed stake if two conflicting histories exist. Currently I think it's about 16% for one month, which is about $2B.
>Without no 3rd party way to verify if that actually happened, you could go around trying to bribe people to accept that your subsequent transactions on this fork are the chain's "true" transactions.
PoW doesn't change anything here, it's an arbitrary fork like any other. People that ended up with coins from mining can receive coins on your fork too, made with a much smaller mining difficulty. Mining cost is irrelevant because that's destroyed wealth - nobody ends up with it.
The reason it won't happen in reality is because of network effects - even if you have external wealth able to pay enough at once to everyone that has to be paid, no single person wants to be left alone on a new fork - they would all have to move at once.
> it was possible to bruteforce blocks until you were also the next generator.
This sounds exactly like a special case of the game of convincing people that your fork is the true fork. NXT stakers each have their own preferred forks (i.e. the ones in which they get the most tokens), and are willing to spend energy to make it so their fork is accepted by the network.
> He starts from the assumption that PoS uses exactly same resources as PoW and then shows it's true based on the assumption.
Maybe it's not well-written here, but his argument is that PoS ultimately will require the same energy commitments as PoW through the act of each staker trying to convince both other stakers and newcomers (i.e. with no a priori knowledge of how the chain evolved) that their preferred fork is the fork the network accepts. A PoS chain may not take the same initial resources as a PoW chain, but it will over time.
Source: I've spoken to the author at conferences.
> What does 'true' and 'legitimate' mean here? The whole point is to interact with other people, so naturally I'm going to use the same network that people I want to interact with use.
And how do we know which fork this is, out of all the alternatives? You either have to ask people (i.e. you need a priori knowledge obtained out-of-band), or you need a way to independently but deterministically choose the fork that the economic majority of people use (which is the problem PoW solves).
> PoW doesn't change anything here, it's an arbitrary fork like any other.
Except, this is not what's happening in real life. People follow the canonical chain, and PoW helps them all determine what the canonical chain is without having to ask around.
>You either have to ask people (i.e. you need a priori knowledge obtained out-of-band)
Again, the only reason blockchains need consensus is to allow people to interact with each other - consensus is between people. Computers are just tools to make that easier. It's a fundamental contradiction to assume you can use any blockchain to make any economic transactions without interacting with other people - because economic transactions require other economic entities.
Of course when you assume something false you can prove any absurd result, like that PoS wastes same resources as PoW.
PoW relies on social coordination in the short term, because short term attacks are cheaper, so in the case of a 51% attack people would have to organize fast. PoS is extremely safe in the short term, and only maybe falls back on social coordination in the long term (again, only in the case of an attack), which is the correct security model.
>deterministically choose the fork that the economic majority of people use (which is the problem PoW solves)
No it doesn't. Mining revenue is an insignificant part of what the real consensus in any PoW coin is. For a while BCH had biggest revenues after the fork (because of their difficulty algorithm). Ethereum has higher mining revenues than bitcoin for months now (last 24h: $49M ethereum, $31.3M bitcoin) - does that make ethereum the true bitcoin now?
> Again, the only reason blockchains need consensus is to allow people to interact with each other - consensus is between people. Computers are just tools to make that easier. It's a fundamental contradiction to assume you can use any blockchain to make any economic transactions without interacting with other people - because economic transactions require other economic entities.
Did I say otherwise?
> Of course when you assume something false you can prove any absurd result, like that PoS wastes same resources as PoW.
Well, no widely-used PoS system exists (so we have no real-world examples to learn from), but despite this, you're insisting that no PoS system will use more than PoW from now until the last blockchain goes offline, despite these systems (in expectation) driving essentially unbound amounts of revenue. That's quite an extraordinary claim!
Let's steel-man this. Let's assume that a PoS blockchain becomes so widely successful that its token becomes a major world currency. Then what? Controlling a PoS node would be like controlling a country's reserve banks and mints. So, what keeps these nodes safe from asshats breaking into them and using them print themselves money? Like, why can't an armed band of asshats show up at my server rack and physically steal my validators' keys?
The answer of course is that the building security and law enforcement officers keep this from happening. But, where do these people come from? Who pays them? Where do they get their equipment? What do they do with the asshats they catch? How do they deal with escalations from asshats, and stay ahead of the asshats' tactics? How much energy is going into keeping these PoS nodes secure?
It appears that there is energy involved in keeping the PoS system running in the face of asshattery, and that energy is proportional to how important it is that it remains usable for the societies that rely on it. It seems, then, that the more successful PoS becomes, the more it co-opts the very infrastructure that keeps today's financial systems secure. That's a lot of energy!
So, in the event of success, I have no reason to believe that PoS will take less energy to secure than PoW, once I think about what has to go into securing a successful PoS system. At least with PoW, I can rest assured that if the asshats hijack a mining rig to print money, they'll have to continuously out-mine the rest of the world in perpetuity in order for their coins to remain realized on the canonical chain. PoS doesn't have that resiliency, which necessitates building and maintaining an extrinsic security apparatus to keep the staked coins from getting stolen in the first place. This security apparatus -- including all the laws, supply chains, manufacturing, and so on to keep it going as it becomes a more and more valuable target to asshats -- is on the MC side of the equation.
> No it doesn't. Mining revenue is an insignificant part of what the real consensus in any PoW coin is. For a while BCH had biggest revenues after the fork (because of their difficulty algorithm).
You've completely misread my comment. Miners mine on the chain that is most profitable to them, and the blockchains they mine on encode the history of their activities. Even though during a chain split it's not immediately apparent which resulting chain will attract the most miners over time, it does become apparent quickly enough. The revenues (and thus profits) come from users actually demanding the coins.
> Ethereum has higher mining revenues than bitcoin for months now (last 24h: $49M ethereum, $31.3M bitcoin) - does that make ethereum the true bitcoin now?
I thought it was widely understood that Bitcoin and Ethereum are not the same thing? If there is contention between two forks of the same blockchain, then PoW provides you a way to determine which one has more demand. PoW doesn't tell you anything about two different blockchains with two different difficulty algorithms (but it might tell you something about two different blockchains with the same difficult algorithm, such as Bitcoin vs Bitcoin Cash).
>>Except, this is not what's happening in real life. People follow the canonical chain, and PoW helps them all determine what the canonical chain is without having to ask around.
In POW you still have to ask around, to find out what the canonical consensus protocol is. Having more POW alone is not enough to have your chain accepted, as it still needs to be valid according to the other rules of the protocol.
Both POS and POW depend on some level of subjectivity/trust, even while the latter relies on it less than the former.
> Both POS and POW depend on some level of subjectivity/trust, even while the latter relies on it less than the former.
No one is arguing that you don't have a trusted computing base.
What is being argued is, why make the TCB bigger when it doesn't need to be? Why trust someone to tell me what the current validator set or fork tip when I boot up my node, when there exists protocols whereby the node figures this out automatically?
Some people say that the energy cost of PoS justifies this, but that's not really true in the long run. This is the point Paul Sztorc was making in his article about MC = MR -- competing PoS forks will still spend the same amount of trying to convince you that their preferred fork is the canonical fork. PoW does this as well, but it gains you an in-band way to discover this, thereby making the TCB lower than it would be in PoS.
>>What is being argued is, why make the TCB bigger when it doesn't need to be?
That's the point of debate: of course PoS proponents argue you can get more security at a given economic cost than you can with PoW, and that more than makes up for the security loss from the TCB bigger.
Sztorc's argument is heavily disputed in this thread, and you can see the arguments against it in the critiques provided.
Making the TCB bigger makes PoS less secure overall. If you pick the wrong validator set when you boot your node up, you're fucked -- your node will never discover the chain history which represents actual user activity [1]. PoS is the blockchain equivalent of forcing users to pick out which TLS certificates they trust when they install their OS. PoW is the blockchain equivalent to your OS having a way to discover which TLS certificates the majority of the Internet currently trusts in-band, as well as a way to upgrade them to the newly-trusted set if the majority switches.
The sad part is, PoS doesn't even gain you anything -- it's not cheaper. It's just a feel-good measure that doesn't solve the underlying problem.
> Sztorc's argument is heavily disputed in this thread, and you can see the arguments against it in the critiques provided.
Other people not understanding the argument doesn't make the argument wrong.
[1] The proof is in the appendix of this paper: https://eprint.iacr.org/2016/919.pdf. The gist is that they show that two forks are indistinguishable without a priori knowledge of which validator set is not corrupt.
>>Making the TCB bigger makes PoS less secure overall.
That is a debatable point. The TCB amounts to a single hash, that the global Ethereum userbase has had at least three months to converge on, with extremely obvious ways of establishing its correctness. If that can't be securely established, it's unlikely a consensus on the correct software distribution channels can be established either, meaning new users would still be completely fucked.
And there are other factors that establish the security of the network besides how much subjectivity plays a role in consensus, like the economic incentives dissuading an attack, and the difficulty of acquiring the economic assets needed to attack the chain.
> That is a debatable point. The TCB amounts to a single hash, that the global Ethereum userbase has had at least three months to converge on, with extremely obvious ways of establishing its correctness. If that can't be securely established, it's unlikely a consensus on the correct software distribution channels can be established either, meaning new users would still be completely fucked.
Sure, let's use Ethereum 2.0 as an example (but note that both myself and the linked paper talk about PoS in general.). Suppose I'm a newcomer to Ethereum 2.0 well after it launches. Suppose that, sometime after the launch but before my arrival on the scene, there's another DAO-like event where there's been a contentious chain split, and lots of bad blood on both sides of the split between developers, users, and exchanges. If I'm only interested in using the chain with the most economic activity, then why should I trust you and your servers to tell me who the initial validators are, especially now that you have a financial reason to tell me your preferred fork? It's like a bank asking me to choose between multiple sets of TLS certificates for all the banks I could conceivably use without giving me a chance to vet them -- why would I ever do this? And how would I even do this reliably?
In PoS, all I have to go on is your word against the others (this is the proof the paper makes) -- there is no way around this. In PoW, I can compare the hashpower between forks and use that to determine on my own which fork has the more valuable coin (and thus the larger economy for it). This, by itself, is a strictly more resilient system design.
What Paul Sztorc is saying is that in the event of contention between competing validator sets, both validators will spend resources equivalent to PoW trying to convince all these newcomers that their validators represent the most economic activity. This includes, but is not limited to, spending energy keeping your validator nodes from getting stolen or hijacked in a bid to change the validator set without consent. So, not only are the energy savings that TFA touts expected to disappear in the long run, but also the energy spend won't even help make the protocol more resilient.
By the way, I believe that ETC is the 'true' Ethereum, and ETH was forever compromised by Buterik after that DAO fiasco. Code is Contract, but only until somebody decides otherwise.
(I fully understand that this belief of mine is not shared by the majority of Ethereum users.)
Paxos solves a different consensus problem than PoW or PoS.
The former is for when you control and trust all nodes in your network. The latter is for the more difficult problem of consensus when you don't trust the nodes - otherwise known as the Byzantine Generals problem in distributed systems research.
Pretty sure Paxos is easily extended to the byzantine setting with digital signatures (i.e. Byzantine Paxos has also been around forever). Also PBFT has been around since the 1980s.
Only distinction is classical consensus is permissioned whereas blockchains are typically permissionless.
raft and paxos are basically the same, besides leader election, which raft's take makes it simply easier and possible even more efficient[0]. I say "possible" because that depends very much on the consensus state over time, which in most actual workloads can be pretty stable, so at least in some practice, e.g., with hypervisor-cluster like we do, they perform almost the same. The simpler approach of raft can help if you create a library for it from scratch, or for easier understanding when coming into that space, otherwise the differences does not matter too much (in practice), IMO.
I gather OP means best because it's understandable and easier to implement. Paxos has a tough reputation and even Google fucked it up in the beginning according to their Chubby distributed lock paper.
Most people should be aware about how they defrauded everybody with the DAO and subsequent fork of Ethereum. But, of course, it has been conveniently sweeped under the rug.
In a PoW chain, Vitalik Buterin can talk, propose, and make patches to an Etherum client, but it means nothing unless miners approve the changes by running the updated client. He is the most important voice in that coin's ecosystem, but miners are the ones who decided to approve the fork.
Switching consensus to a different set of rules is entirely within the scope of a PoW system, and it's based on the same mechanism that gives legitimacy to the rest of the blockchain. The original Bitcoin paper explains this perfectly, so I won't replicate it here.
> In a PoW chain, Vitalik Buterin can talk, propose, and make patches to an Etherum client, but it means nothing unless miners approve the changes by running the updated client. He is the most important voice in that coin's ecosystem, but miners are the ones who decided to approve the fork.
No, it means nothing unless users use, buy, and sell the coin. The miners' are subservient to them, assuming the miners are trying to make money. Miners do not decide or approve which set of consensus rules people decide to use, though they can, at a potentially quite significant loss, disrupt the functioning of the network somewhat.
> Miners do not decide or approve which set of consensus rules people decide to use, though they can, at a potentially quite significant loss, disrupt the functioning of the network somewhat.
Miners are users. If they don't mine the blocks, the system literally doesn't work. Suppose that a large majority of miners refuses to upgrade for some reason. One part of the users can upgrade and wait for new blocks for a long time, while the users that don't upgrade can actually use the system as if nothing happened. Who is going to throw in the towel first? Maybe it's the miners, maybe it's the ETH holders, you can't know.
No, other users can easily institute a new lower difficulty in the upgrade to counteract the drop in POW from the defection of miners.
The subservience of miners to users at large in the determination of the market leading fork is best exemplified in the scenario of users switching to a PoS chain. In this case the miners have no power to sabotage the upgraded chain.
> No, other users can easily institute a new lower difficulty in the upgrade to counteract the drop in POW from the defection of miners.
Sure, you can alternatively anticipate that your fork will not get miner support and give it low difficulty, leaving it vulnerable to spam instead.
It doesn't change the fact that this fork now only has a tiny share of the hashrate, no better than some random altcoin. Why should it be considered the "real" chain? Because it has Vitalik Buterin's face on it? Maybe that works for Ethereum, but it wouldn't work for Bitcoin.
> The subservience of miners to users at large in the determination of the market leading fork is best exemplified in the scenario of users switching to a PoS chain.
...which hasn't happened yet. Of course, if your users don't care about hashrate or PoW, you can transition the software to anything. Maybe that's true for Ethereum. That doesn't make miners subservient. Either they're highly influential (PoW) or they're not part of the picture at all (PoS). There's no scenario in which you can force miners to adopt some change.
>>There's no scenario in which you can force miners to adopt some change.
Your point was that miners' cooperation is required to successfully upgrade:
>>One part of the users can upgrade and wait for new blocks for a long time, while the users that don't upgrade can actually use the system as if nothing happened
My point is that an upgrade can be implemented without any cooperation from miners. A change to PoS would be the exemplar of that.
> Your point was that miners' cooperation is required to successfully upgrade
I didn't say that. My point is that miners will decide which chain gets the bigger hashrate and that chain is likely to be adopted as the "real" chain by users, if it's the vast majority of the miners. Furthermore, the prospect that there is no miner support would make users reluctant to upgrade in the first place.
> My point is that an upgrade can be implemented without any cooperation from miners. A change to PoS would be the exemplar of that.
What do you mean by "upgrade" then? Bitcoin was "upgraded" to Bitcoin Cash, an arguably better blockchain. Some people even consider it the "real" Bitcoin, but that's a minority opinion.
> A change to PoS would be the exemplar of that.
You can't use an event that hasn't happened yet as evidence to support your argument. Maybe there will be a flawless transition to PoS in Ethereum, due to influence of developers and the prospect of lower transaction fees. Maybe there will be ETH2 and ETH at the end, traded as distinct assets.
> I didn't say that. My point is that miners will decide which chain gets the bigger hashrate and that chain is likely to be adopted as the "real" chain by users, if it's the vast majority of the miners. Furthermore, the prospect that there is no miner support would make users reluctant to upgrade in the first place.
Miners follow money. Users "decide" about prices. Miners are subservient and largely irrelevant. "Don't talk to the staff".
If miners are largely irrelevant, why is the technologically inferior blockchain called Bitcoin, the superior one called Bitcoin Cash? Why do people pay outrageous fees on the Bitcoin chain and why is a Bitcoin unit worth 20x more than Bitcoin Cash? Why does every proposal without miner majority support fail? Why is Bitcoin called the most secure blockchain?
You are conflating cause and effect. Security budget of Bitcoin is defined by block reward. Miners just compete to get a larger piece of the pie. Bitcoin price (and thus security budget) are so high because Bitcoin is the default-go-to cryptocurrency. Media talk about two CCs: Bitcoin (in serious tone) and DogeCoin (as a joke). That what explains Bitcoin domination over all other CCs - dumb money.
Unless you are saying that folks who started 'stacking sats' during last two years are a bright bunch and they are capable of reasoning about CCs security.
> Why does every proposal without miner majority support fail?
Watch miners getting owned during Ethereum's transition to PoS.
>>My point is that miners will decide which chain gets the bigger hashrate and that chain is likely to be adopted as the "real" chain by users, if it's the vast majority of the miners.
If that were true, then an upgrade that switches to PoS, i.e. a hashrate of zero, couldn't succeed, and it's safe to Ethereum's upgrade will succeed.
It is true for Bitcoin. People who buy into Ethereum are buying into a cult of personality, so it might not be true in that particular case. We will see.
That's a pretty inflammatory and totally unsubstantiated assertion, which reveals the baselessness of your entire argument, and the biases that motivate it.
> That's a pretty inflammatory and totally unsubstantiated assertion, which reveals the baselessness of your entire argument...
Non-sequitur.
> ...and the biases that motivate it
I do think it's obvious that many ideals of cryptocurrency can not be reconciled with Ethereum. There clearly is a lot ill-placed trust into key personalities such as Vitalik Buterin.
