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The Handwavy Technobabble Nothingburger of Crypto (stephendiehl.com)
418 points by louwrentius 13 days ago | hide | past | favorite | 680 comments





If anything, I think stablecoins are way more dangerous than the author indicates.

People talk about things like Bitcoin as a threat to sovereign currencies, and they are, as competitors, of sorts. But stablecoins are another matter entirely. One huge aspect of the value of sovereign currencies is that they are instruments of law -- courts will settle in them as a lowest common denominator, and it is safe to use them in all sorts of settings as a result.

When dollar-denominated assets appear, they always run the risk of being considered a dollar-equivalent. For example, bank deposits are dollar-denominated, and are considered dollar-equivalent (even dollar-superior, in the sense that there are transactions that you can't legally do with specie, only with bank deposits, like buy stocks). That means that if banks (which are businesses) are not good at doing business, the government is essentially forced to treat them as dollar-equivalents by making them whole. See Savings & Loan Crisis, the GFC, LTCG, etc., etc.

Stablecoins piggyback on the legal aspects of dollars, and as long as you treat them as dollar-denominated assets, you're fine. The second you treat them as dollar-equivalents, you run the risk of a change in the value of that asset being something that the government is forced into supporting.


I was just thinking the same thing. I was looking into [Gemini Dollar](https://www.gemini.com/dollar) yesterday. It's a stable coin that gives the patina of being FDIC secured. Their website says, "Gemini is a U.S. company regulated by the New York Department of Financial Services. GUSD reserves are eligible for FDIC insurance up to $250,000 per user while custodied with State Street Bank and Trust.¹" Furthermore, Gemini offers 8% interest deposits of their Gemini Dollar. This sounds like a safe bet to an unassuming person. Easy 8% returns with no risk since your initial deposit is FDIC insured, so it's just like any other savings account. BUT ITS NOT. The fine print reads, "FDIC insurance applies only to the USD reserve funds. GUSD exist as ERC-20 tokens on the Ethereum blockchain; tokens are under the user’s self-custody, and are not insured through Gemini."

And this is coming from a reputable backer, relative to other stable coins. Then you have Tether which is a ponzi scheme tire fire years in the making and done almost entirely in the open with no consequences. Given that stablecoins like these are used to underpin a lot of the crypto markets, if one of these were to falter I don't see how it couldn't trigger knock on effects bringing down the others and the entire crypto market with it.


Guess I've gotten better-than-average at reading fine print, since the word ‘eligible’ is immediately suspect to me.

> That means that if banks (which are businesses) are not good at doing business, the government is essentially forced to treat them as dollar-equivalents by making them whol

The federal government also charges the banks for that insurance. It usually is not a loss for the government.


The federal government prints dollars. It is never going to take a loss doing that.

The federal government does all kinds of things it can take a loss on, and it does in fact take losses.

The federal reserve prints dollars and buys government bonds.


It can be seen as a loss in an accounting sense, but it's not a loss in the sense it would be for you, me, or, say, Apple, because the federal government is the score keeper of the dollar.

I like to think of the "losses" which arise from propping up companies (if any, as pointed out it's not necessarily a loss) as subsidies of undesirable behaviour. In other words, they're a very bad thing, just for a different reason.


People talk about things like Bitcoin as a threat to sovereign currencies, and they are, as competitors, of sorts

No, they're competitors for the stores of sovereign wealth that are the backing of sovereign currencies.


How so? Bitcoin is not a store of value, and sovereign currencies (I think I know what that means) are not backed by stores of wealth.

Inflationary vs deflationary instruments. Sovereign currencies are typically inflationary because central banks print them to a greater or lesser degree, National Assets like gold or land reserves are typically deflationary. Bitcoin is more the latter.

Why are "National Assets" (and what s the definition of that) deflationary?

Inflation/deflation is in my experience measured as money V. assets. Assets on their own are neither. Have I got that wrong?


No, I think you're right in a technical sense. My point was that, maybe because the relevant timelines are longer for nation-states than households, their easily liquifiable assets tend to rise in value over time. A country might have gold reserves, which reduces the risk of lending to it and lets them borrow at a better interest rate. The gold reserve isn't money, the government sells bonds for money, but it can be converted to money fairly quickly.

Bitcoin, similarly, is more of an asset with a fixed supply that can be quickly converted to money. Calling it 'deflationary' is probably some imprecise labeling on my part.


Stuff like gold or bitcoin if used as currency can be deflationary as in be worth more over time against good and services.

Fiat money deflates too.

If it has a steady supply and things are getting easier to produce, yes. Typically a larger amount is minted each year so that its value relative to goods and services decreases in a predictable fashion.

> Stablecoins piggyback on the legal aspects of dollars, and as long as you treat them as dollar-denominated assets, you're fine. The second you treat them as dollar-equivalents, you run the risk of a change in the value of that asset being something that the government is forced into supporting.

Why is that scenario worse than now? Why is bank the preferred medium to support when they default?


It's getting worse because they are becoming more mainstream. The kind of scenario where the government might have to bail out is US Bank lends billions to something like Coinbase which holds lots of Tethers. Then Tether goes to zero, Coinbase bust, US Bank needs bailout. We're not there yet and it's best avoided.

Wait, you can't legally buy stocks with cash? Why not?

KYC laws aimed at anti-money laundering; any large movement of money has to be between trusted parties. Which means a verification process that is more thorough the more money you move around.

Right, but that just means some paperwork gets filed when you attempt to do large transactions with cash, not that it's literally illegal to do those transactions. I don't understand why the toplevel comment says it's illegal to buy stocks. It seems like it would be merely very difficult, not illegal. I think your biggest problem would be finding a broker that would accept a pile of cash to buy you stocks with, rather than the fact that the transaction needs to be reported to the government.

You are correct; buying a stock with cash is impractical but not illegal or impossible.

You cannot transact with an exchange, you cannot transact with a broker or a broker/dealer, using cash -- your cash must be deposited somewhere in order for it to be used.

You can do a private sale of stock where you give someone cash and they transfer stock that they own to your name, either through a broker or by signing the transfer form on the back of an actual stock certificate. To actually claim ownership of the stock (to receive proxy and dividends) you must transact with a broker dealer or the issuing agent, which will almost certainly mean that you have to deal with AML and KYC regulations.


They're saying it's illegal because a random person can't just walk into a bank with a proverbial suitcase full of cash, and deposit it, and use that money to buy stocks. It's quite possible, and certain people do it regularly, but these aren't hypothetical people with no background. These are people known to the bank, its manager, have a thoroughly checked back story, and a reason for doing this, likely as the owner of a mostly cash business. It's not a one time "oh I just got lucky at Vegas, don't mind me" story.

That's not what "illegal" means.

I can buy stocks from you, with cash. It's cumbersome as hell. No one does it to my knowledge. From a practical perspective you basically cannot buy stocks with cash.

Stablecoins are dangerous because they have the potential to change the current selection effects on the elite. For one thing, stablecoins subvert the ability of the Federal Reserve to print money and give it to their friends at Goldman Sachs et al --- normally this is supposed to result in their friends have a larger fraction of money than they previously had. You start with 1 dollar, David at Goldman Sachs starts with 1 dollar, you each have 50% of the wealth in the "nation." David and his friends start printing themselves money, soon they have 99 dollars and you have 1, and you can't compete because they'll lock you up with violence for being a "counterfeiter." That's how inflation works.

When there's stablecoin, you just put your dollar in stablecoin before they print the money, the dollar inflates, stablecoin goes up proportionately, you spend the stablecoin and things remain fair.

This obviously curtails the ability of the ruling class to reproduce itself. More than that, if the pool of people getting billions through stablecoins is more random than the pool of people who got rich on the dollar, then the ruling class will change to be more representative of the population as a whole.

This could cause massive cultural changes, consequently.


> When there's stablecoin, you just put your dollar in stablecoin before they print the money, the dollar inflates, stablecoin goes up proportionately,

Printing fiat makes stablecoins denominated in the currency lose real value, not gain in it. (Stablecoins denominated in a different currency would gain nominal value in the printed currency, the same way direct holdings in the alternative currency would.)

So, no, to the extent easy money policy makes people rich fairly directly, holders of stablecoins denominated in the currency would not be among the beneficiaries.


>Printing fiat makes stablecoins denominated in the currency lose real value, not gain in it.

What's the case for this statement? In general, I don't expect to commodities to change value just because some currency was redistributed.


Printing currency makes that currency (and consequently, anything pegged to it) lose value compared to not doing so, because increasing supply decreases market clearing value.

Stablecoin is not a commodity, it is literally a token pegged to the value of a given fiat (such as dollar) or a basket of several fist currencies.

The case for it is the denominator increasing.

The commodity in this case is just a proxy for USD or other currency.