If you're "inflamed" by this assertion, which I believe is well-supported by the history of Ethereum, that should make you question your own biases.
Your entire argument is premised on this baseless starting assumption, that Ethereum is somehow not a genuine crypto and instead a 'cult of personality'. It's an absurd foundation for your position.
>>I do think it's obvious that many ideals of cryptocurrency can not be reconciled with Ethereum. There clearly is a lot ill-placed trust into key personalities such as Vitalik Buterin.
>>No. Vitalik is an influential contributor, but he has no authority over it. His influence is merited because his contributions have added immense value to $ETH. It's that simple.
> Your entire argument is premised on this baseless starting assumption, that Ethereum is somehow not a genuine crypto...
Again, one does not follow from the other.
My point is that you can't make generalized statements over crypto governance such as "miners are subservient", based on just the protocol.
We can infer from the history of a given cryptocurrency how its userbase will most likely react to proposed changes. For Bitcoin, that means "nothing happens without majority miner support". Nothing in the protocol says that this is how it works, of course.
Sure, it's users making the decision at the end of the day, but ultimately their hand is forced by the more influential actors in the system. For Bitcoin, that's the validators who have significant capital invested into infrastructure. For Ethereum, that's clearly the personalities, with Vitalik being at the forefront.
Given either alternatives, Bitcoin is unsurprisingly closer to the ideals that popularized cryptocurrency. I don't think there's much of a debate to be had here. Whether Ethereum should therefore be considered "genuine cryptocurrency" is irrelevant.
> "His influence is merited because his contributions have added immense value to $ETH."
This is a variant of the sunk cost fallacy. If your governance is de-facto based around clout - as opposed to capital expenditure - you have more centralization, because clout can't just be reproduced.
I don't see how switching consensus from a proof of work system to proof of stake system "is entirely within the scope of a PoW system". If the majority of the network decides to do that, I understand why that makes it valid, and this is intentionally hyperbolic/don't think proof of stake is properly viewed like this, but to me that reads like "voting in a dictatorship is entirely within the scope of a democratic system". Technically it might be true, but the moment you make that valid democratic decision a decision like that can't happen the same way again.
Creating a fork is not a fraud. That was and is always a possibility, people were free to disagree, and Ethereum Classic represents that disagreement. If you went through that, then you would have ETH and ETC, and a choice of what to use, develop, mine, etc.
If I had created the DAO and I was the one going to lose 50 million, no fork would have happened, and Buterin (and you probably) would have told me, from their high horses, "though luck pal, you see, that's the beauty of smart contracts, they're final and no one should be able to do anything about it".
If you preach a set of principles and then backtrack on them when it's convenient for you, you're a hypocrite and have no integrity. If you do this on purpose, to deceive people, and there's money involved then you arrived at the definition of fraud, +- some extra words.
That's because the $50M were owned by a large percentage of the users of Ethereum, not a single person. It represented 15% of the total ETH in circulation, back when the currency was in a very nascent state and the flagship product that ETH provided that BTC didn't, was the DAO. When the DAO break happened ETH lost 60% of its value, so not only did 15% of people have their money stolen, but everyone across the board lost 60% of their ETH value. There was simply immense demand for people to get their money back, so people much preferred the fork that kept their money than the fork where the robber stole their money.
Simple as that, it's decentralized, that's the whole point, you fundamentally can't tell people which fork to believe, people use whatever fork they want. And the people mostly wanted the fork with their money in the DAO preserved. People who wanted the unaltered chain stayed there, no big deal.
Exactly. Ethereum users and miners legitimized the patched chain and that's what continued forward.
A hacker minted free Bitcoin in 2010 and the chain forked to remove that transaction. But nobody's talking about that being a scam. How is the Dao hack any different?
If you had been the creator there would still be absolutely nothing you could do to prevent a fork. You could throw a hissyfit and scream all you want on Twitter, but the fork would still happen.
can you be more specific?
on blockchains, differences of opinion are always solved with forks - and users follow the chain they agree with which makes it the most valuable chain.
> Without mining, less electricity is used in mining, and less silicon is used in mining chips. Are these resources available for extra production? Yes. However, these “non-wasted” resources are offset by other resources which are “wasted”.
This would seem to be the main argument of that second article you posted summarizing the economics around PoS. The idea is that if you’re backing your crypto with itself (like in a PoS), the value that is locked in the staking system could be doing something else. (This is a very real point in that it doesn’t help decentralization—the same people that would stake their coin could spend that money mining Bitcoin.)
But it doesn’t seem to address any points in the conversation around the ethics of using electricity as a basis for proof of work.
Electricity is the best form of energy to use as the basis for Proof of Work, because there is no pre-requisite on how to generate the required electricity.
compare: electric cars vs ice cars, electric cars can also end up consuming "dirty" electricity from coal fired plants, but that's an option vs. ice cars.
Could the concept of proof-of-work be extended to prove that work was done cleanly, ie: using only renewable electricity rather than that produced from fossil fuels?
Perhaps renewable electricity producers could issue some sort of signed token which is then incorporated into the blockchain as proof that renewable electricity was purchased?
You've now introduced a set of trusted entities validating something for consensus. Why bother with proof of work at that point? You only need it because you can't agree on a trusted subset of participants with the rest of the network.
There are serious environmental concerns being raised about the amount of electricity being used to mine Bitcoin (see, e.g.: https://news.ycombinator.com/item?id=27135776). My comment does assume that less electricity use is good, because that's the context in which Ethereum posted this.
I'm mining crypto (very small amounts) as I as I type this, so I'm definitely not going to make the case that all crypto mining is an immoral waste of electricity. But I remain very interested in transition to a PoS system, so as to reduce the strain of crypto on the environment.
All human economic activity that uses electricity should be judged by the same standard then. I think the unstated premise of most of these arguments is that crypto provides no meaningful economic benefit to society, and thus the use of real resources (that sometimes produces pollution as a byproduct, depending on the source) is immoral.
Paxos requires multiple parties to vote on what’s the correct result. The killer issue there is that it doesn’t solve a sybil attack - you either need a central authority in Paxos that chooses which machines run it, or you will end up with an attacker setting up a million machines in a cloud and overvoting everyone.
I think it's hypocritical to call this fraud: this contract itself was exploited for a loophole; if you declare it valid as allowed by the protocol, then simply changing the protocol (which is what was done temporarily) is also valid and according to the working of the system. I think it was within the spirit of the system to work this way.
Proof of Stake is already how our current financial system works. The people with the most money make the decisions. Proof-of-Work is provably resistant to this, as evidenced by the 2017 blocksize debate where almost every large miner and bitcoin company wanted to change the protocol and it was fought off through grassroots efforts. A PoS currency will be controlled by a cabal of US financial institutions, and indirectly by the US regulatory system. Be careful what you wish for.
It's not like cryptocurrencies achieved any of their goals so far anyway. If it's about facilitating pyramid schemes and creating a worldwide casino we might as well do it efficiently and without wasting insane amounts of resources.
I'm personally very happy for PoS and hope that it'll be successful, I would be a lot less annoyed with cryptocurrency bullshit if it wasn't so wasteful. With proof-of-stakes it basically joins the ranks of essential oils and other MLM scams, I'm fine with that.
What do you mean? We totally got what we wanted; we have a deflationary currency we trade for goods and services.
I'm 100% serious here; it's been working fine for quite a number of years. The fiat conversion is pretty noisy but BTC on average goes up in value in fiat terms at a fast pace. BTC is easy to turn it into stuff. No one has ever censored my transactions or asked for ID. Even if you buy something really expensive or totally illegal. It has literally already worked. It started working the day that guy bought a pizza and it hasn't stopped working.
> we have a deflationary currency we trade for goods and services.
Such a vanishingly small percentage of cryptocurrency activity is actually used for trade (as opposed to speculation) that it is a novelty and newsworthy when it actually happens.
E.g. We all know about that guy who bought a pizza with BTC. And when Tesla decided to allow purchases via BTC (which they have since backtracked) it was a media sensation and market-moving. This is not normal.
Is this really true? I buy stuff with crypto all the time.
It's how I learned about crypto in the first place- back ~2015, I ordered legitimate, had-a-prescription medication for my father from overseas using bitcoin, as it was the only way I could get it, as the even-with-insurance price in the states was beyond our means. Wound up doing so for several years, and it was much easier than dealing with the 'normal' ways of payment. A lot of the things I order from overseas in general I pay for in crypto, simply because it's cheaper & easier than doing regular currency conversions. I'm talking about regular things, like specialty foods, or everyday items I can't find in the states. Nothing even close to grey market or sketchy. Just regular financial transactions, using crypto.
I'm sure by numbers my <$100-equivalent purchases are small potatoes, but how is that not also true for regular money? There are billions of dollars of capital sloshing around in the markets, but that doesn't make my personal-level spending not useful.
I don't know what jurisdiction you are in, but as far as I know, crypto is treated as a capital asset in the US, not a currency, so I'm unprepared to deal with the tax consequences of using it as a currency.
If I paid for things with it then every transaction would require calculating capital gains/losses. And it's far worse than conventional assets like stocks because at least the brokers track that stuff for you.
In the parents defence, the tax status of crypto has nothing to do with the technical capability of using Bitcoin for trade. I think we can all agree, that if both parties are willing, I can use bitcoin to buy things.
Sure. If both parties are willing, you can also use pokemon cards to buy things. The main point of the comment is that it's not convenient and common to use crypto to buy goods and services yet.
The current desktop UX (today) of using cryptocurrency to order takeaway food from the market leading delivery platform in Germany is actually MORE convenient than Visa in my experience.
Visa: get card from wallet, type in number, type in CSC code.
But do they give you a significant discount for crypto vs. a credit card?
In the US you can get a 2% rebate on what you spend with a credit card. In effect, you are credited back most of the merchant fees baked into transactions.
In which case cash or crypto requires a >2% discount to break even.
Yes, I agree that it’s not common or convenient. But I think it was just a counter point that you can use Bitcoin for regular purchases and people do. And I don’t think tax law is going to stop these people.
I completely agree that the instances of use as currency is vanishingly small.
You can do whatever if you are willing to take the risk, but US federal tax returns are now specifically asking if you own any cryptocurrency, which seems like at least a mild threat they might come after you.
We can have the cake and eat it too: it's called stablecoin.
1. Park your ETH/WBTC/BAT (a whole bunch of other tokens) on a smart contract as collateral so that you can withdraw a token that is pegged to the USD, or just go to a regular exchange to buy the stablecoin.
2. Use this token to make transactions online.
Tax advantages: you are not selling your volatile crypto, so you don't have to declare any sales or profits. On the other hand, if the crypto you place loses so much in value to the point where the smart contract liquidates you, you don't need to return the stable token and you can get a tax write-off.
This is exactly how tax laws (ridiculously) work, at least in the USA.
It uses the same “trick” billionaire CEOs use when they borrow against their shares to fund spending, instead of selling some shares and calling it “income”.
It's not an exchange. It's a loan with a collateral. It's only an "exchange" if you get liquidated, which means that you were forced to sell it at a loss.
Doesn't this assume you only get liquidated below your initial purchase price?
With something as volatile as cryptocurrency it's not exactly a crazy idea that you'd buy at say $30k, take a loan at $60k and get liquidated at $50k and get stuck with a big tax bill
Depends on jurisdiction. In Poland the official government stance now is that only exchange into fiat is taxable. (which is absurd, but I won’t be the one to complain)
My impression is stablecoins are still taxed as property, even if they don't fluctuate as much. Going through the same hassle but not having as much fluctuation seems like solving 20% of the problem.
And if you peg your money to fiat, aren't you just ending up back where you started?
What you're describing sounds essentially like being my own brokerage back office to provide cash services to myself. That's nice for people who enjoy that sort of thing, I guess.
> And if you peg your money to fiat, aren't you just ending up back where you started?
Not if you are talking about the idea that only crypto allows you to transact without a middleman and without the risk of having your funds seized or your account canceled.
But if you are simply talking about crypto as an way to invest: I can tell where I can park USDC and DAI and get 2% returns per month - and have gotten that consistently for the last 8 months. Can you tell me any traditional bank that can offer this good of a deal?
You don't get 2% a month unless there's a significant risk of losing your money. That's just basic economics- high returns only come with high risk. In other words it's nothing like a bank and should not be compared to one.
That's under the presumption of efficient markets where there's perfect information across all market pariticipants which isn't the case currently with DeFi.
It's highly unlikely the people pushing crypto as a source of 2% monthly bank-like return have reliable information about these products and far more likely that the "risk/reward" rules of economics do in fact apply and that these accounts should be avoided due to the high risk.
The problem is compounded by the fact that people have every incentive to astro turf this technology to promote a get rich quick bubble. So the people claiming these accounts are safe may be lying. I would go so far as to say only a pyramid scheme can offer 2% monthly returns on a technology asset that produces nothing and has no inherent value.
It's amazing how much ignorance of the state of DeFi you managed to display on just two paragraphs, and yet you are so quick to determine that only a pyramid scheme can provide these kind of returns.
First: I am sure you understand the difference between saying something has returned 2%/month on a given period and saying that something can offer "2% monthly returns". At no point I claimed guaranteed performance, all I did say is that I did get these returns on a very low-risk protocol and only used stable tokens to do it.
Second: the reason that I managed to get this type of return is because I provide liquidity to pools that have a better utilization rate (compound pool on Curve) than others that have more "popular" tokens. Effectively this means that if more people join the pool, its profitability will actually go down.
Third: the "profit" (mostly) comes from selling the tokens minted from the protocol that you are using (e.g, I am using Curve, so they mint their own CRV token as a reward for liquidity providers ) and not "in kind". The amount that you receive "in kind" is much smaller (to the order of 0.05%) and corresponds to some "transaction fee", so it's not compounded. It is physically impossible for these protocols to create more tokens out of thin air and therefore pyramid schemes (strictu sensu) are impossible to happen on the blockchain.
Am I "promoting a get rich bubble"? Quite the opposite: if you ever find me on these DeFi subreddits, you will find me clearly recommending people against buying these governance tokens. People buying them are speculating without any clue of the fundamentals of the protocols or how a competitor can come and destroy any kind of claimed competitive advantage. I lost count of how many threads I got on /r/uniswap telling them that any sensible person would never buy UNI, yet the token went up more than 10x in price in 6 months. For them, I am the conservative one because I am selling these tokens as early as possible, but I am more than happy to take their money.
Is this going to last for a long time? Quite unlikely, but my strategy is as low-risk as it can possibly be in the space, it keeps me liquid (I can withdraw my funds anytime), and has virtually no downside. Even if the profitability went down to 2%/year, it would be a better deal then leaving the money in a savings account.
To sum up: I'm all for healthy skepticism and informed criticism, but your comment provides neither.
You wrote "I can tell where I can park USDC and DAI and get 2% returns per month - and have gotten that consistently for the last 8 months. Can you tell me any traditional bank that can offer this good of a deal? "
If it was not your intention to imply your crypto scheme was as safe as a bank account or a traditional bank product like a CD, you did a bad job of communication what you were trying to say.
If you communicate (however unintentionally it might have been, I'll grant you the benefit of the doubt) like a sucker roped into ponzi scheme, it's only rational to assume you are one.
I didn't care about the details of your speculative business, I cared about the giant red flag you raised when you compared what you were doing to a bank offering.
Read the first part of the what I wrote and read what I was responding to: OP was asking why use stable tokens if they don't have any chance of appreciating in value, and my response was to show that you can put your capital to work in crypto even if you stick only with stable currencies.
In no point I am saying that what I am doing is "just as safe as a bank". And when @kobasa pointed out that it is indeed possible to have above-average returns given the information asymmetry, you doubled-down on your assumption and implication that I either (1) don't know what I am talking about or (2) am somehow being dishonest.
Frankly, you are being quite offensive and reading only whatever confirms your worldview. This is not the way to keep a conversation.
> Can you tell me any traditional bank that can offer this good of a deal?
Well banks offer lower rates of interest, but they're FDIC insured, they have nice (ish) apps, they have regulations to protect consumers, etc.
I can tell you PLENTY of places i've parked my money (for the last 8 months) that have gotten much more than 2% return - but they don't have FDIC insurance (just like crypto).
Everybody will tell you what you are doing is stupid without knowing the details...I had an idea which may also be stupid, but again, seems to be working recently and seems like simulated super high interest (but not not not investing advice). Thinking about crypto as "digital gold" gave me the idea.
What if you deposit your cash in a regular brokerage account and every week sell an equal amount (that is, one contract for every 100 shares you can afford to buy) of at-the-money puts on GLD? This is literally digital gold.
If the probability of gold going to zero (or GLD) is essentially nothing, and inflation is inevitably going to pick up, then this feels plausibly "risk free". The worst that can happen is you are assigned some shares, which you can sell or sell calls on. In any case, people are apparently willing to pay a surprising amount for short term volatility on it.
Even better, you can buy the cheapest longest dated out-of-the-money put to lay off some risk at minimal cost.
You may be able to do this on Robinhood, I haven't tried.
Just an idea...of course analyzing how this could hide large risks would be interesting.
That can happen occasionally. But the idea is that you limit the amount so as to only lose as much as if you owned shares of it in the first place, and therefore any losses are sustainable, temporary, and not frequent. Given the conviction it has to go up in the medium term.
Can you really imagine selling insurance against gold cratering in the near term being disastrous, barring leverage which can always ruin you?
I think it's probably important, for managing risk, to have the self control to only hold as many short contracts as you have cash for assignment, and also not to get greedy when the price moves in your favor, but wait until the end of the week to swap them for a different strike.
The downside scenario is gold dropping 50%, or 100%, which just seems implausible, maybe more implausible than in living memory.
I don't care how many months of 2% (or 10%) interest I get if it's followed by a 100% loss. You're getting that high interest rate because you're taking on a great deal of risk. 8 months of a bull market hardly proves otherwise.