Leaving aside the dubious idea that the Federal Reserve can give their friends the ability to print money, stablecoins don't subvert any party's ability to print money if they are pegged to that money. If you can print USD, and I have a stablecoin pegged to $1 USD, you can just print $1 USD and buy my stablecoin on the open market.

>Leaving aside the dubious idea that the Federal Reserve can give their friends the ability to print money

You didn't read my comment correctly.


I was referring to this part:

> stablecoins subvert the ability of the Federal Reserve to print money and give it to their friends at Goldman Sachs et al


But you said “their friends to print money” not “print money for their friends”.

Ok, fair, the part that I excerpted did confuse the two, but OP goes on to say:

> David at Goldman Sachs starts with 1 dollar, you each have 50% of the wealth in the "nation." David and his friends start printing themselves money

“David at Goldman Sachs” presumably refers to David Solomon, CEO of GS, and in this part of the post he and his friends are the ones printing the money.


True. It was definitely not a wildly coherent post.

What is the mechanism that ensures bitcoin inflates proportionally to the dollar?

Perhaps inflation in the price of electricity, denominated in USD?

But when people say inflation in the context of cryptocurrency they usually mean "deflation".


(not an economist) If most bitcoins are bought with USD, all else remaining equal, wouldn't this automatically happen?

I'm not an economist either... but the buying power of your bitcoin goes down if people demand more of it for a given product. If USD prices rise, the bitcoin price will rise too, meaning your bitcoin wealth is affected by inflation, and you're not protected from the Fed printing money.

You assume there is a correlation between USD and BTC. Another way to see this is this:

If USD prices rise, the price of BTC will also rise, as BTC is another product you can buy with your USD. Meaning your bitcoin wealth is not affected by USD inflation.


But the price of bitcoin is unrelated, it seems, to any real world thing.

Pure speculation.


You could say that about the value of any currency though

No. In a currency with a lot of transactions there are plenty of real world hooks to hang their value on.

The volatility of Bitcoin, the fact it can hardly be used, the fact that almost no merchants accept it....


> That's how inflation works.

May I recommend https://www.lynalden.com/quantitative-easing-mmt-inflation/


> When there's stablecoin, you just put your dollar in bitcoin before they print the money, the dollar inflates, bitcoin goes up proportionately, you spend the bitcoin and things remain fair.

Alright, exactly where do stablecoins come into play in this scenario?


> When there's stablecoin, you just put your dollar in stablecoin before they print the money, the dollar inflates, stablecoin goes up proportionately, you spend the stablecoin and things remain fair.

This makes absolutely no sense whatsoever.


> stablecoins subvert the ability of the Federal Reserve to print money and give it to their friends at Goldman Sachs et al

... and now the owners of the stablecoin can print money and give it to friends of the stablecoin.

I don't see how stablecoins are any better than the Federal Reserve. If anything they are strictly worse. The owners of the stablecoin are semi-anonymous and have no governing body. I get that "no governing body" might be a good thing in some people's minds, and I think the OP highlights exactly who those people are.


It seems like there's another side to this story you're not mentioning... I think I read about it in history of the 19th and 20th centuries?



I wonder how much of the Crypto hype is because the US banking system still lives in the 1980s or thereabouts.

If everybody in the US had access to bank accounts with easy electronic transfers within 5 seconds for no charge, no chargebacks and so on, as people are used to in the EU, would people still be excited about Bitcoin?


I think that's certainly a part of it, but it's not the whole story, and I suspect it's perhaps responsible for 1/3 of the story.

A bigger motivation, and perhaps the most quixotic one, is financial security.

No, I don't mean that cryptocurrencies haven't been highly unstable in value.

But the more that the cabal chooses to truly enter the 21st century, the greater the danger of that technology being used as a means of coercion. This has already been seen in the porn industry (both amateur and commercial) and, say what you want about the possible ethical issues with it, but people have the right to produce pornography in the United States and also participate in the same economic system as everyone else. The danger of companies like Visa and Paypal exercising political control over their customers for other reasons is non-zero, and I would even predict that the danger is at least moderate.

Whether you agree with that perspective is another thing. Many crypto enthusiasts, whether they are explicit about it or not, like the idea of creating an economic system that everyone can participate in that doesn't involve countless middle-men. If that wasn't the case, there wouldn't be a big push to create the Lightning network.

The other part of the desire for crypto, from my perspective, is a desire to be a part of a new frontier. We had the personal computing revolution, the internet, the web, web 2.0... and for those who missed out on those or merely miss them, crypto fills that void and provides a new realm of possibilities to explore.