Of course there is risk, but they are not as great of a deal as you think it is. I am talking about transactions that deal with stable coins only, one of them is backed by a credible institution (Circle) and I am talking about a smart contract (Curve) that is being used already for over an year and is holding billions of dollars already.
Smart contracts are somewhat Lindy: the longer they are in place, the more of an indication they are secure. I wouldn't recommend putting your money on any new contract, but Curve is around for long enough that I don't believe that it will get hacked in the next years. Sure, it is not as "secure" as a FDIC-insured savings account, but it is not degen-type of investment either.
Which is why you use coinbase and they tell you the cost basis and then you use cointracker to import it into turbotax. It's just some extra overhead when filing taxes.
Have you heard of PayPal? Because i buy things internationally and pay with PayPal all the time. If I don't receive the order, I can contest and cancel the charge (sometimes). And there's no transaction fee that I'm aware of.
Do you buy $5 items internationally? Because the bulk of my international orders are low value items. If I have to spend more on a transaction fee than the item costs, I'm not gonna buy the item. Oh, lightning you say? You really think I should trust that more than pay pal?
Have you heard of all the people arbitrarily blocked/banned/censored by PayPal? Just for one, I had my Paypal account permanently closed because I (many years prior to the block) registered it when I was still under—age. Separately, I am resident in a new country where for arbitrary reasons I don’t have all the necessary validation to open a Transferwise account registered here.
Relying on a small handful of centralized private service providers for critical infrastructure is a bad idea. My situation is not unique or strange. I could most likely illegally submit false information or register new accounts, with the risk of having payments frozen or even held at any point. Some online vendors only use PayPal, which has lifetime banned me as a person, so by extension I can not purchase from these vendors.
I do trust Lightning more than any of these. I actually regularly use for payments for stuff like you mentioned. Last time a $11 purchase yesterday, which even including amortized channel opening cost was most certainly less fees than PayPal would have been.
——
You’re happy with PayPal now, because it works fine for you, but the increasing power they have over individuals and the economy is real, concerning and dangerous.
I'll agree with you that the monopolies (or too big to fail whatever) in finance and technology should be broken up. And I hope everyone who is into crypto banks their fiat at a local credit union.
But I think for most people using lightning means getting an account with a wallet provider. Couldn't they suspend your account for violating ToS? I guess some people could setup their own channel but I don't think that's what most people do.
Proof of Stake just means the biggest entities will have control. That doesn't sound stable to me but good luck.
> Couldn't they suspend your account for violating ToS? I guess some people could setup their own channel but I don't think that's what most people do.
I someone can, someone else will for you.... that's the thing. I can't make a Paypal alternative for myself, so I can't do it for anything, but if I can build an alternative on the lightning network... well... someone else can do it and take care of people that can't.
The buy guys only care about the big numbers... but open the door to the smaller guys, and you'll see, they'll take care of the smaller numbers too.
There are significant international transaction fees. There are also merchant fees involved for sellers. Much like the ubiquitous credit card fees, you may not see it line-itemized on your bill, but the costs are absolutely part of the price you see at checkout.
Literally everything I buy with crypto, the crypto network fees are less than what I would have paid otherwise.
What about how much money it cost to get whatever currency you had into a cryptocurrency? That may be vanishingly small for people that had BTC cheap and now have a bunch that cost some low initial amount to get into the system, but most people would necessarily have to convert whatever currency they normally have to a crypto currency first and then spend it. A true comparison would compare a few things, including same currency transactions using paypal, differing currency transactions using paypal, cost to use crypto to buy assuming you have none to start with, and cost to use crypto assuming you already have it as crypto at essentially zero cost. And for all those, probably run the number for buying something at $5, $10, $50, $100 and $1000.
Or don't do all that and intuit from it that the likely result is that in some cases crypto wins (when the purchase is large, when the crypto was acquired at closet to zero cost), and in others it doesn't (when the cost is small, or possibly even moderate and when you have to convert to crypto first).
I guess my point is that with PayPal, as a buyer, the transaction fees are seamlessly included in the price.
With crypto, it depends. Which coin? Which wallet? Which seller or marketplace? I'm curious if you care to share more about your transactions, that cost less using crypto. Now, if you're saying that you bought at $100 and it's at $1000, and you "paid less" that way, that's just this stage of the ponzi scheme's doing, not an inherent feature of the network that lowers costs.
Like... Why? Why pay $10-25 in transaction fees for a $100 purchase? Unless it's illegal, it's far easier and cheaper to do currency conversion with a credit card.
No offense, but you and the few dozens (exaggerating here for emphasis) of others around the world who use crypto as a currency regularly just don’t even matter in the context of the world’s financial systems.
No offense taken. I know I am currently in the (significant) minority.
But it's been six years, now, since using crypto has been a genuine net benefit for me, and this is completely outside of any kind of monetary speculation. That's not nothing. Is it a useful comparison, one guy that works in tech vs. the world's financial systems?
If using crypto helps me, it can help other people, too. That's enough for a real start, all on its own.
Well, yes, if banning something considered harmful for the vast majority hurts a few, at some point it's worth considering. The line differs for everyone to be sure. For crypto"currency" in particular I'm not sure an outright ban is merited. It sure does seem more useful for criminal organizations and trading casinos to part unsophisticated "investors" (idealists?) from their cash than for actual people to use to conduct business, though.
Specifically for bitcoin- my hunch is one of the main drivers of its valuation is Chinese-owned capital trying to find its way outside of mainland China, as the ability of the average middle-class or wealthier Chinese person to have assets outside of state oversight is highly constrained.
I do think that coins with more reasonable transaction fees are actually used as normal, boring currency a lot more than crypto-naysayers think.
I also think the rampant speculation going on over coins like Doge is nuts, but it's worthwhile keeping in mind that if you're just using crypto as an exchange of value, with the purchase of the coin and its use at the same time, it doesn't really matter what the spot price is.
> my hunch is one of the main drivers of its valuation is Chinese-owned capital trying to find its way outside of mainland China, as the ability of the average middle-class or wealthier Chinese person to have assets outside of state oversight is highly constrained.
Where by constrained you mean it's a crime, right? Obviously you can argue that in this specific instance making it easier for criminals to evade law enforcement is a morally good thing, but cryptocurrency does the same thing for any profitable crime in any country, which is why I see it as such a negative thing overall.
>Where by constrained you mean it's a crime, right?
Not in the way you mean it, no. Otherwise industrial-scale bitcoin miners, situated near power plants, wouldn't be able to operate in the open at all, yet they do. Without making any moral judgement one way or the other, China works differently than is generally understood by the West.
//
I don't want to downplay criminal use of crypto- its use in cryptolocker-type malware is a real problem, for example.
I do think it is important to recognise that criminals already use existing monetary systems quite well, and that fully-public blockchains have an audit trail that investigators could only dream of compared to plain cash.
> Not in the way you mean it, no. Otherwise industrial-scale bitcoin miners, situated near power plants, wouldn't be able to operate in the open at all, yet they do. Without making any moral judgement one way or the other, China works differently than is generally understood by the West.
Well, the western understanding is that it's a corrupt country where the powerful and well-connected can openly flout the law for some time - until they misread a shift in power dynamics and it becomes convenient to prosecute them. I'm sure that's not the only paradigm through which these things can be understood, but it doesn't seem inaccurate either.
> I do think it is important to recognise that criminals already use existing monetary systems quite well, and that fully-public blockchains have an audit trail that investigators could only dream of compared to plain cash.
Well it's not like cash is particularly clean - if someone wants to pay or be paid in cash only, I would see that as a sign that things were probably not entirely on the level. Presumably criminals continue to use cash in parallel only use cryptocurrencies where they gain an advantage from doing so - but there are plenty of cases where cryptocurrency does offer big advantages for crime (and all of the reasons people give for using cryptocurrency - sending money internationally, avoiding reporting requirements - seem like crime-friendly things). Even the traceability you mention seems to be seen as more of a bug than a feature by crypto advocates.
This notion that bitcoin is great for crimes has been thoroughly debunked in a variety of studies over the last few years. There's more crime committed using the US dollar (on a percentage basis even) than using bitcoin and the Bitcoin network's transparent nature coupled with the advance in on-chain analytics makes this easy to explain.
Citation? That sounds thoroughly implausible - consider how much flack HSBC gets for having dared to transfer money between the US and Mexico, something that bitcoin allows and encourages people to do all the time with no approval steps at all.
HSBC got flack just for transferring money between US and Mexico? I'm willing to bet there's more to it than that... so I think it fair that you should also provide a citation.
The clients they transferred it for turned out to be murderous drug cartels. But as far as I can see HSBC actually followed all the rules at the time; much has been made of the fact that they lowered the level of controls applied to those transfers for commercial reasons, but the law required them to judge the appropriate level within a particular range, and the level they applied afterwards was still within the legal range for Mexico. Yet whenever they come up on HN you'll hear people talking like they were killing people.
(They reached a settlement where they paid money and made an apology statement rather than going to court, as would most entities in their position).
That interpretation directly contradicts Mexican authorities:
> the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores – CNBV) which, across more than 20 volumes and some 10,000 pages, established how HSBC Mexico’s top management committed serious mistakes, such as:
> - Deliberately failing to report suspicious transactions.
> - Permitting the exponential growth of bulk dollar shipments on armored trucks bound for the US.
> - Deliberately delaying the issuance of client reports with unusual and suspicious transactions.
> - Maintaining business relationships, until the last possible moment, with people, businesses and currency exchange houses used by drug traffickers to acquire aircraft.
HSBC may not have been killing people themselves, but they unquestionably facilitated and profited from it. I'm a little surprised that someone would downplay their involvement given its scope TBH.
That's exactly the kind of take I'm talking about. All you've written is phrased to make it sound as negative as possible, but very little sounds like actual illegality. Permitting exponential growth and maintaining business relationships: what business wouldn't want to do that? Deliberately not reporting or delaying reports: sounds bad, but actually these reports are judgement calls, there can be legitimate differences of opinion. The violations of internal policy in your link sound like the same sort of thing: they're written to sound as though closing more suspicious accounts is always good and less is always bad, but actually suspicion is not proof, there can be genuine disagreement, and there's an equal and opposite story about people's accounts being closed for no good reason. 10,000 pages sounds like a lot, but it's to hide the lack of a smoking gun; all there is is a bunch of judgement calls that with the full benefit of hindsight we say were unreasonable because they lead to bad outcomes.
And compare this to Bitcoin where there is no judgement call, no KYC at all, anyone can move money anywhere. I suppose it's harder to gather 10,000 pages about how poor the judgement calls were in hindsight when no-one's making those judgements, but I would hope that HN of all places would look past the sound and fury and pay attention to the actual outcomes.
Or do you genuinely fail to realise thay there is a difference between you and small number of other people relative to the global population using cryptocurrency as money as compared to everyone on the planet doing so?
I guess I don't totally know how to respond to that; I have no idea what everyone is using it for. That's rather hard to know just looking at the blockchain, or even reading message boards like this. I have no problem spending it; pretty easy to convert it to gift cards that can be spent anywhere (they give you a kick back even), there's some places that do take it directly (not restaurants, or car repair, but like electronics stuff on the internet). And of course you can just sell it for fiat on an exchange then turn around and dump the fiat for stuff (in this case, fiat is kind of the weak asset since no one really wants to hold cash for long). Plus, it can buy some stuff you can't get with fiat (e.g. overseas purchases not tied into USD, or all the dark web stuff people talk about). It feels pretty darn liquid; I've never had a problem turning BTC into stuff. And it is way more so than gold, land, even stocks and bonds; none of which can turn into stuff in under an hour much less without audit/paper-trail/control. Only fiat is more liquid, except no one wants to hold fiat; just turn it into something else actually worth having. The real problem is getting BTC. Lots of roadblocks in acquiring it and generally the people who have it would rather pay you in fiat and keep their BTC.
I convert my bank deposits to cash before spending it. It's not like there's cash in a vault with my name on it, I ask to withdraw cash and my checking account is debited. Doesn't seem so different than an exchange.
It’s entirely different, because you are transacting in the same currency without an exchange mechanism required.
This is important in days like today, where a coffee would cost more in BTC this evening than it would have this morning - how do I know how many BTC I have spent without referring to the current market price in USD and calculating it?
BTC seems to be about 10 times more volatile than the dollar on a daily basis. Like, last friday, the dollar was down about 0.4% and BTC was up or down 4-5% intraday.
This seems to me kind of like the argument that the government is "just" another gang of armed bandits.
There is a huge amount of value in predictable taxation rather than random robbery. Partly because of the variance, and partly because government has more of a long term interest in the viability of the citizenry, even if it weren't especially democratic per se.
And similarly, there's a huge value in a currency that gradually loses value over time rather than being up or down 5% in a day and 30% in a few weeks.
The whole point of currency is that it's not a long term investment asset, but a tool for trade, isn't it? So why would long run inflation be relevant?
Yea, but I don't have a problem with volatility. I have a problem with inflation. So, as a customer of this product, you can tell me I should want a lack of volatility. But what I really want is a lack of inflation. And indeed, your note implies that you too are fleeing cash. But I don't want to park all my money in bonds (also being printed like crazy) and houses (also being printed like crazy) or even companies (also being printed like crazy). I'd like to just park it in the IOU-form I earned it in without having it's value stolen or being forced to invest in something being printed like crazy with all sorts of complexity of risks (e.g. debt filled companies, real estate I have to rent or something). Just to have my money not lose value and for me to be able to spend it without someone being able to stop me. And it does that. I'll take the volatility.
My experience of BTC is when people say “I don’t want inflation” what they really mean is “I want my money to go up in value”.
Which ultimately just ends up in people wanting speculation.
A bit of a generalisation, but I know plenty of people who hold Bitcoin and they all are buying it because it might be worth more in the future, and none are buying it to transact in Bitcoin and use it as a currency.
Fiat is a currency that's continuously going down in value. There can be no dispute about that; it's the stated goal of nearly every central bank.
So, I don't want that. It's that simple. If you could transfer USD anywhere without audit and the US fed had it increasing in value, I wouldn't need bitcoin.
But they can't do that. They literally cannot afford to in the sense that the government they're attached to does deficit spending and the bond market isn't enough. They have to print. Not only must they print, but the spending that causes them to do it is heavily military. They're buying the tanks and planes they used to start wars for as long as any of us have been alive (Korea, Vietnam, Iraq, Afghanistan, etc.) Thus, every dollar I keep in my pocket is a continuous loan to their war machine; it loses value and that value goes to buying bombs.
I'm not participating any more. I'm taking my barbies and going home. Before BTC, there was no where to run to. Now there is. No more fiat. Long live deflationary, un-censor-able, distributed crypto currencies.
> My point was this is the wrong focus, because of what currency is by nature.
Ah, fair enough. That said:
> I owe way more money than I have in cash, as does almost everyone, and my loans being in nominal currency, inflation only helps.
This only works if you have a effective means of prohibiting (any) interest on those loans (ie anti-usury laws that actually have teeth). Otherwise the lender just bakes inflation into the interest.
I don't know if you are American, but it's common here to have 30 year fixed rate mortgages. I gather that's rare most other places. So I'm supposing a typical scenario where a person borrowed or refinanced recently to lock in very low inflation expectations.
That said, there are variable rate loans, but last year some lenders were actually offering such loans at a noticeable discount to prime (albeit with a floor that is above prime for now).
That helps a little, but relies on lenders underestimating future inflation. If they can predict X% inflation, they can price that into the initial fixed rate. So it's useful for making damages due to usury less variable - which is helpful for the same reasons insurance is helpful - but it doesn't usefully reduce them.
...you do realize that most of the world's money supply exists in the form of derivatives, right? A single-digit percentage is actual cash. You're committing a strawman. They didn't say anything about how the proportionality of crypto's use breaks down - they simply stated that it has achieved the basic use it set out to. And they're 100% correct - I use crypto to buy things quite regularly (email, VPN, etc), and will continue to. Really, the only thing preventing me from doing so more often is hard-headed people refusing to support it, because it's "mostly speculative."
You wrote: "most of the world's money supply exists in the form of derivatives". I also looked at the infographic. So silly. Clearly, they are just summing the notional of outstanding derivatives contracts. Summing PV (present value) would be more useful. If I buy (open long) 100 WTC Oil futures contracts, then sell (open short) 100 WTC Oil futures contracts, my delta risk is zero. However, the total notional will be 200 WTC Oil futures contracts.
The notational value of derivatives is the whole point of derivatives. They wouldn't be traded at all if they were priced solely by the value of their underlying asset.
I disagree. For the largest derivatives markets -- a: interest rate swaps, b: FX swaps, and c: credit default swaps, they formed (and grew) because market participants wanted to express a particular view, but could not easily find enough of the required "cash product" -- a:gov't bonds, b:spot FX (or simultaneous, dual currency, short-term LIBOR lending), c:corporate bonds. For (a) and more so (c), it is difficult to short, even for large/institutional clients. Synthetic equivalents (interest rate swaps are _effectively_ synthetic gov't bonds) 1:can be created upon demand, specific to a client's needs, and 2:can be trivially shorted.
When a client is buying or selling a derivative, they don't care about the notional -- they care about the delta (or gamma/other greek). You just turn the dial for notional to achieve the target delta/gamma.
Your second sentence does not make sense with respect to single name equity options. (I pick a simple product as a counterpoint.) I doubt anyone is losing sleep in 2021 over 'rho' (interest rate sensitivity) in their options trading book for any floating currency with short term rates below 1%. Thus, everything about the underlying price (including expected future divs and its historical volatility) drives the prices of single name equity options. (If you are referring to delta one derivatives, that is a whole different discussion. And yes, they trade -- equity swaps, because you can get implied leverage through financing.)
Someone is going to make a chart comparing crypto to the already-ridiculous crypto derivatives market, and you’ll realize your point is totally irrelevant.
Companies don’t transact in Bitcoin because nobody wants to hold it. Except for companies getting a valuation boost from retail investors.
No, my point isn't irrelevant, and you thinking it is means you almost certainly missed it. Most of the world's value is speculative in nature (derivatives, credit, real estate, you name it), so I couldn't care less about the crypto derivatives market, or the "normal" derivatives either. Neither are preventing me from using crypto as a store of value. At the end of the day, people speculating the value of crypto does nothing to detract from its core function as a decentralized ledger. I know this to be fact, because I have and continue to use it as money, and no amount of smug pseudo-intellectual retorts can change that. The briefest of cursory internet searches will disprove your idea that companies don't want to hold crypto - there's been massive buy in from very significant companies. Eg Sotheby's, a company that has existed since the 1700s. But they must be fools who don't know what they're doing, right?
You wrote: <<internet searches will disprove your idea that companies don't want to hold crypto - there's been massive buy in from very significant companies. Eg Sotheby's>>
I looked into this claim, and I disagree. Google search for <<sotheby's cryptocurrency>>. The first two results for me were:
They are allowing partial cryptocurrency payment for a single Banksy painting.
From the FAQ:
<<
Which part of the transaction is payable in cryptocurrency?
Sotheby's will accept cryptocurrency for the hammer price of the lot. The buyer’s premium and overhead premium, as well as any taxes, must be paid in USD.
>>
Sotheby's is simply facilitating the transaction as an auction house. They have zero exposure to cryptocurrency. I assume the cryptocurrency will be transferred to the seller after the auction is paid-in-full. The buyer must pay all non-hammer-price costs in USD to Sotheby's. (As I understand, these fees can be significant.)
Like some other posts mentioned, the seller could agree to receive seashells instead of cryptocurrency. All said, this seems like a very good publicity stunt by Sotheby's.
> Such a vanishingly small percentage of cryptocurrency activity is actually used for trade
In reality, an overwhelmingly large percentage of tangible trade is fasciliated by one specific cryptocurrency for one particular umbrella of goods and services that may have something to do with onions.
You can use bitcoin as a saving mechanism, which is the primary purpose of money, as long as you can trust that it is tradeable to something else. There are hundreds of millions of people who use bitcoin in this way.
For using it as everyday currency, there are debit cards that automatically convert your bitcoin to local currency at the time of payment. There are probably millions of people who use these debit cards. Bitcoin itself isn't suitable for everyday payments yet.
> And when Tesla decided to allow purchases via BTC
The main reason I don't buy things with cryptocurrency is that it would trigger a liquidation event and short term capital gains taxing.
Due to that, for US residents and citizens, it's not functional as a currency in its current form. I'm vehemently against taxing of cryptocurrency or treating it as a security by the IRS, but that's the way it is now.
> Such a vanishingly small percentage of cryptocurrency activity is actually used for trade (as opposed to speculation) that it is a novelty and newsworthy when it actually happens.
First, that last part is definitely not true. People do accept Bitcoin and buy things with it, and it’s not newsworthy at all unless it’s a meme-driven electric car company boss doing it. But secondly, why do these percentages actually matter? At what point does my valid use of something become dismissible because another use case which you don’t like gets popular? Do we dismiss people who actually like playing the Pokémon card game because lots of people collect the cards purely for speculation now?
Transaction fees were north of $50 a couple of weeks ago. Who's buying a pizza with that overhead? Genuinely asking, because I've a bridge to sell
Before the edit window closes... 5 workarounds and counting. Are they interoperable, or is all this a thick layer of bullshit that users need to wade through to spend their "currency"? I see the plurality of "solutions" here indicative of a problem. Yes, you can fix anything with duct tape, but then it gets sticky
Check out strike app, it is a managed lightning wallet denominated in USD that allows venmo/cashapp style pay to user transactions; and payments on the lightning network. All funded from a bank account.
Nope you can directly use Bitcoin Cash with subcent transaction fees without any other layers. A place near me sells Kava for BCH (supposedly, I have not been to a bar in a loooonnnnggg time).
You can use Ethereum Layer 2 tech like Loopring, zkSync, and eventually Optimism which Coinbase supports in the Coinbase Wallet. They haven't even added support for Lightning
Sorry but I've been following the last decade of the crypto world. In a decade I have not seen a single "defi" product sticking around because there just doesn't seem to be real demand for these products.
Considering how many spaces in new startups developed massive traction in that span of time (social networks, other forms of digital payments and banking, online marketplaces) the fact that there are no star products in such a span of time gives me little consideration.
Wait what? DeFi pretty much started booming from last summer.. it hasn't existed for a decade. Do you not know Uniswap? It's existed since around 2017. Sushiswap? even Pancakeswap?
I call bs. There is not $80 billion USD locked in defi -- the world has not taken $80 billion USD, bought crypto with it, and put the crypto into defi code. Like, where are the receipts?
What has happened is defi tokens have appreciated through speculation. Sites like defi pulse erroneously represent the wealth locked into defi contracts as token_price * tokens_locked, which is trivial to manipulate for shallow-market tokens. Like, I can spin up a token with 1 billion units, buy one token for $1, and put the remaining tokens into a defi contract. Voila -- defi pulse reports $81 billion locked.
EDIT: downvotes aren't receipts, and downvoting doesn't change the accounting discrepancy.
Aave, Compound are both not Ponzi schemes and allow you to lock things like USDC and ETH (also not Ponzi schemes) for others to borrow, and earn interest. It's automated lending, I don't understand how people are not excited about this.
Lightning usability is horrible and requires 2 parties to be online at the same time, whereas with Ethereum scaling solutions, you can use your regular metamask wallet to deposit, and you're on L2.
> we have a deflationary currency we trade for goods and services.
You do not, not really. Merchant adoption is microscopic. Even prominent Bitcoin fans admit it's terrible as a payment system. E.g., Fred Wilson of Union Square Ventures: https://avc.com/2017/08/store-of-value-vs-payment-system/
Or look at Overstock, one of the few large retailers that accepts it. Something like 0.1% of their business is done using it, which explains why most other merchants don't bother. Even there, they price everything in dollars, so if the Bitcoin price shifts between you purchasing something and you returning it, you'll get the dollar equivalent, not the Bitcoin you gave them: https://www.nytimes.com/2021/02/03/style/what-can-you-actual...
This is especially obvious when you contrast it with something like M-Pesa, an e-cash system that launched around the same time. It's hugely popular in the countries it operates in. (Along the way, it did a lot for banking the unbanked, one of the mirage-like goals that Bitcoin is always approaching but never arrives at.) The transaction volume is orders of magnitude higher than Bitcoin. https://en.wikipedia.org/wiki/M-Pesa
Sure, it technically works; you can probably still buy a pizza somewhere. But "technically works" is a shaky standard even for something that just launched. It's no standard at all for something that launched the same time as Android or Uber.
And why would you want a deflationary currency? If you see it as an investment, then of course. But for the general economy it is better when people spend their money sooner rather than later, and capital gets invested where it does something useful.
Keynsian demand-driven economy is the root of all evil, i.e. market bubbles that pop eventually. Everyone except market speculators would be much better of with supply-driven economy and small deflation.
For one it would provide incentive to save money and spend it wisely, instead of mindlessly buying all that unnecessary crap.
And debtors. The very notion of taking out a loan for something becomes nigh impossible with a deflationary currency, particularly one as deflationary as Bitcoin. Seeing as how the lower and middle class tend to take out loans for all sorts of reasons (since if they had the sort of cash lying around to buy homes and cars and appliances and such outright, they probably would be neither lower nor middle class), the direct harm such a currency would have is readily apparent.
While I'm skeptical of homeownership and car ownership in particular for other reasons, absolutely a healthy capitalist economy needs easy access to credit for potentially socially useful activities.
Strange reading of Keynes. I never read him advocate for rampant wasteful consumerism. In fact many of his arguments about government intervention (investment) are derived by his observation that consumption is prone to drying up.
I also don't see how Keynes and speculative frenzies are connected, considering they existed long before his Treatise or General Theory.
Keynes advocated for rate cuts as a remedy for crises. His reasoning being that cheap credit will stimulate demand for consumer goods. It's almost the textbook definition of "wasteful consumerism".
Indeed, and bubbles are in assets not goods to consumption, and stimulus is supposed to boost consumption in the first order, so the comparison seems even more far fetched.
> ... his observation that consumption is prone to drying up.
Now that wording has a certain ring to it (in my ears).
"Consumption prone to drying up"? As if consumption alone were of any value. As if consumption were the foundation of all well being. As if it were something that needs to be tended to like some garden with flower beds.
Sounds more like ideology to me instead of reasoning.
Keynesian isn't a value judgement on whether various sorts of consumption are good. It's firstly a description of how capitalist economies actually work, and secondarily a toolkit of policy based on that description. The focus on demand is primary because how it affects the economy writ large.
In fact, Keynes himself famously thought that would be working 15 hours a week by now instead of...well...wherever all the work is going, some of which I suppose is propping up the consumption you don't approve of.
Ah another free market neoliberalist. You do know that government intervention during Keynesian’s time was incredibly helpful for the macro economy - providing jobs and investment into long running avenues. Neoliberalism purports that the private sector will invest diligently but really we’re seeing companies use shortermism as a technique to just make profit.
Well, now that it exists, what would you as an individual rather keep your cash in compared to inflationary fiat held in an account with negative interest rate?
Genuine investments in companies, real estate, and other hard assets which actually produce cash flow rather than BTC whose value depends on the madness of crowds and the tweets of eccentric billionaires.
Investment portfolios exist. They also reduce the cost of loans, thus making it easier for companies to grow and speeding up innovation. In comparison, the only thing "investing" in cryptocurrency does, is encourage larger economies of scale for cryptocurrency (which, side note, has built in mechanisms to actively prevent it from becoming more efficient).
I am one who holds cash. Not all, but not an insignificant portion either. I have a mixture of assets. Why not invest that cash? None of the investment opportunities that I see fit my risk profile. Example: I'm holding my stocks now, but I do not plan to buy more.
The average middle class (and below) person in any highly developed country has a mixture of assets, dominated by their house and cash savings in a bank. Most don't directly own financial assets -- stocks, bonds, etc. However, they are invested in a pension (national or private) that will certainly invest in financial assets.
I've never understood why this is an explicit goal of any currency. Money is a way of keeping score of economic value produced. The economy is expected to create more value over time. That means you need more points, aka money, to represent that value.
It's not the government doing that, though, it's the economy. The government just provides the points for keeping score.
If the economy grows by x% this year and all your money is in cash, then your relative share in the economy has declined. So of course the value of your cash has now reduced. The government was only indirectly involved insofar as it issued the currency that the value was measured in.
If you want your money to stop losing value, stop the economy from creating more value.
This is nonsensical. There was practically no inflation in the United States during the 19th century[0], the major exception in that period being the Civil War, a period of when the government needed to generate more revenue by printing more money. Following the war, deflation brought prices lower so that price levels at the end of the century were roughly equal to those at the start of it (and it should go without saying that there was certainly economic growth between 1800 and 1900).
With economic growth, you would expect the economy to produce more items, thereby being able to buy the same things for cheaper. E.g., if we get better at producing electronics, you would expect their price to decline - and that's precisely what we've seen in the past couple of decades.
It is true that a period of economic growth could induce inflation in the short run if the growth resulted in an expansion of credit, which increases the money supply even if M1 is stable. But there's only so far you can stretch the money multiplier. And on the other hand, monetarists believe that increasing the money supply could resolve a recession, but for one, an increasing money supply clearly isn't required for economic growth (the 19th century in the US is emblematic of this, but in particular there were decades of deflation within that century with economic growth), and for another, increasing the money supply in the monetarist framework is brought about by a central bank, not caused by the growing economy.
> if we get better at producing electronics, you would expect their price to decline
I would also expect the value of the electronics industry, and its profits, to rise. Where's the additional money to denote that value coming from?
> There was practically no inflation in the United States during the 19th century
I can't speak to inflation in the 19th century. I'm not an economist and expert like the writer of that article. But as a percentage of household income, basic necessities (food, clothing, transportation, entertainment, energy) have undoubtedly become cheaper since the 19th century, despite inflation. Goods and services that don't follow normal supply-demand logic (education) or have excessive regulation controlling supply (healthcare, real estate) are the exception to this.
> the major exception in that period being the Civil War, a period of when the government needed to generate more revenue by printing more money
Money printing is the proximate cause, but not the root cause. The war increased demand, leading to increased prices i.e. inflation. The government printed more money to pay for the war, but it could alternatively have taken on more debt (and maybe it did, I'm not an economist or a historian).
> I would also expect the value of the electronics industry, and its profits, to rise. Where's the additional money to denote that value coming from?
Value does not come from money. Real value comes from the goods and services actually produced. As for whether profits increase, that depends. An increase in productivity in an industry might not necessarily entail an increase in profits for those in that industry. That's the basis for cartels, restriction production in order to boost profits.
> Goods and services that don't follow normal supply-demand logic (education) or have excessive regulation controlling supply (healthcare, real estate) are the exception to this.
This is not necessarily the case, i.e., services can decline in price as well as output increases. If, for example, the money supply were fixed but there were now twice as many workers, there is half the amount of money to go around for each person (but this is not really a problem because money is only useful as far as it is used to purchase goods and services, and in this scenario there are now twice as many goods and services to go around, so it balances out). So if the money supply were completely fixed, you would expect the price of everything to decline over time. However, historically, before the Federal Reserve, prices were relatively stable over periods as long as a hundred years. This is probably because the money supply was not actually fixed - it was backed by gold, and the more the economy grew, the more gold could be mined.
> The government printed more money to pay for the war, but it could alternatively have taken on more debt
Well, this is precisely how the Federal Reserve system works (at least in theory). It doesn't simply hand the government a blank check (although these days it might as well). It lends money to the government to spend. Actually, the process is slightly more convoluted. The government borrows money by selling bonds, and then bondholders sell those bonds to the Fed.
Regardless, the end result is the same, an influx of created money entering the economy. Other forms of lending plays a central part in money creation, through what's called the money multiplier, and the Fed has traditionally targeted inflation by lowering interest rates, making it cheaper to borrow money, encouraging more borrowing, and thereby increasing the money multiplier. So in any event, the cause of inflation is an expansion of the money supply. The money printer by itself is responsible for only M0, but other actions by the government can grow or shrink the larger money supply (M2).
I didn't say that. I said money measures value. Without money, value is purely subjective.
> Real value comes from the goods and services actually produced
Agreed. And making more money over time is a means of measuring "real value" creation. It's a crude approximation (patent trolls and telemarketers are strictly negative value IMO, and they still make money) but it's the best we have right now.
> An increase in productivity in an industry might not necessarily entail an increase in profits for those in that industry.
True. It can also spark price wars and a race to the bottom, which is great for consumers. However companies are required to make a profit in order to continue to survive. Otherwise they run out of money eventually. This is the current reality of balance sheets and return on capital and quarterly results. Wanting currencies to be deflationary under this reality is like wishing that time runs forward for everyone else while you keep getting younger.
> the money supply was not actually fixed - it was backed by gold
Why does anyone give a shit about gold? Why does it have any value? This whole thing is circular reasoning. "Gold standard currencies are good because they're deflationary. Deflationary currencies are good because they're backed by gold".
> the cause of inflation is an expansion of the money supply
When speaking of inflation, I feel like it's necessary to differentiate between nominal inflation (the number on your grocery receipt goes up) and real inflation (percentage of your income/assets spent at the grocery store goes up). Btw, I'm not an economist so I have no idea if these are real terms. But as a consumer, these are the only things that actually matter to me. I wouldn't care to live in the 19th century, when the price of wheat only increased by 10 cents/bushel decade-over-decade, if I couldn't afford enough food to feed my family.
Moreover, given how different everything in the 19th century was (open immigration, tons free land to settle, tons of newly discovered resources, less competition for everything, less well-developed capital markets, less global trade), I'm skeptical about how useful it is to compare prices of consumer goods back then to now.
Sure the money printer makes all the numbers go up in a scary way. But does it make people poorer in real terms? The answer to that IMO is, "it depends". If the money supply exceeds actual value produced in the economy, it does. If not, it doesn't.
Your negative reaction to my comment about the gold standard is misplaced. I only mentioned it to explain the historical characteristics of the money supply, namely the stability of prices during the 19th century. I'm no goldbug and do not particularly care that money has to be backed by anything.
> And making more money over time is a means of measuring "real value" creation.
This is only because that's a characteristic of how the modern money supply works. Money itself does not create value; if tomorrow the money printer turned off and from now until the end of time everyone worked with a fixed quantity of dollars, that would not stop value from being created.
> However companies are required to make a profit in order to continue to survive. Otherwise they run out of money eventually.
They could break even. Anyway, there is economic profit and normal profit. The latter refers to profit on the balance books, while economic profit accounts for the opportunity cost involved. In the pure competition model, the economic profit is driven to zero, yet companies making no economic profit will still survive. If a company can year over year make enough money to pay for its expenses and the expenses of its employees and operators, it will survive. It could make less money one year than the year before, but if its expenses declined as well, it can continue (note that this again doesn't entail less value produced, as more real products could be produced for a lower price). There's nothing fundamental about a deflationary currency that would prevent a company from making enough money to meet its costs.
> I wouldn't care to live in the 19th century, when the price of wheat only increased by 10 cents/bushel decade-over-decade, if I couldn't afford enough food to feed my family.
> Moreover, given how different everything in the 19th century was (open immigration, tons free land to settle, tons of newly discovered resources, less competition for everything, less well-developed capital markets, less global trade), I'm skeptical about how useful it is to compare prices of consumer goods back then to now.
I only spoke of the 19th century only to point out that economic growth is not the cause of inflation, as you had asserted above (with a possible exception in the short run as I mentioned above). It is caused by an expansion of the money supply.