> Whether you agree with that perspective is another thing. Many crypto enthusiasts, whether they are explicit about it or not, like the idea of creating an economic system that everyone can participate in that doesn't involve countless middle-men.

Correct me if I'm wrong, but doesn't the whole blockchain thing depend on an uncountable number of middlemen to verify transactions? They just don't have to trust them. Not to mention they have to count on a market existing for the coins to give them value.


Cryptocurrency involves numerous middle men, all of which charge very high fees. Miners, exchanges, smart contracts, they're all middlemen and they all charge fees.

It's not that crypto enthusiasts don't like middle men, it's that they want to be the middle men.


Rather than the argument of having middle men vs not having middle men, I’d say that the transparency, accessibility, and hard-set consensus rules are what make something like the Bitcoin blockchain useful. It also allows privacy by means of the ability to generate key pairs and addresses easily and at-will. This combo of features mean that even with middlemen, there are certain rules that cannot be broken without the participation and knowledge of those who use the system.

With banks, money can be secretly and arbitrarily transferred by individuals of power and in some cases even gate-kept from the initial depositors. With crypto I never have to worry about my money being falsely spent under the cryptographic security guarantees of something like Bitcoin. Even with > 51% attacks it would be practically impossible to rewrite significant portions of history and are mostly limited to reorganizing and deleting recent transactions.


I guess the distinction would probably be commoditized middle-men.

Read, as distinct from our current champion middle-men, chosen by favor, regulation, and access to capital.


Explained simply, while there are indeed users acting as the middle man verifying transactions, you don't have to worry about trusting them because the system is built in a way where you know exactly what they're going to do.

To add to this idea of mining, theres a more grandiose theory that smart contracts are the additive tool that we can use to build all sorts of incentives in our society for people to collaborate effectively. You don't have to force people to collaborate towards the greater good if you can just incentivize them to build the thing you need. This allows them to mine out the value and build a better and more trust-less community at large. It's like a bug bounty but for problems in society.


> You don't have to force people to collaborate towards the greater good if you can just incentivize them to build the thing you need.

Wouldn't it be just as possible then to incentivise them to build things to the detriment of society (but that are to my benefit, of course)? We do that today with regular old money and regular old contracts.


We do that today because we are incentivized to acquire monopolies. Or in other words housing and other generalized assets that use a typical ownership model. If individuals can't "own" property, but instead "possess" property via a self assessed real time tax, you eliminate that gluttonous incentives that all humans have for accumulation.

With collective possession you can increase users stake in making sure that negative incentives don't exist. It's all in the game theory of realigning incentives, but before you do that you have to break down how the current system we live in at its foundational root is flawed.

My theory is that we don't understand the economic systems of the crypto economy because they aren't rooted in the same type of economics that exists in our current system. They are completely different incentive systems and are not correlated at all. We just confuse Capitalist values with crypto-economic values, thus leading to entire new schools of thought in how we organize ourselves manage systems.


This is a genuinely important point - there’s a strain of Puritanism baked into American (& more broadly western) culture that’s getting exported and enforced via our corporate dominance. Apple doesn’t allow porn on the App Store, Tumblr killed porn because of advertiser squeamishness, Onlyfans nearly killed itself because of bank pressure. Say what you will about porn, but 30 years ago gay rights would’ve fallen afoul of the same corporate conservatism - I’m broadly liberal and generally don’t believe a corporation lacks social responsibility, but I’m extremely uncomfortable with the degree to which our cultural values are encoded in especially our financial system.

So the US has an antiquated payments system vis-a-vis Europe, but crypto solves none of those problems. I don't see it. I see FOMO, groupthink and greed.

Cryptocurrency actually does solve that if you kinda ignore the scalability limitations of blockchain.

Of course, the minute you add another transaction layer or exchanges or other third parties, then that wipes out most of that advantage and generally the more it facilitates cheap and fast transactions the more power is given to the third party and/or more fee is taken.

I’m still a fan of first layer transactions and just making the blockchain much faster using brute force increases in block frequency and block size. Might be able to keep transaction fees low enough to be a useful alternative. But as long as more people are interested in cryptocurrency (and related tech) as a Ponzi get rich quick scheme than as a practical way to facilitate transactions, I don’t see it making a significant dent in the regular financial system.


You fail to see people who lost trust in their governments and organizations? You don't see how people are unhappy with getting their savings diluted by unlimited money printing?

> You don't see how people are unhappy with getting their savings diluted by unlimited money printing?

Money printing dilutes wealth if you hold it in cash, but every other asset appreciates. Moreover if you have more debt than wealth, money printing reduces that burden.

How many people actually have more wealth than debt but keep it largely in cash? I never understood who exactly has this problem.


The vast majority of humanity has no access to credit besides borrowing cash from Uncle Pedro, no access to any other financial instruments besides cash and keeps their savings under their mattress or in a shoe box. You don't understand who has this problem because you don't know anyone who has this problem, but outside of our comfy western countries most people have this problem.

> outside of our comfy western countries most people have this problem.

Can you cite some evidence that there are people keeping long-term savings* in cash and has adequate internet access and computing resources to participate in cryptocurrencies? I'm still not buying this.

* (I believe people do hold short-term savings in cash, but those are not the type of savings that money-printing erodes significantly.)


What is crypto if not money printing? While any one chain may be limited in issue, you can always just fork it or create a new currency or token. People are printing tokens at a phenomenal rate. And unbacked or badly backed "stablecoins" are money printing of real-looking but unstable currency.

What gives a chain value is the network effects which are notoriously hard to establish. So yes, you can fork it, but can you get people to actually use it? Really doubt it.

BCH allegedly has a billion dollars of daily transactions and is worth about 1% of officially-forked bitcoin: https://coinmarketcap.com/currencies/bitcoin-cash/

Up to a point, more money printing is good for me: dollars become devalued, my employer has to pay me more of them to keep up with the cost of living, but my mortgage is still valued in 2009 dollars. I can pay it off faster, or just have more purchasing power left over every month after paying it on schedule.

If you have assets and debt (and a job that will actually pay well, keep up with inflation), money printing is awesome for you!

If you're in the majority of people who don't have those things, life just gets harder and wealth gap keeps getting larger and larger.


> If you're in the majority of people who don't have those things ...

Home ownership in the US is around 65% [0], so the majority do have an asset and mortgage. There are also some people who choose not to own a house but have other types of assets. Things really aren't as dire as you seem to think.

And for those people who actually are harmed by inflation, I think the consensus is that they would be harmed by the other option--deflation--even more, mostly because the disincentive to invest leads to fewer employment opportunities. The Great Depression, a deflationary environment, was not good times.

[0] https://en.wikipedia.org/wiki/Home-ownership_in_the_United_S...


From your Wikipedia article: “ The name "home-ownership rate" can be misleading. As defined by the US Census Bureau, it is the percentage of homes that are occupied by the owner. It is not the percentage of adults that own their own home. This latter percentage will be significantly lower than the home-ownership rate. Many households that are owner-occupied contain adult relatives (often young adults, descendants of the owner) who do not own their own home. Single building multi-bedroom rental units can contain more than one adult, all of whom do not own a home.”

According to the US Census in 2020, 139.68 million homes in the US with a 64% owner-occupied rate means 89.395 million homes are owner occupied. Let’s say 85% of those are dual-owned (by couples) which I could not get a solid statistic on but several policy websites seem to cite, and we will assume the other 15% are single owners. Then about 165 million people either own or partially own the house they live in, or roughly 50% of the population.

That is the slimmest of majorities, far less than the 65% implies.

[0] https://www.census.gov/quickfacts/fact/table/US/PST045219


Majority of Americans live paycheck to paycheck, if that's not dire, I don't know what is.

It seems like the people most upset by money printing learned to be upset by money printing from crypto propaganda.

Propaganda? Does it matter where they learned it as long as it's true and factual?

How is it true and factual? The inflation rate is set, it is high now and will be lower in the future to account for that. If you are planning to keep millions/billions sitting around in cash for a decade, instead of investing into assets where it works for you and everyone else, you are the reason we have the inflation rate and deserve to lose out to inflation.

A set yearly inflation rate incentivizes actual investment instead of currency speculation. Basically the system we have now exists to prevent what crypto enthusiasts are trying to push on us: a return to a super volatile currency that when it crashed wasn’t able to be fixed by just printing more money temporarily.

When you hear about things as complex as Monetary Policy, it is best to assume that lots of people have thought about why it is the way it is and why that’s preferable. The “gold standard” and the hoarding of wealth allowed things like feudalism to exist where lords just sat on their land and gold and were richer every year.

Yeah you can pull the “the rich get richer today too” card but so do poor people if they invest in assets, and the difference is that every wealthy person has almost all of their wealth invested in the US economy in order to beat the risk free and inflation rate.