Whether inflation or deflation are good or bad are separate arguments. I think both can lead to problems. Deflation encourages people to hoard money, as a productive investment that isn't productive enough could lose money; without deflation, even if you don't beat the opportunity cost you could have made, at least you're better off than if you had just kept your money as cash. Inflation, on the other hand, encourages risky and speculative investment. It is no coincidence that cryptocurrencies have exploded in price in the cheap money, low interest rate environment we currently have. Anyone who saves money in a bank is essentially losing money. So a good deal of money has been created, and it goes towards chasing any type of asset that is appreciating in value - stocks, land, and cryptocurrency. The S&P 500 has doubled in value in the last five years, but the economy did not even nominally grow by 20%. It is a recipe for a bubble, or worse if the Federal Reserve decides to try and keep that bubble from popping by any means necessary.
Why is illegal transactions a goal? You can hate on governments all you want, but that is the only way currently known where we can have a reasonable say into the laws made and uphold — and order is not a bad thing in my opinion. Why circumvent that, instead of voting someone in who will create reasonable laws to protect us all?
Why do you expect the government's laws to be forever reasonable, or reasonable for everyone all the time? Can you be guaranteed a vote if you've already been made a criminal? I'm skeptical of BTC as a currency, but divorcing the state from the capacity to control who can transact seems like a fantastic check on government power in a world where surveillance is becoming increasingly perfect. Think of Bitcoin in this context as digital cash, in relation to a a potentially centralized digital currency.
I mean, what’s your plan at that point? Move to the wild with a gun and hunt something for food? We can’t separate ourselves from society, and many countries have a way to reform and defend the direction their government is heading. That’s what we should strive to do.
If I'm frozen out of access to my native currency? Absolutely.
We can't separate ourselves from society, nor should we want to. But we should also ensure checks are in place so that society's capacity to control the individual is not absolute, so as to mitigate the negative side-effects that can spring from its convulsions.
Perfect and immediate enforcement of every law prevents many undesireable activities, but it removes what I consider to be necessary alack from the system. It should be enough that the ledger is transparent, and the law can be retroactively enforced when law enforcement is made aware of the violation.
True, but at the point of a dictatorship, all is lost, unless you leave the country - and that’s why democracy should be protected at all cost.
I don’t see how circumventing the whole thing help the regular people, considering the potential increase due to easier availability in illegal activity like human trafficking, child porn, weapons trade, etc. We have laws against them for very good reasons.
> True, but at the point of a dictatorship, all is lost, unless you leave the country
Today's democracy is just a dictatorship in sheep's clothing, and I'm not convinced democratic governments were ever anything but.
> illegal activity like human trafficking, child porn, weapons trade, etc.
Boogiemen... Not that these things don't happen, but that they happen rarely, and the government doesn't even do a good job of stopping these things.
Worst of all good people believe the government stops these things and don't work to protect themselves and their community from them because of this belief.
Government has always been the principal enabler of every war, genocide, and mass abuse of human rights through history. Divorcing them from control of money is a massive human rights advancement, and most people recognize this.
Disagree. Power was and is the enabler of said things. And currently, democracy with proper separation of powers is the best we have to manage said power.
That ship sailed long ago in the US if you use any exchange. Not using an ID is much, much harder now. And is kind of besides the point with a public ledger.
It's because once people put their money into a cryptocurrency they have a stake in not seeing it fail. The more they have in the cryptocurrency, the more they need it to retain value.
If your life savings were at risk of becoming worthless, you would also be defending cryptocurrencies as rabidly as these people.
"As a market practitioner of many decades" -- I like that phrase.
In the first phase, it was purely retail speculation.
However, we are now entering into a new phase. ETFs are being issued. This makes it easier for institutional money to buy. Also scary. I'm not concerned about "fast money" (hedge funds), but rather "slow money" like pension funds.
Final phase: I notice that investment banks are slowly beginning to open cryptocurrency trading desks. They may trade directly, but mostly they are interested in derivatives. That is my biggest fear. How is that any different than CDS on MBS/ABS/CDO? (Credit default swap on sub-prime mortgage bonds) In short: The underlying was junk loans. Derivs on crypto feels like the same wolf, but in a different skin!
All crypto posts poke the hornets nest of angry engineers here at HN because (I think) crypto is now 90% a finance/economic/social phenomenon. There is little new to say from a technical perspective but people who are super smart in one field think it should generalize to a vaguely adjacent one. I’ve spent quite a lot of time on this stuff and the potential of Defi is massive compared to 99% of trad fintech startups but its impossible to even keep up with.
I can't believe this blatant denialism still exists on HN despite the fact that Ethereum has a thriving defi ecosystem. I can get a loan peer to peer today with my ETH in a stablecoin and yet you say there's no there there? Right....
Ya... And the internet is used for pirating media, porn, wasting time browsing, gaming and the other millions of "useless" things that it's associated with. The amount of sheer time wasted on the internet is incredible, let alone all the filthy illegal things that are happening on it.
Guess we can throw the internet into the trash bin too.
I remember the mantra well. I remember the backwards messages in rock music were blamed for brainwashing kids. They would slow a record down and play it backwards and come up with words from the noise that matched their fear message.
So does any traditional government issued currency, credit cards and banking loans and that doesn't make them useless to me.
Would I work for a crypto startup or as a crypto developer in the US if I'm not a citizen? No
Does crypto work as advertised? Yes
Social wellfare, a 401k, etc... are also "get in first get more money out if you get in late" schemes. A lot of people already cashed out their crypto to tangible assets and are set for life. A lot of other people have our pools as a risky investment and every once in a while rabalance and it puts food on the table. It's full of people with bad intentions but open your eyes, so is the world, those people are also doing pump and dumps and pyramid schemes with fiat and the stock market and putting hits on drug dealers over snail mail or dead-drops.
Huge advantages for both. For example, something that's only possible on a blockchain is a flashloan. This is where you can get a loan for any amount (liquidity provided) as long as you repay the full loan amount in the same block. This primitive alone allows for much higher velocities of money since value can be moved and repayed in a single block (on the order of 10 seconds).
All of the advantages of defi boil down to increases in velocity of money. For example you can deposit funds into a contract and receive a token that represents your liquidity position. You can then use this token in other applications. So now you have this composability of money which allows people to create new financial primitives.
It's actually way funnier than GOP presets to be. Flashloan must be paid back in the same transaction. Since whole thing happens in the same tx, it's atomic. So you can use smart-contract logic to determine if you are actually making a profit, and if you are not - revert!
A couple of things. First these are companies that are building up. They are not fully instituted. Second they have many partners that are helping them build out. As far as customers, yes both THETA and VET have customers....including some .gov customers.
Non custodial, trustless loans mean I can get a loan against my existing assets without ever interacting with any individual or being subject to scrutiny. A single smart contract can do the job of entire banks.
HN crowd are like the flat earthers of the cryptosphere. When people's self esteem relies on them being contrarian don't expect them to actually put in the effort to learn about something.
I understand crypto perfectly and I strongly believe that it's ultimately useless. The difference is that I have no financial incentive to tell everyone I know about crypto, whereas you certainly do.
I'll leave it up to the audience to decide which one of us is biased.
People have broad understanding of failed products all the time. Sometimes, the people closest to the product think it has more value than it does. This is hacker news, we watch startups fail all the time because they had a great idea no one actually needed and we see people run their companies into the ground trying to pivot on a tech that has no real practical application.
I ignored crypto for several years because I put too much weight on opinions from HN. I'd probably be retired by now if I'd actually paid more attention.
Monero is an actual coin with a blockchain, mineable by normal people, low fees, good transaction speed and always on privacy features that actually work. Shib is just a meme token created to compete with dogecoin.
There is no privacy and they've done some weird stuff to play the numbers.
E.g. they sent half of all SHIB to the creator of Etherum, why? Because that doubles the "circulating supply" and therefore market cap while not increasing the available supply at all.
This is a scheme to artificially increase the market cap, which mostly worked because VB burned 95% of all the SHIB he got & it got a lot of press.
Hm. That makes sense, I guess the lack of privacy of the Ethereum chain could be considered as a feature in terms of transparency. Good point about the market cap, do you think Shiba Inu wouldn’t have gotten as popular having VB not giving up control of the token?
Monero also has active, on-going development. Shiba Inu, Dogecoin, and all the other meme coins that have sprung up as a result of the smell of free money in the air were created in the space of a couple of hours using Ctrl-C Ctrl-V of existing open source code, then released to the world with no care to actual function or any further effort other than pulling the rug when enough suckers have bought in.
Can you give some sources for the development progress of Monero vs the meme coins you mentioned ? AFAIK at least Shiba Inu ecosystem is under development, namely their own exchange and staking system.
and here's a Twitter-article (ugh) from a maintainer of Monero regarding an attempted attack on Monero's privacy which refers to a number of privacy enhancements to Monero that have been implemented over the last three years:
https://threadreaderapp.com/thread/1326130648491417602.html
Originally anarchist anti-government folks needed some medium of exchange for their future plans and bitcoins could theoretically fill that niche, being trustless. We could argue that anarchy ideology is not good, but at least it was some ideology and tool fit the purpose. Now crypto is 99.99% occupied by get-rich-quick folks with zero principles.
Crypto-currency has inbuilt hierarchy, as people with more hashrate have proportional power over the monetary system. This is more hierarchy than an elected chairman of the fed, for example.
Serious questions... I genuinely don't know... but I assume a country could block access to the "blockchain" of any crypto currency, just like some of them do with access to Twitter, Google, Facebook, Github, etc.
Is there way to continue using your Bitcoin in this case? Or is it effectively the same as having a bank account frozen (i.e. you can't conduct any transactions if you don't have broad connectivity).
Or am I misunderstanding something fundamental? (I realize it's probably not a single domain/endpoint like other sites I referenced, but the traffic probably has other characteristics that would make it easy for a state to disable).
Block access entirely? Only if they were willing to stop all communications and travel in/out of the country. You could carry keys on paper and instructions in your head and apply them on the "free side" of the border. I don't think it's practically possible to entirely prevent such transactions. You can make them illegal; you can make them difficult; you probably can't stop them as an individual country.
You can’t block access to a peer to peer network unless you block internet access (in which case you can access it via satellite). Blocking Twitter/Github etc access is pretty easy since they are centralized legal entities to which you can issue subpoenas, force the ISPs to block their DNS, raid their servers etc.
Blocking based on traffic analysis is easily bypassed by using a VPN/tor
It's very simple. The price of Bitcoin converges towards the price of mining it. Making mining bitcoin easier will only lower its price in the long run. So increasing block size will only increase the amount of hashrate in the system and thus the profit per dollar invested will not change that much.
Given this information, is it worth rocking the boat while mining is still very profitable? No.
> The price of Bitcoin converges towards the price of mining it.
Isn't it the opposite. The cost of mining converges towards the current price of Bitcoin. Because when miners get Bitcoin as a reward they immediately sell it for profit.
That's a shortsighted approach, in my opinion. The same pattern is observed in inflation: long-term, money printing has zero benefits. Why central banks do it anyway? Because there's a first mover advantage. Also, history has already showed us that, when given the opportunity, miners are in favor of larger rewards.
Which ones? I know a lot of them and they really don't like it.
IME left wing market anarchists that are moderate enough to allow an exploitative hierarchy like bitcoin are also moderate enough to allow fiat currencies that are more democratic, and those that are radical enough also won't like bitcoin's hierarchy.
Ah yes, I know about c4ss. They are a major force in left market anarchists in the anglophone world, but looking through their website a lot of of Bitcoin content is written by agorists.
C4SS style anarchists and agorists are definitely on the economic right of even free market anarchists (mainly mutualists, decentral planners that admit a free market, etc, anarcho-syndicalists, mixed-economy libsocs, Bakuninists, etc...) in that they consider the state a far greater issue than capitalism. Most anarchists that like markets (which is most of them in some way) see capitalism as an equal or greater threat than the State as at least the State may share some power with the people in some cases.
I can't find it right now, but I saw this infographic the other day showing how the ideology/goals of cryptocurrency have shifted over time. Something along going from a literal currency to replace the dollar to going toward its present definition as some mix of speculative asset and inflation hedge.
the funny thing is that cryptocurrency was fairly useful as a currency in 2014. There were a number of bitcoin ATMs in my city, and a number of businesses where you could spend it. It seems to me that the whole block-size debate proved the failure of the system, since the interests of a few ultimately triumphed over the best interests of the system as a whole.
> since the interests of a few ultimately triumphed over the best interests of the system as a whole
Is it in the best interests of "the system" (interesting choice of words... instead of "the many") to require enterprise infrastructure in order to run a node?
And can you name a cryptocurrency which is anything other than a speculative store of value, and not something whose market cap is based on drum beating over social media?
> Are “the many” being served by USD inflation rn?
That's a nice false equivalency, but I can go to the store and buy bread with USD. Where can I do that with cryptocurrency?
> And can you name a cryptocurrency which is anything other than a speculative store of value, and not something whose market cap is based on drum beating over social media?
The original Bitcoin paper was published late 2008 and much of its original momentum was a direct response to the clear failures of the financial institutions at the time.
Make it easier to pay ransom demands when you have malware attack you. Used to have to have a pile of cash dumped in a given area, high risk for the collector. Far easier now.
Honest question: does it matter? As with all things, the purpose of the system is what it does. And right now, for the vast majority of people, the purpose of crypto is to make numbers go up; the original principles only matter to a handful of OGs. Come crypto winter, the purpose of the system will likely shift back towards its original principles, since only the OGs will hodl on.
we live in an age when governments are tightening controls and are spying relentlessly on their population, as a result there seems to be a significant demand for means to escape these controls at least somehow, i think crytocurrencies answer this need, so it is not just a pyramid scheme/worldwide casino.
I agree with most everything you just wrote. But, note that the problem with Proof of Stake, in this thinking, is that you won't be able to buy tokens from your local energy company, when the regulators shut your blockchain down.
You might think Bitcoin is not a good store of value, but a lot of people disagree with you. The energy "waste" argument is just virtual signaling at this point. It has been thoroughly debunked.
Funny how everyone complains it's wasteful yet I see absolutely nobody complaining that they have some sort of electricity shortage because of Bitcoin miners.
Cruise ships are hideously wasteful, but I don't see anybody complaining that they have some sort of gas shortage because of cruise ships specifically. Gas prices are what they are, and consumers complain in very general terms because they don't have good visibility into the global oil markets.
For all I know off the top of my head (where this comment is coming from), cruise ships aren't a significant driver of oil prices. I'd expect the scale of the shipping market to dwarf their effect, and I'd expect production to rise to meet their relatively steady demand, though I could be wrong about either or both. None of that (whatever the answers may be) means they aren't hideously wasteful in absolute and very meaningful terms.
I mean on HN you really do see a very anti-cruise ship sentiment whenever the topic comes up. They are really really wasteful and worse than commercial ships since they pollute the very water people want to visit for its beauty.
I wouldn’t really be all that upset to see them banned but there’s no momentum for it. Crypto just happens to be really visible to a lot of people who see no personal benefit for its existence.
> I mean on HN you really do see a very anti-cruise ship sentiment whenever the topic comes up.
For sure, and in other contexts too, but I don’t think the issue of not being able to buy gas because cruise ships exist comes up often (mostly because AFAICT it’s not real). And that’s really my point: it’s perfectly valid to complain about cruise ships being wasteful without being able to point to some incredibly obvious consumer-facing manifestation of that waste, because them being wasteful (they are, obviously) isn’t predicated on any such manifestation. Despite the vast scale of their waste, they’re a drop in the bucket that is the global economy.
Because shortages aren't the issue. The issue is using more power than all of Argentina for one currency. That is a lot of CO2 emissions for something that brings questionable value.
You’re not opting out of anything. At the end of the day, everyone is trading their crypto for dollars or another government currency.
Crypto is opting out of real money is the same way buying an unstable stock is. People are buying it hoping to get rich and convincing others to do the same, hoping they’ll sell it off before the price crashes and it’s completely worthless. Nobody is buying milk and eggs with GameStop stocks or *coins, and if they did, it’d make international news and that singular event would be referenced for 5 years by supporters as an example of how “real” their currency is.
> Crypto is opting out of real money is the same way buying an unstable stock is
Cryptocurrencies are indeed traded like meme stocks — their value is 100% based on narrative. The difference is meme stocks can’t be electronically transacted sans trusted third parties, which if you recall from the 2009 Satoshi paper, is the entire point of Bitcoin.
(There are other benefits to having a global currency of fixed supply controlled by computer algorithms, e.g. transparent supply metrics.)
> hoping they’ll sell it off before the price crashes and it’s completely worthless
What are the holders of Bitcoin supposed to sell it for, exactly? USD is being inflated. The stock market is insane. Housing is insane and comes with tax and maintenance liabilities virtually everywhere. Artwork is physical and illiquid. Government debt is increasingly dubious.
It would take governments becoming fiscally responsible and a return to a gold standard for Bitcoin to become less societally relevant. And even then, gold and gold-backed government monies would suffer from transparency issues and not being able to be electronically transacted sans trusted third parties.
I’m afraid there’s really just no good news here for people who refuse to invest in Bitcoin on general principle.
I think the point is that at present the majority of cryptocurrency usage is in investment, trading, and hoarding- speculation as opposed to actually using it as a currency for everyday transactions.
> I think the point is that at present the majority of cryptocurrency usage is in investment, trading, and hoarding- speculation as opposed to actually using it as a currency for everyday transactions.
Which is in practice really no different from meme stocks today.
Meme stocks which are only transactable via trusted third parties and are inherently trapped inside the walled gardens of various centralized brokerage firms.
Conversely, Bitcoin can be self-custodied with FOSS, and is trivially spendable via TTPs and L2 protocols. But yes, in practice people are using cryptocurrencies as speculative stores of value almost exclusively.
> Which is in practice really no different from meme stocks today.
Which is exactly my point.
Crypto is a decentralized meme stock. Unless crypto finds a way to become just a normal currency, it'll go the way of all memes over time: dead, once everyone and their grandma is sharing it.
Yes — insofar as cryptocurrency market valuation is based entirely on narrative.
No — in terms of it being possible to spend and store bitcoin sans trusted third parties.
(E.g. a Chilean real estate project developer — a Canadian expat without Chilean residency — once explained to me he had no choice but to use bitcoin in SA because the banks there refused to process his company’s regular large wire transfers.)
Bitcoin is in fact a bearer instrument, regardless of your beliefs about its credibility. How many national currencies are bearer instruments also without credibility in your eyes, for instance, and where does Bitcoin rank on that list?
> Unless crypto finds a way to become just a normal currency, it'll go the way of all memes over time: dead, once everyone and their grandma is sharing it.
That’s a narrative no better than any other which gets fielded every day on the crypto markets, although the benefactor of it is unclear to me. Cash and cryptocurrency are incredibly liquid compared to competing PMs and real estate. The S&P is down since 1970 when measured in gold, and central banks are racing to inflate fiat currencies.
If you think that buying into an MLM Ponzi Scheme is a good hedge against inflation, all the power to you.
But in the long run, it's not.
There are no cryptos which effectively server as either currencies or good stores of value. There are always many better alternatives in both cases.
If you want to opt out of currency - that's rational - you can buy land, low-overhead ETFs, indexes, bonds, gold, other currencies, Gold, commodities, and all of the above.
Consider the obvious problem with your stated benefits of crypto: for every supposed benefit, there are already other, better solutions.
The only thing crypto can do, that others cannot, is make you rich, quickly, by doing nothing, by getting others in to the pyramid.
In the long run, crypto has a role, but there's no crypto on the horizon that's really useful. Some day.
Meme stock drum beating over social media isn’t the same thing as MLM.
What’s the average PE ratio up to now on the S&P?
Land, where? Real estate is just as inflated as the stock market if not moreso; it also comes with a tax liability at minimum, and is far less liquid than equities, cash and cryptos.
PMs are no different from cryptocurrency in any meaningful respect, and are actively worse on many fronts — e.g. where do you custody it, how do you verify it, how do you exchange it easily, how do you prevent it from being seized or stolen.
Look, there’s a reason humans invented fiat currency. It would just be better if that currency were A) global, B) of fixed supply, and C) controlled by computer algorithms instead of political institutions.
> Consider the obvious problem with your stated benefits of crypto: for every supposed benefit, there are already other, better solutions.
That’s mostly true of non-money — read: non-bearer asset — use cases, like those epitomized by Ethereum and its many competitors.
Now don’t you see that of all the alternatives you offered (stock, land, gold…) all require some degree of state interaction, or non-portability. Bitcoin is weightless. Easy to move. Trustless. Not dependent on any state or monetary system. It is this portability, trustlessness and independence from the state, and even lack of interaction with traditional financial organizations is what provides value.
The S&P is actually down since 1970 as measured in gold. Gold is strictly worse than Bitcoin on every front save for its ability to be used offline.
(But even offline, gold transactions would require a great deal of care wrt anti-counterfeiting, and this is an edge case given gold’s primary use is as a speculative store of value.)
I don't know what (if any) effect Bitcoin mining has had on electricity prices, but we do have a GPU shortage because of Bitcoin miners.
It's a bit ridiculous when regular stores have lotteries to grant you the privilege of purchasing one of a scarce number of GPUs... at regular retail price.
In a sense, we could say “lack of CO2 in the atmosphere” is the scarce resource which is being depleted.
( Maybe kind of like how you can think of something which can burn by absorbing oxygen, as releasing phlogiston (which is just a lack of oxygen, in a certain sense)? )
I think you're conflating _consensus_ and _governance_; the two are quite different. It's not PoW vs PoS that allows a chain to resist a coordinated attempt by elites to force a protocol change, it's users personally verifying the chain (and so automatically rejecting chains that violate the rules even if >51% of PoW/PoS nodes support those chains). So no, PoS is not "how our current financial system works". Our current financial system doesn't give people the ability to independently verify anything at all; it's even worse than the most centralized chains in that regard.
I would actually say PoS is more resistant to cabals and regulatory systems than PoW; PoW mining requires huge and visible capital investments and electricity consumption and it's incredibly easy for governments to detect and shut down miners in their own countries (not as true for GPU mining, but GPU-friendliness is difficult to sustain long term), whereas you can be a PoS validator with the most basic computer hardware from anywhere.
I'm mostly talking about governance. The biggest "users" and governance decision makers of any PoS protocol will be regulated financial institutions (e.g. Coinbase) operating on behalf of end users. In theory Joe Schmoe can be a staker from his garage, but in practice the only stakers that matter will be regulated custodians (full disclosure, I am the CEO of a regulated custodian) other than a handful of independent ETH whales (like yourself).
Yes there will be a number of custodians "competing" with each other, but they will all largely operate under the same regulatory jurisdiction (or at least cooperating jurisdictions). If a PoS currency becomes mainstream, the Federal Reserve (because regulated banks will be the largest custodians) and Dept. of Treasury will have significant influence on governance debates.
The big issue here is that governance decisions in PoW systems are split between miners (geographically distributed), custodians (largely US based) and other economic actors. In PoS systems only custodians will call the shots. That has very serious implications because custodians are regulated financial institutions with significant network effects, miners do not have this centralizing force.
Lastly, to actually become a miner in a PoS system requires you to find or create a cheap source of energy and hardware and maintain this advantage in perpetuity. This is external to the system and can be done without paying off any existing Bitcoin actor. In a PoS system you, by definition, need to pay to play - you must purchase a sufficient stake of the currency from an existing insider if you want to have a seat at the table. It's the perfect insider game. Some may argue it aligns incentives, but it also centralizes control.
These systems all have different tradeoffs. Maybe some people are ok with these tradeoffs for switching to PoS, but I'm not.
How does this view of PoS governance explain how Ethereum protocol governance has operated in reality for the past five years?
As far as I can tell, the power held by miners has been minimal; if miners had any significant power at all then the various issuance reductions and now EIP 1559 would not have been accepted nearly so smoothly. So when miners are replaced by PoS validators, the power that PoS validators will be inheriting is not that much...
> Yes there will be a number of custodians "competing" with each other, but they will all largely operate under the same regulatory jurisdiction (or at least cooperating jurisdictions)
Even if this is true (given all the decentralized staking pools coming out, and the still really large number of solo stakers, I really doubt it!), I don't see how that state of affairs would survive any attempt by governments to actually use their jurisdictional power. It's very easy to move stake around (or at least it will be very easy post-merge), so once a single pool does anything disagreeable people can just move their ETH to other pools. And staking infrastructure can live in any country; there aren't even constraints around needing to have cheap electricity there.
> This is external to the system and can be done without paying off any existing Bitcoin actor
I've heard this argument many times, but.... why does that even matter? Making a PoW farm requires paying off a hardware provider. Hardware providers are far more centralized than cryptocurrency hodlers, of which there are millions and you just need to find one willing to sell to you. "I want to buy coins but the existing hodlers are all colluding to not let me" is not a problem that anyone in the cryptocurrency space actually worries about in real life. Specialized hardware manufacturers, on the other hand, are few enough that such a thing is at least actually plausible....
> "I want to buy coins but the existing hodlers are all colluding to not let me"
This isn't the problem. The problem is, "I want to buy enough coins to stake without being diluted but existing hodlers are all colluding to not let me by charging me a price equal to the total expected returns the staked coins would produce" The emphasized parts are where PoS has trouble. The market forces governing PoS incentivize hodlers rich enough to stake to never allow more stakers to arise -- the act of selling ETH is now also the act of giving up future revenue from keeping it and staking it.
> How does this view of PoS governance explain how Ethereum protocol governance has operated in reality for the past five years? As far as I can tell, the power held by miners has been minimal.
Miners have no power because ETH governance is deliberately centralized away from them.
1. Ethereum has a founder (you), who can effectively unilaterally change the protocol. You've been clear for a long time that ETH miners are temporary participants in this project.
2. Very few ETH owners run their own node or participate in actively validating and enforcing governance decisions, so you and the dev team effectively call the shots. Miners have no choice but to follow whatever protocol update Infura and the few other node-as-a-service companies decide to support.
> I don't see how that state of affairs would survive any attempt by governments to actually use their jurisdictional power
Since the largest holders will be regulated legal entities, it will be quite trivial for governments to do this. Also my understanding is that ETH staking is not delegated, so moving funds is not trivial for institutions since this is highly regulated activity.
> so once a single pool does anything disagreeable people can just move their ETH to other pools
Deposits at financial institutions are sticky. People and institutions generally aren't going to withdraw their ETH from Coinbase because of some governance debate.
> I've heard this argument many times, but.... why does that even matter?
Because it's a decentralizing force. To build and pay for a mining operation you need to sell off your Bitcoin to (often new) buyers. A larger mining operation has larger costs and is constantly at the mercy of the energy and hardware markets. In comparison, all stakers, regardless of size, have effectively the same small fixed cost. A big institutional staker will continue to grow their wealth with no increase in cost and no competitive pressures. They just sit on their $$ and keep collecting more in perpetuity.
Benevolent dictators can make their dictatorship feel very democratic if they aren't abusing their power. The problem is that benevolence eventually erodes when conflicted interests come to head.
Then everyone sees how truly democratic/free something is.
In Ethereum, you need 32 ETH, which is around ~$120k. That's prohibitive a normal person. After EIP1559 goes into effect, it's not out of the question that the price could rise 7x given the power laws at play. What happens when the cost to stake a node is $1M+? What happens 50 years from only the very richest .00001% can afford to run a node?
I'm concerned EIP1559 and PoS is a very short sighted implementation that will move towards centralization of the network.
There should be a floating minimum, or have no minimum at all to run a node. Not sure the exact tech solution, or I'd be submitting a pull request :).
That's was my point. The ability to stake shouldn't be based on an arbitrary and temporary exchange rate. What happens if USD/ETH is $0.0001? $1B? It should still work regardless of the exchange rate.
Current implementation depends on the exchange rate and creates an incentive structure towards centralization.
The decision to use 32 ETH was a trade off based on the exchange rate at the time, 32ETH being ~$5k, which the devs thought was enough so that it wouldn’t be cost prohibitive to get involved and hurt enough to stay honest. When the exchange rate changes dramatically, like it did and will in the future, it changes the incentive structure in staking. So, yes, the current implementation’s incentive structures do depend on the exchange rate.
32 ETH wasn't chosen randomly. There is a cost to having too many validators on the network. 32 ETH was chosen to make sure that didn't happen while still being low enough to allow for a lot of validators.
Ethereum regularly undergoes hard forks to change its parameters. There's no schelling point over protocol specifics with Ethereum like there is with, say, Bitcoin.
There are discussions to lower the ETH collateral requirements. Right now there is no validator cap so that will lead to issues. The goal is to first set a max validator cap with a rotating validator pool. However, there's still higher priority items to complete first like the merge, unlocking withdrawals, and likely also sharding. Given that, it's liking like this change would come 2 years from now unless priorities change (and assuming there's consensus for such a change).
I'd further add on to say PoS has the benefit of being able to eliminate bad actors unilaterally. You can't stop anyone from attacking a PoW chain over and over again. Attacking a PoS chain is much riskier as the attacker's stakes are held on chain and are at the mercy of the community who uses the network.
If the community forks to void an attacker's coins, that creates a very bad precedent. It already happened with the dao hack (which was pretty bad to begin with), but if it keeps happening, why would you trust that blockchain.
Why does the attacker need to hold or buy any coins? All the attacker has to do to wreck havoc is prevent quorum from being reached. This can be done by knocking validators offline (which is a slashable penalty), or hacking validators and making them slash themselves, or hacking an exchange or two in order to amass control of 33% or more of the voting power.
If hacking billions of dollars of cryptocurrency was actually easy, plenty of people who are not rich right now would be very very rich. Alternatively, if PoS chains are vulnerable because you can hack exchanges and use their coins to attack, then PoW chains are vulnerable because you can hack exchanges, sell the proceeds to buy ASICs (or just buy the ASIC company), and use those ASICs to attack the PoW network.
Hacking billions of dollars of cryptocurrency is NOT easy, and it gets harder with every passing month, because validators and hodlers have billions of dollars of incentive to protect themselves.
Which is easier to pull off, once you have control of the stolen coins?
* Use them to vote for two chain histories, and thereby get the victims slashed?
* Launder the stolen coins, buy an ASIC fab, churn out ASICs, plug them into the power grid, and use them to continuously and sustainably attack a PoW chain for eternity, all while not getting caught?
In case it's not obvious, the first one can be done the second the compromise takes place. The second one takes years.
> Hacking billions of dollars of cryptocurrency is NOT easy, and it gets harder with every passing month, because validators and hodlers have billions of dollars of incentive to protect themselves.
Why should a hodler bet that over 2/3 of the chain's validators will never, ever be compromised? Money doesn't buy invulnerability, and an attacker only has to succeed once at breaking quorum to break the chain.
> if PoS chains are vulnerable because you can hack exchanges and use their coins to attack, then PoW chains are vulnerable because you can hack exchanges, sell the proceeds to buy ASICs (or just buy the ASIC company), and use those ASICs to attack the PoW network.
Correct me if I'm wrong, but being offline is not a slashable penalty. You would slowly lose ETH and eventually be ejected, but not slashed like a malicious validator would be.
Maybe I'm applying the term "slashing" too broadly. I've historically used it to describe the act of having your tokens taken away for bad behavior (either all at once, or incrementally). Is there a more-specific term for describing the process by which an offline validator loses their ETH over time?
The point is it mitigates the on-chain attack surface which is still prevalent on PoW. Off-chain attacks are still possible for all consensus mechanism.
What on-chain attack surface? The only way to permanently knock a PoW chain offline is to consistently out-mine everyone else. In PoS, once you lose BFT quorum (1/3 of all votes), it's game over.
No distributed system is guaranteed to make forward progress if over 1/3 of its voting nodes is faulty, full stop. Once an adaptive adversary controls more than 1/3 of the voting power, they can forever delay the remaining 2/3 of the voting nodes from reaching consensus. Hell, they'd even be able to delay votes from other nodes to slash their stolen stash.
From this, I can conclude at least one of the following:
Important to note that Vitalik massively gains from Ethereum transitioning to Proof-of-Stake since he controls a large percentage of total ETH due to premining it before the project launched.
How can you verify that? currently everybody just listens to what he has to say, when he decided to undo the DAO hack, the original "immutable" chain just died off because Vitalik put his vote on ETH. Sincerely, I really wish he hadn't done that.
That's a post on Reddit spewing a lot of provenly false Bitcoin-maxi tropes. Same old tired song and game. Bitcoin relies on misinforming people in order to stay relevant. Good day to you sir.
I'm not a Bitcoin-maxi, calling someone a "bitcoin-maxi" and dismissing their argument isn't a valid way to counter. Kindly explain the tropes to us and enlighten us why that is provenly false. I'll read it, I promise.
Vitalik didn't decide to undo the DAO hack, there was a community vote (http://v1.carbonvote.com/), unlike Satoshi who singlehandedly rolled back the chain in 2010 after the 184 billion BTC hack.
Satoshi fixed a bug (that reverted it back to the initial rules everyone agreed upon).
The DAO hack actually was an exploitation of the rules that everyone agreed upon in the DAO, recursively calling a function in your smart contract layer is not a bug.
This brings us to an interesting topic, bugs are common in software,
* Should you make the protocol layer so complex that it increases the probability of bugs being found, being harder to understand and potentially grind the whole system to a halt if a bug is found.
OR
* Should you break them up into layers where each layer has one responsibility (base monetary layer, a smart contract layer, a micro payments layer etc.)
> Satoshi fixed a bug (that reverted it back to the initial rules everyone agreed upon).
The Bitcoin chain fork where the bug manifested wasn't reverted. Instead, a chain fork where the bug didn't manifest outgrew the one that did, and is now the canonical fork. If they wanted, miners could continue to mine the fork where the bug manifested. The point is, the Bitcoin protocol didn't change at all -- it merely presented miners and users a choice between two conflicting histories. You can start up a miner on the other fork today if you wanted.
This is not true for Ethereum. Because the undecidability of the EVM precludes miners from determining whether or not a given transaction would touch the DAO contract without first executing the transaction for less than the cost of executing them, there was really no good answer to dealing with the DAO hack. The options were:
* Let the DAO hacker keep the proceeds (this became Ethereum Classic)
* Change the network protocol to prevent the DAO code from ever running (this is Ethereum today)
* Change the EVM so it would permit miners to determine which contract(s) are reachable from a given transaction, thereby allowing them to filter out contracts that could move the DAO funds (a path not taken, because censorship)
> The Bitcoin chain fork where the bug manifested wasn't reverted. Instead, a chain fork where the bug didn't manifest outgrew the one that did, and is now the canonical fork.
That's right, thank you for adding the missing nuance.
Coinvotes in the context of massive insider premines is completely useless. Of course a coinvote would reflect "Yes to censoring the DAO hacker" because the DAO hacker controlled more ETH than the top 3 current ETH accounts. And the insiders stand to benefit the most from proof of stake because it's a system designed to further enrich the already rich.
Satoshi mined every single one of it and anyone would have been able to do same also he never sold his coins and left the project early on to avoid having too much control. Quite the opposite with Vitalik who on the other hand premined his eth, has been selling them Ever since, and continues to have significant control over ehereum.
That's fine as long as we agree that Ethereum is not a form of currency, otherwise it becomes terribly regressive for one person to have that much stake that continues to collect even more ether in the process.
Wouldn't it benefit you much much more because, well, you premined a billion dollars worth of ETH for yourself and designed Ethereum to benefit wealthy people?
With PoS one can just buy _governance_, that's all. All you need to have more influence on (PoS-based) Etherium is a huge amount of money. More power to money-bags!
But as soon as someone bought 51% of ETH and abused their influence, their investment would go to zero. I'm not sure I get the scenario where it's worthwhile for someone to invest the amount it would take to get that significant of an ownership percentage and then do something that would just cause everyone else to leave and it to be worthless. Maybe I'm missing something here.
It's more like, people who hold a large enough stake can collude on what rules the blockchain implements. Lets say an Ethereum 3.0 is proposed that benefits the blockchain at the slight expense of stakeholders, you think they'll approve that proposal?
Can't you delegate your ETH with other people you trust? Isn't that an arbitrary decision that seems likely to change (ETH is famous for making sure that people can run a full node on an older and underpowered laptop)?
Not sure how it changes the question I had anyway. The point I was responding to suggested that people might buy a bunch of ETH to influence the network. My question was about how that could be economically viable because it would take a very large investment to get any real influence would cost more than what they could get out of it (the value of the ETH they bought to influence the network would go to zero).
Or, maybe we can step back from this whole discussion and consider that maybe, just maybe, tying block-production to coin-ownership in a blockchain with undecidable smart contracts and a less-than-stellar security record is an exercise in tempting fate.
It's not possible to abuse the power in this case. You either use it or not. Either for your profit or not. Vitalik made his choice, many other holders will do approximately the same.
It shouldn't be much of a surprise to learn that Vitalik is part of the Ethereum Foundation which controls the trademark to Ethereum as well as all of the popular social media channels (r/ethereum, @ethereum twitter account, ethereum.org domain). Ethereum is the illusion of decentralization.
It shouldn't be much of a surprise to learn that the r/bitcoin sub, bitcointalk.org, and several other bitcoin communities are owned by one and the same person that have a history of censoring dissenting opinions. Just read up on the r/bitcoin history.
> It shouldn't be much of a surprise to learn that the r/bitcoin sub, bitcointalk.org, and several other bitcoin communities are owned by one and the same person that have a history of censoring dissenting opinions. Just read up on the r/bitcoin history.
Cryptocurrency discussions are notoriously filled with astroturfing. It’s a lot like what would happen if present-day nation states quite literally lived and died based on the market price of 24/7 globally traded bearer shares. The saying “well kept gardens die by pacifism” is resoundingly true here, to put it mildly.
Historically, the opponents to the now infamous “Bitcoin as digital gold” narrative were pushing things like gigablocks, nodes in datacenters, “Bitcoin as PayPal 2.0”, let’s replace all the core developers, etc based on populist appeals. There was no way to distinguish between those populist appeals and attempts to foil Bitcoin socially by all manner of biased attackers (and just plain ignorant people).
I think it’s rather telling that after these people forked to Bcash, they subsequently capped the block size of Bcash to 32MB and are now ironically scaling Bcash via sidechains — e.g. SmartBCH — against the backdrop of historically claiming BTC would never increase in price past $300 USD without a block size increase. To say their entire worldview has been invalidated would be an understatement.
Well, I’m not naive enough to expect something else. People are making money and protect their businesses. It is ok for me.
For some people (not for me) living in poor countries, mining was a chance to improve their lives. Now it's sold for the opportunity to give more money to those who have large amounts of money.
All these talks about the climate are so ridiculous in this context - nobody even tried to calculate how much of that energy was produced by the wind or sun.
> nobody even tried to calculate how much of that energy was produced by the wind or sun.
I've definitely seen some analysis that does? But I don't see how it matters. There's an opportunity cost there, where using solar or wind power for something like bitcoin could be better spend on something intrinsically (rather than abstractly) productive, like heating/cooling homes or whatever.
And like, if suddenly it was decided magically somehow that "all bitcoin must be produced with renewable energy" I don't think the world would be made better by the sudden rise in price of solar panels by 10x like has happened with video cards. There's an inherent price inflationary effect involved in anything that's capable of producing 'free money'.
Again, until the price of things needed to build solar panels or wind farms become outrageously expensive because they're generating 10x as much value. Then yes, actually, your choices affect me and everyone else on this planet.
> Our current financial system doesn't give people the ability to independently verify anything at all; it's even worse than the most centralized chains in that regard.
I'm sorry, that sounds incorrect, many people have been "verifying" things independently and sounding the alarm, but nothing happens.
"Roughly 90% of the hash power once threatened to change the rules of #Bitcoin believing the users didn’t matter in the decision. The users spun up 10s of thousands of full nodes & told them to go f*ck themselves." [1]
This is only relevant if people aren’t holding their coins on exchanges. Most users are and that concentration will increase as transaction fees are designed to do over the next decade.
I'm here to help that transition, It's already happening, many folks I know are transitioning to a hardware wallet. I've personally helped people onboard on to lightning and running their own node.
The whole process of running your own node has improved so much nowadays: getumbrel.com comes to mind.
You can do much worse things in a PoS system since power in the system is tied to the asset (ETH). Ethereum DeFi toys are hacked on a daily basis and millions upon millions of dollars worth of ETH is stolen.
It's exactly why the DAO hacker was censored -- they controlled more ETH than any single account in the system.
[responding to the pre-edit question about PoW] I just did, you don't need any capital to run a node. The book documents an incident where there was majority hash-rate (miners) wanting to change the rules against the wishes of the users.
But at scale you need lots of nodes/computational power and therefore lots of money. It doesn’t really make a difference whether you buy graphics cards in a pow world or ethereum in a pos world, you need lots of capital to be influential.
Now if we could make it Proof of Human, one vote, one person, non-transferable, that would be true distributed consensus. Even then you would get people buying votes with advertising as we see today in “normal” elections.
> But at scale you need lots of nodes/computational power and therefore lots of money. It doesn’t really make a difference whether you buy graphics cards in a pow world or ethereum in a pos world, you need lots of capital to be influential.
You're missing the energy part of the equation (opex), that is continuously required.
The difference is that PoW is censorship resistant. Anybody can be a miner and existing miners cannot censor new miners. Performing new work is external to the network state. In PoS, existing stakers can prevent new stakers from registering. Very important distinction.
Its not really though, if the majority of PoW miners want to omit a certain miners blocks, they can. The protocol dictates that the chain created by the majority of mining power is the canonical one.
In the event that a censored party can create a heavier chain (has >50% of the mining power) then the argument that its more censorship resistant holds, but on the PoS side, you would be betting that not a single participant in the main chain included their new stake registration in their blocks. This is different than the PoW model as non-malicious nodes in PoW can still be part of the main chain. It's definitely not that cut and dry
There are a few distinctions:
1. In PoS you actually never know who mined a given block with certainty. You can mine anonymously making censorship pretty difficult. This is not the case in PoS.
2. In PoW miners risk losing money by not building off the block found by a miner they're trying to censor. There is a cost to losing. This isn't the case in PoS (for the most part), as long as they don't double stake.
3. Additionally, the key distinguisher is that miners and custodians (almost all US based and controlled by VC funds) are two very distinct groups in Bitcoin. In a PoS currency they are the same group. That results in a power consolidation that effectively makes a PoS currency completely controlled by a few silicon valley insiders and eventually the US government.
I think you made a typo in your point #1, as you said something is the case of PoS, and then contrasted it with PoS, saying “This is not the case in PoS”. I suspect the first PoS was meant to say PoW.
Correcting that is the main point of this comment, the rest is just a side note.
I don’t really understand your point #2, but this very well may be because I don’t understand the proposed protocol.
You say “as long as they don’t double stake”, but if a given block is expected to probably be in the consensus chain, then either they don’t endorse it or whatever, not putting their stake behind it, and therefore, I would think whatever they do put their stake behind, if the block-to-be-censored is included in the long-run consensus, then what they backed isn’t, and so they get no reward, and so they lost out on potential reward, or, if they try to support multiple things, they lose (some fraction of) their stake.
Uh, unless they can be rewarded for supporting a block that is parallel to the block-to-censor even though the block-to-censor gets in? But that doesn’t seem right. I suppose there are uncle blocks maybe (idk if that is part of Ethereum’s planned PoS system or just its current system), but those have a substantially lower reward, so deliberately producing probably-uncles would still involve giving up rewards on average.
> Its not really though, if the majority of PoW miners want to omit a certain miners blocks, they can.
Censored transactions can hire/pay miners who won't censor more transaction fees, to encourage them to include the transactions in a block. In other words, since transactors pay miners, transactors are customers of miners.
There is an open market competition– any miner censoring transactions will lose higher fees from people who send censored transactions.
Its the other way round -- nothing forces nodes to accept bad blocks from miners. An honest node would simply ignore the bad data. The exchanges run nodes, so I would rather be generating or receiving transactions on a chain (or fork) that its users are engaging with. Nodes accept blocks from miners, miners don't accept blocks from nodes.
Isn’t there an incentive to run a node for privacy? With your own node you are not leaking your xpub and you don’t leak your transactions by staring at them on a block explorer
Wouldn't your own node unless properly hidden be higher chance of leaking your transactions? As I would expect them to come from your own node... Ofc, tracking the ones made from other services sure it is safer.
>Fantasy. Nothing forces miners to accept transactions sent by nodes attempting to enforce some rule.
I deleted a previous reply to you because I think I may have misunderstood what you wrote. In any case, are you saying the majority of miners have the ultimate control of the protocol rules of the cryptocurrency?
Not in principle, but I do believe this to be the case for Bitcoin specifically. Network majority is distinct from minor majority, but obviously miner (or stakeholder) majority is an extremely important part of it.
>Not in principle, but I do believe this to be the case for Bitcoin specifically. Network majority is distinct from minor majority, but obviously miner (or stakeholder) majority is an extremely important part of it.
In 2017, the majority of miner hashpower wanted to change the Bitcoin protocol to increase 1MB blocksize to 2MB but the SegWit2x failed to be adopted. What's your interpretation of that event?
They signaled support for it, but when push came to shove, they bailed.
I'm not saying 51% of miners decide what the rules are. Suppose you had a Bitcoin fork that had 80% of the hashrate. How long would that situation need to persist until the major network participants decide to call that fork "Bitcoin"?
Mining is expensive and low margin. Generally, the people who own the most Bitcoins are not the same as the people with the most mining rigs, the two parties tend to be completely divorced, and the miners tend to be strongly incentivized around not rocking the boat (for better or worse).
The other misunderstanding is that mining doesn't shape the protocol. The users shape the protocol, and can run any validation software they want. No user has to accept a block by a miner, and every block made by a miner has to conform to the protocol's rules.
The money to build a mining rig and consume the electricity needed to run it is not even remotely permissionless. To add insult to injury, most miners ignore the externalities of that electricity use.
> The money to build a mining rig and consume the electricity needed to run it is not even remotely permissionless.
Yes it is. You can manufacture your own mining rig, with no-one else's permission, without ever needing to so much as communicate with anyone who currently holds any bitcoin.
> To add insult to injury, most miners ignore the externalities of that electricity use.
Most cryptocurrency developers ignore the externalities of all the crime they're enabling, so it's not like the miners are any worse.
It also costs a couple hundred bucks to run an Ethereum node. You are confusing running a validator and running a node, those are two independent things, just like mining and running a node.
Wait, to run a node (like, just keeping track of the chain), or to mine in a way that isn’t entirely ineffectual? Because the former doesn’t seem like the proper analogy to staking.
What is the impact of a miner on the security of the network, conditioned on the event that it never successfully mines a block? I would think it would be 0.
The probability that a raspi ever mines a block (like, if it were to start now, not if it was going since the network first started) is negligible.
Therefore, I consider the probability that a given raspi would contribute to the security of the network, or, I suppose equivalently, the degree to which it contributes, to be negligible.
The way I understand it, nodes help validate transactions in real time. They keep everyone else honest. Otherwise, whoever mined the block could inject whatever they wanted. Everyone on the network is validing transactions.
Sure, that's running a node. That's not mining. That's not analogous to staking. The analogy to staking would be mining.
The analogy to running a bitcoin node would be running some variety of ethereum node, not staking.
The network majority decides everything, including how transactions work, how many coins there are, what the block size is...
The prospect that there's only ever going to be 21 million Bitcoin is ensured by nothing except majority opinion. It's not inconceivable that this will be relaxed in the future and Bitcoin will have a "Bitcoin Classic" fork where old rules are enforced. This could happen if, for instance, transaction fees don't make up for miner majority rewards.
Agree. Crypto currency is small and has never had to deal with major financial fallouts like 2008 mortgage debacle. The idea that the number of bitcoins can never be changed for example due to the need to respond to national or international problems is silly. Ultimately any rules are but code decided by human factors. Therefore it's not impossible that there are several forks running several crypto versions at the same time depending on what people think represents the best response. A few guys buying coffee on BC or investing in BC is one thing. Running a nation on it is a much more dynamic thing. It's for some of these reasons the US Treasury controls money supply. There are also connections between national indebtedness (treasury bonds) and money supply suggesting that enforcing rules setup up X years ago may not weather the first storm.
> The network majority decides everything, including how transactions work, how many coins there are, what the block size is...
The informal consensus of network full (non-mining) nodes enforce that. Full nodes are economic actors, such as people who sell goods and services, who fully verify the chain. They simply refuse accept inflated Bitcoin.
A Bitcoin full (non-mining) node only takes 5GB storage space and 128MB RAM to run.
> The informal consensus of network full (non-mining) nodes enforce that.
It does that now, but there is no guarantee that this consensus holds. Maybe it's quite likely that it holds, but nothing guarantees it.
> Full nodes are economic actors, such as people who sell goods and services, who fully verify the chain. They simply refuse accept inflated Bitcoin.
They can refuse to accept inflated Bitcoin, but somebody has to mine new blocks. If the vast majority of miners decide to do something, the remaining miners will have trouble mining new blocks and the entire system is heavily disrupted.
As you say, they are economic actors, so when faced with the decision of having a severe service disruption and giving in to miner demands, the choice may well be the latter. After all, why would they prefer to use a "original Bitcoin" that only has 1% of the hash rate? Because it has the original brand?
It's ironic that even modest monetary inflation is considered bad by so many Bitcoin proponents when that inflation is what pays for the Bitcoin network. Perhaps some day, transaction costs will make up for it, but that is not a given.
> A Bitcoin full (non-mining) node only takes 5GB storage space and 128MB RAM to run.
It's completely irrelevant how many non-mining nodes there are. The only thing that matters is who runs them (exchanges, merchants, actual users).
> As you say, they are economic actors, so when faced with the decision of having a severe service disruption and giving in to miner demands, the choice may well be the latter. After all, why would they prefer to use a "original Bitcoin" that only has 1% of the hash rate? Because it has the original brand?
Why would anyone mine Bitcoin that merchants don't accept?
Not quite -- the 21 million (or more accurately, 2.1 Quadrillion sat) is a hard line. Any coin not enforcing this rule is not bitcoin. There of course will be forks that dont, but they are not bitcoin.
That’s a definition you can use, sure. And, I do tend to value using words in a consistent way over time.
But definitions are choices. People are free to choose what definitions they think of as “the definition of <x>”. Some such choices are likely to cause more confusion when they interact with others, but this is not always sufficient to discourage/prevent some faction of people from choosing some definition that differs from that used by some other faction.
Under the definition you are using for bitcoin, such a thing would not be the thing that you currently would consider bitcoin. That’s fine.
This doesn’t mean that people wouldn’t use the name “bitcoin” for it.
Perhaps 2000 years from now, the word “bitcoin” will instead refer to apples instead, due to random linguistic drift. (Or, a fruit which resembles apples. Will they technically count as apples, according to our current notion of apples?)
If you control mining you do control how transactions work. You are running the code that handles transactions and you can change that code to handle transactions in any way you want. There is a history of this happening too but thus far with little effect on the entire network but worst case you could create a hardfork.
I don't think your example proves proof of work isn't vulnerable to the same effect. At best it proves it's not always vulnerable to that - but the same could technically happen with proof of stake.
Like it or not the Pareto principle or 80/20 rule may well be the most powerful law of the universe. It applies to everything from physical systems like stars and galaxies to social systems and individual human achievement.
I don't see why crytocurrency should be any different. Proof of work through cost of capital investment exhibits the exact same concentration of wealth and power, but at least PoS doesn't destroy the environment as a side effect.
I'm skeptical about why we need the decentralized aspect of cryto when it ends up centralizing anyway. Seems like a very inefficient way of doing things. Maybe we just want an immutable public ledger - but I could be wrong on that. It hasn't lived up to the hype yet.
There is a very big difference. PoS collapses governance into a single group: custodians. With PoW governance is a push and pull between miners and custodians. Additionally, PoW miners need to constantly sell Bitcoin to cover operating costs, whereas stakers in a PoS system have a small fixed cost and large stakers will always stay large. Miners on the other hand need to constantly invest and expand to stay competitive.
POW just gives the power to whoever can purchase the most computing power. It also gives control of the network to those directly benefiting from high fees.
At least POS gives the power to those that actually have an interest and stake in the currency itself.
PoS will be controlled by US-based custodians, which certainly have a tremendous incentive to siphon as much value from the currency as possible.
PoW has a much more diversified set of actors with competing interests, which makes it much more difficult to change the rules. This is a feature not a bug.
Yeah, I'm a big ETH holder, but this is honestly what worries me about the POS merge. I think the fact that Bitcoin miners have to sell to fund their operations is a nice feature and keeps them in a separate class from the custodians. Economic incentives that merge validators with custodians could create a feedback loop that concentrates too much power in the wrong places. That being said, ETH has a thriving DeFi ecosystem and a ton of smart people working on it, so I'm not betting against it.
No it's very different. Bitcoin consensus is achieved through a combination of mining actors and economic actors. PoS collapses this into a single group: custodians.
Nodes enforce the ruleset that miners must abide by, and can invalidate new blocks that miners generate. You can see examples of this in history e.g. bitcoin.com mining a block with a greater block size than consensus allowed, which caused the block to be invalidated and the cost of energy wasted.
I'm not just talking about denial of service or 51% attacks, I'm talking about refusal of service.
You can't just push some change that 99% of miners will refuse to mine blocks for. The remaining 1% would not be able to mine blocks for a long time with their puny hashrate. You'd have to reset difficulty and the system would be left in a highly vulnerable state. It would be a huge disruption. For that reason, nodes wouldn't attempt to enforce a change without significant miner support.
You can have reasonably clean fork only if enough miners agree on something, but that implies that the interest of miners is given a lot of consideration.
I think the refusal of service is less problematic than the attack where they keep mining empty blocks without including any transactions. The refusal of service will only extend the block time which will be resolved in the next difficulty re-adjustment. It also requires significant percentage of the miners to agree to co-operate.
With the empty blocks attack, they prevent difficulty re-adjustment and also get rewarded with new btc unlike the refusal of service where they'll just be wasting their electricity without any rewards and the small miners will be able to produce blocks albeit in a much longer time than ~10 minutes.
> The refusal of service will only extend the block time which will be resolved in the next difficulty re-adjustment. It also requires significant percentage of the miners to agree to co-operate.
That's the premise: If you want to do something that strongly goes against the interest of all miners, that cooperation will form naturally. If 99% of miners agree on something, the block time would be several hours. Difficulty adjustment would have to be patched in.
In the meantime, the miners on the "rogue chain" are mining blocks and clearing transactions. Who says that this chain is not Bitcoin? Why should all the stakeholders consider a broken chain with 1% of the hash power as the "one true Bitcoin", as opposed to a failed fork?
> Nodes enforce the ruleset that miners must abide by, and can invalidate new blocks that miners generate.
In practice, this means “nodes run by centralized exchanges”. Your narrative is fraught with risk.
Basically “Bitcoin” is defined as the chain with the highest cumulative hashing power¹.
¹: which investors expect will maximize returns under the banner of “Bitcoin”
Much of Satoshi’s genius was selecting values for constants, e.g. 21M max supply, conducive to the establishment of a global currency of fixed supply and generally aligning incentives of disparate entities such that the most likely outcome would be the upholding of community expectation. But none of that is technically guaranteed, rather its continuity is assured with exceedingly high likelihood due to historical choices made.
> You can see examples of this in history e.g. bitcoin.com mining a block with a greater block size than consensus allowed, which caused the block to be invalidated and the cost of energy wasted.
IIRC they weren’t a majority miner at the time. Had they been a majority miner, and had they been able to assure the community of global Bitcoin investors of the superior soundness of their choices, all bets would be off. Ultimately the block size debate was resolved with hashing power.
Is that actually the case? Couldn't a new player with the money to spend become a stakeholder overnight by purchasing large amounts of ETH on the open market and staking it?
Versus taking that money and taking months to invest it into mining. Purchasing compute power is harder than purchasing ETH no matter how you slice it
In theory. Which is what the current stakeholders want. That was the value offer to do this in the first place.
Either way, you end up with a currency that is far more centralized than most stable paper currencies. The number of large stakeholders in Etherum is probably measured in the thousands. PoS will just further consolidate the stakeholders over time.
Ethereum isn't even reasonably transactable anymore. A single transaction costs like $40. As an actual currency, it died the same fate that Bitcoin did.
Too few people hold too many coins, and then they make rules that only benefit increasing the price.
Proof of work is no different in this regard: more capital, more mining power, more control.
Miners interests don't always align with the network's users interests (see gas fees).
Proof of work isn't more decentralized either (a few mining pool delegators control bitcoin), eth2 proof of stake is more secure because of the pseudorandom validator selection.
It is very different: The difference is that PoW is censorship resistant. Anybody can be a miner and existing miners cannot censor new miners. Performing new work is external to the network state. In PoS, existing stakers can prevent new stakers from registering. Very important distinction.
This is patently false, endgame PoW centralizes mining around 3rd world coal/cheapest possible (stolen?) electricity. The overwhelming majority of the world has been priced out of BTC mining, not that they could get ahold of an ASIC anyways.
Sure. And analogous to PoS is some kind of galactic requirement that you pay some kind of space bond in order to go to space. Mess around and your space bond is slashed. I like the bottlerocket model better.
Correct, the US Federal Reserve is a Proof of Stake system. Members earn 6% dividends for the last 100 years, and this was to entice them to join the system at all. Just pointing out that the idea of an omnipotent US government is a fairly new concept, and it must incentivize and entice people to join its payment network as opposed to other private ones.
The private networks for final settlement are becoming more interesting to market participants. And they are also aiming for distributed (sharded) proof of stake.
The Federal Reserve Act from 1913 incentivizes banks to join the Federal Reserve payments network. Let me update this to 2020s lingo: The Federal Reserve System is a decentralized autonomous organization (DAO) that pays its stakers 6% annually. It has operated for over 100 years flawlessly. The stakers gain access to a market leading depository and credit system, and have the ability to voice opinions on some variables but the shares itself are non-voting. Like many kinds of entities such as trusts and foundations, there are no owners, only trustees.
The human interface to the system is a separate public agency called the Board of Governors, which simply tells the public what the Federal Reserve has done, and also communicates any changes to the Federal Reserve's charter (any legislative updates) to the DAO.
It's just that decentralized is not what I'd call a system controlled by 7 people that in turn controls the legally enforced tender of over 300 million people.
There's a big difference: the Federal Reserve System lives in the real world, where node misbehavior (i.e. officers doing bad things) is punished with jail time, with ruinous downstream consequences on their families.
Wake me up when The DAO hacker is caught and put in jail, and I'll re-consider the analogy.
Haha Ill entertain this bit: there are no criminal consequences for misbehaving as a node. Participation of a reserve system shareholder is quite limited and only partially helps assist with routing and regional statistics. Partially.
There constraints on being a bank at all are not limited to federal reserve banks.
> Why did the Federal Reserve Act initially offer such a generous dividend to member banks? It was essentially part of a marketing campaign. “At the time the Fed was not terribly popular with the banks, and they wanted to attract members,” said Allan Meltzer, professor of political economy at Carnegie Mellon University and a historian of the Federal Reserve. “They had to give up a major source of revenue, the charge they made for check clearing. Back then, if you received a check for $10, you might get back $9.50.” The dividend was seen as a way to entice banks into joining the Federal Reserve system.
>as evidenced by the 2017 blocksize debate where almost every large miner and bitcoin company wanted to change the protocol and it was fought off through grassroots efforts
Literally the opposite happened, although PoW isn't very relevant here. Grassroot enthusiasts tried to fight a cabal of developers sabotaging adoption of bitcoin - and those users failed, mostly because of massive censorship on major social places. The idea was that users would instead go to a centralized network called Liquid.
The sabotage succeeded, the Liquid part didn't, users went elsewhere. Now it's 2021 and bitcoin has lost all network effects it ever had. Did you know bitcoin used to have tokens and even dexes (although poor)? Google mastercoin and counterparty.
In the long run, it turned out well, as ethereum is a way better foundation.
It's indeed possible it wouldn't have happened with PoS, as contrary to PoW stakers are long-term oriented - miners don't really care about long-term prospects and acquiesced, dooming bitcoin in the long term, but it's possible btc stakers would be afraid of going against core developers too.
No way dude. Our current system isn’t even close to PoS. Most obviously the federal reserve controls the monetary policy. Beyond that there is no “code is law” that we can all audit and fork if we find it inadequate. If ethereum centralized you can amend the protocol and fork the blockchain. Show me how you can do that with USD.
The main value of cryptocurrencies is a provable ledger with an open API. PoS sufficiently establishes that for all economic purposes save for those wishing to make themselves feudal lords.
Currently your money is transmitted by csv copies across thousands of companies, most of whom use a semi-manual process. Moving this type of transaction to a distributed ledger will save financial institutions billions in audit costs.
> almost every large miner and bitcoin company wanted to change the protocol
If the miners really wanted to change the protocol, they would have done that. The exchanges would have followed, as they had declared that the longest chain would win, and that would be game over.
Instead the miners gave in to the perceived authority of the Core developers, who pinky promised to later raise the block size (which they backed away from).
The exchanges have no reason not to support both sides of a fork, for example the BTC/BCH split. Then the owners of the tokens ultimately decide which one is more valuable by selling their tokens on the chain they don't prefer and buying tokens on the chain they do prefer.
There is a very clear bias if one chain keeps the ticker, and therefore the price, so much that in practice exchanges exchanges can decide which chain "is the original one".
This. There's a bunch of waffling above about how the miners vs stakers will control stuff and so on, but in reality it's the markets which define which gets used. That's what decided the block size debate, not users spinning up nodes or miners pushing in one direction in ther other. Miners follow the market, and so will those running validators on proof of stake. Those who can influence the market have the most power here (and usually that's vocal members of the community or developers).
Please read up on UASF and Bitcoin. People can buy tons of mining factories, but if a very large amount of nodes start rejecting blocks and therefore the rewards, miners start to rethink their stance very fast. There is no discussion here, history proves it.
and UASF are a thing in PoS as well, if some entity/entities acquire a majority of the staked coins users can simply fork the malicious actors out. It's functionally equivalent except that it's an order of magnitude more expensive to acquire the required coins as opposed to getting the equivalent in hashpower.
Sure they can. It's easy to only mine on top of blocks from certain sources, and if most of the network does this then those are the only blocks that matter.
Sure but the difference with mining is that having a majority of hashrate doesn't allow you to maintain that majority in perpetuity. You have constant operating expenses that require you to sell your Bitcoin, along with constantly growing competition. Just look at the rise and fall of large Bitcoin miners. With PoS if you are the biggest on day 1 you will probably be the biggest on day 1,000.
It might mathematically keep you in charge forever, but if you can stop almost anyone from being able to profit then it's very unlikely people will invest enough to override you.
And the motivation not to do it is the same, people will get mad and stop using the grossly manipulated coin.
It's very relevant. Mining is very easy to geographically diversify. PoS coins will almost all be controlled by US based custodians subject to US regulations. PoS coins will be controlled by the US financial industry at the end of the day
This is completely false, late/end game PoW centralizes mining around the cheapest electricity. It is impossible to mine profitably in the overwhelming majority of the world now.
Why do you believe a global PoS currency will be controlled by US actors? The US has a 10--20% share of global GDP.
Regardless, history has proven that the most legitimate branch of a blockchain wins, irrespective of security model. It will not be the actor with the most hash power or stake. For reference, see the Justin Sun/STEEM drama.
We have a bad experience with this PoS principle in France. It ended in a revolution.
The assumption that people with the most stakes will act in the interest of the community has been proven flawed in many occasions. They will act in their own interest first whatever it wight be. The weak logical link is that their own interest always coincide with the interest of the community.
If someone could explain me how this assumption will always be true, I would be very happy.
Proof of work consumes a real world resource. Proof of stake does not, therefore proof of work exchanges REAL value for virtual value. It literally takes actual value in the world and deletes it. What’s the difference with the US financial institutions buying up all the big mining rigs and then buying up all the stakable tokens ?
Energy is not being exchanged for "virtual value", but rather "shared belief".
Wars have been fought to force shared beliefs. It's fairly common in history for "real world resources" to be permanently burned in order to create a shared belief system in order to facilitate trade. For example, the Roman Empire or any other empire.
I'd rather use electrons to create shared belief than bullets and bombs.
Virtual value/shared belief are the same thing. The fact remains we are destroying something of utilitarian value to create something that has no utility past being tradable and valuable because people follow trends
Shared beliefs absolutely have intrinsic value. Our ability to have this discussion in English over devices connected to a common communication platform is sufficient proof of that.
> Proof of Stake is already how our current financial system works.
This is a naive viewpoint. Ethereum (as a currency) is an "M0" token, like cash or Fed deposits. There's a lot of handwaving about bonds and whatnot, but essentially the Fed can create new money simply by changing numbers on a balance sheet, and they can make that money into folding money and change which they can issue.
The banking system is a complex system that creates IOUs on top of that base. Some of those IOUs are even better than the cash layer -- you can't buy stock, for example, for cash, you need bank IOUs to do that.
That said, then, what is PoW and PoS used for? They're essentially distributed methods of ensuring that nobody can forge money. So the equivalent in the world of dollars is not a bunch of bankers chuckling to themselves about how they're fleecing the plebes. The equivalent in the real world is a bunch of aircraft carriers and planes and bombs and people with big guns, which gives the ability to say (credibly) that it is a crime to forge dollars no matter who you are or where you live.
> The equivalent in the real world is a bunch of aircraft carriers and planes and bombs and people with big guns, which gives the ability to say (credibly) that it is a crime to forge dollars no matter who you are or where you live.
And yet people complain about cryptocurrency energy usage with a straight face!
> The equivalent in the real world is a bunch of aircraft carriers and planes and bombs and people with big guns, which gives the ability to say (credibly) that it is a crime to forge dollars no matter who you are or where you live.
If you are a miner and you get a block reward for mining a block in Ethereum, you are not forging currency; this is the structurally correct way for Ethereum to be created.
Similarly only the Fed has the ability to make new dollars; although technically the US Treasury has this ability in a narrow sense. There's a lot of mummery around how the Fed goes about doing it, but that is the structurally correct way for dollars to be created. Calling it forgery or "theft by inflation" or whatever are political talking points.
Forgery is specifically when any other party in the world decides that they can mint coins or print bills.
Other parties can create dollars in other ways, like by committing fraud or by taking advantage of the fact that certain forms of IOUs are so liquid that they are considered cash equivalents. In the US this is a little locked down (although the overnight lending market is a particularly insidious form of shadow banking) but internationally the Eurodollar market is the wild west where anything goes. Anything, that is, except actually forging coins or bills.
No, banks make new dollars, every time they make a loan. The amount of dollars on the books vastly exceeds the amount of currency printed, and is dominated by bank deposits. The Fed controls the money supply by regulating banks.
"Certain forms of IOUs" would include money in checking accounts, which is much more money than the total of all bills in circulation, and this is part of M1.
Banks can create dollars in the sense that they can synthesize contracts to deliver dollars. These contracts are liquid enough that they are considered equivalent to cash, and in many cases superior (as I describe above).
There is absolutely nothing stopping an institution from accepting deposits of ETH, and then lending those ETH out by crediting other account holders with more ETH in their account. And it is equally possible to imagine that some vendors might prefer to receive their ETH payments as credits to their bank accounts, and thus the IOUs represented by these deposits become "ETH" in the same sense that bank deposits become "dollars".
But here we are strictly discussing the underlying specie. If account holders in a dollar bank demand their payment in specie, the bank is exposed to that risk. This risk is small but significant for modern banks because the credit market for dollars is very liquid, so they can easily sell loans for their present value to increase their cash exposure, and thus make good on the demands for specie.
The credit market for ETH is all but nonexistent except in very specific cases (basically just margin for exchanges) so an ETH bank would be extremely exposed to the risk of a run, and given the level of volatility and general deflationary trend in ETH it would be almost impossible to set a value on future ETH.
> Anything, that is, except actually forging coins or bills.
Of course none of it is forgery, but the net impact is no different. As soon as the USD loses its reserve status, the US won't be able to maintain its hegemony that is funded largely via
> Fed has the ability to make new dollars; although technically the US Treasury has this ability in a narrow sense
Eh, I gotta say that no matter the system, speculators are gonna speculate and power hungry idiots will do everything they can to control a currency. That's fine, and human, and expected. Just please try not to melt all the ice caps while ya'll have at it.
Yes, but they then need to maintain that edge by selling their Bitcoin and buying more computer power. They have constantly growing operating expenses and there is no force that centralizes control. PoS playbook is 1) get a stake, 2) set it and forget it.
Proof of Stake is the worst form of Socialism. It is Socialism governed by the wealthiest elite
Proof of Work is brute Capitalism. It Capitalism without regard for life or health.
STX is Proof of Transfer (secured by bitcoin's hash-power and the Stacks network).
Proof of Transfer is the best of both worlds. It is community and global capitalism with community and global responsibility.
When a technology is simultaneously a store of value, & a utility, the demand for it is exponential, people will seek it in both states, but for different and individual purposes. STX earns BTC for the directed purposes of any individual and as that individual desires with minimal network effect. STX drives community demand only as demanded by the community. STX drives Network benefits only as desired by the Network.
Lets imagine a series of networked micro-communities built with sun energy using solar panels that photochemically convert the atmospheric water into liquid hydrogen. This is being done today.
That hydrogen is then stored as energy in fuel cell batteries. That energy is then used in part to mine community bitcoin.
That community bitcoin is used in part to build and maintain community infrastructure and finance community healthcare.
The community will also use a small portion of the wholesale mined bitcoin to leverage the Stacks Proof of Transfer PoX miners. The STX block reward will support the maintenance and expense of bitcoin mining. The winning PoX miner's committed bitcoin is allocated randomly to the locked Stacks token holders that are all also bitcoin miners.
The locked pools secure the stacks chain and bitcoin node operators secure the bitcoin chain.
The community through Non-fungible tokenized (NFTized) hashed identity quadratically vote on finance mechanisms using the creation of decidable language smart-contracts.
Those smart-contracts execute for community tokenized provenances or (NFT's) of decentralized communication, decentralized wealth & decentralized egalitarian and merit based commerce. And the by-product is pure H2O and clean air.
https://news.ycombinator.com/item?id=27194586&p=2
https://news.ycombinator.com/item?id=27194586&p=3
https://news.ycombinator.com/item?id=27194586&p=4
https://news.ycombinator.com/item?id=27194586&p=5
(Posts like this will go away once we turn off pagination.)