I really, really am sick of the bullshit around the big L Libertarian party (and the crypto enthusiasts who identify with them.) Spreading lies about the evil fed and the evil inflation rate, both of which are a huge improvement over the constant depressions we had prior to this century.

It took thousands of years for people to develop the sophisticated monetary policy we currently have that allows our economy to be extremely stable and continuously grow, generations of very bright people, and anarcho-capitalists want to throw that away to go back to “basics.” At the very least you could do all those people, and the citizens of the world, the courtesy of understanding why were all in favor of yearly inflation (even if we bitch about prices going up.)


Can we start by talking about how modern money works in a more factually accurate way. In particular, can we stop talking about "printing money"? Printing money has no impact on the value of money. I think most people in a forum like this understand that but when we talk that way I worry that someone, somewhere doesn't understand.

Money is created when it is borrowed from a bank or banking institution. Even that is an oversimplification but it is still much more accurate than saying money is created by "printing" it because it isn't. One of the really key things to understand is that the money supply is created by government but it is also created by businesses and individuals.

I don't have a dog in this fight, but it always drives me crazy when people talk about economics in a sloppy way.


Sure, but central banks do influence how much banks can borrow, and hence how fast the currency supply grows. Even someone whose understanding of monetary policy is limited to "The Fed has a big meeting each year to decide what the inflation rate will be" can understand why a deflating currency would be really bad.

Right, but it's not. The idea that inflation "dilutes" wealth and is therefore bad for rich people is not true.

It would be if rich people held all their money in cash like Smaug in his mountain, but anyone familiar with the current monetary system would know that people invest in assets to prevent losing out to inflation and this is what we’re going for with a steady inflation rate. Keeps the economy pumping and in times when we hit a recession (not depressions, since we don’t really have those anymore thanks to our modern monetary policy) those same rich people want to get their freed up assets into the economy as quickly as possible.

Correct. Inflation is when the dollar gets weaker for the masses because the elite are printing themselves dollars. Deflation is when the dollar gets stronger for the masses because the elite's proportion of the national currency is decreasing. We have pro-inflation, anti-deflation economic ideology because the elite fund the economists' "research."

Stronger/weaker refer to the value of a dollar compared to other currencies; inflation/deflation refer to the value of a dollar compared to goods and services. Neither is related to the "elite's proportion of the national currency". Again, I can only suggest reading some articles about this stuff.

> We have pro-inflation, anti-deflation economic ideology because the elite fund the economists' "research."

Suppose USD deflated; what would happen? Some people would move some money from other assets (stocks/bonds/etc) into currency and hold it for risk-free returns. What would that do? Reduce the amount of money in circulation. What does that do? Deflate the currency even more. What does that do? Incentivize even more people to move money into currency, which makes the currency deflate even more.

The whole point of a currency is that people spend it or invest it in something useful. If it's going up in value, they're incentivized not to do that, and it stops being used as a currency. This is an unambiguously bad outcome. I don't believe shadow elites are trying to convince economists of this, because they're already convinced.


Go talk to some Turkisch people and ask how they feel about the Lira.

Crypto is used as a commodity and for scams, very rarely as a currency. Given that transferring crypto is hard, slower, more expensive, riskier, public, and more wasteful than real banking, I don’t see why these would be related.

You're right that our existing digital payment systems are far better than crypto for most transactions, and that crypto (and cold hard cash) dominate black market transactions, but there's a really interesting class of transactions that don't fall into either of these groups: stuff that's technically legal, but sketchy enough that no big corporations want to touch them.

Crypto is increasingly being used as a digital payment workaround for areas that Visa and MasterCard try to avoid, like pornography and donations to controversial organizations. It's probably just a sliver of overall crypto transactions, but this is very much the use case that justifies the bitcoin-as-a-currency model.

Pornography is to Bitcoin as "Linux ISOs" are to BitTorrent.


> Given that transferring crypto is hard, slower, more expensive, riskier, public, and more wasteful than real banking, I don’t see why these would be related.

This is partially true, but I think a bad blanket statement.

Bitcoin has outperformed all other asset classes over the last decade.

You can get crypto credit cards that remove all complexity you aren't forced to deal with anyway. And even if that wasn't the case. Banking is hard, too, so that's a moot argument.

Ethereum and others are moving away from proof-of-work.

Upgrades like taproot and zkrollups improve privacy and can be used today.


I don't think you are up to date. There are "cash" crypto's out there such as Nano, with sub second transactions, 0 fees, and can run the network on the power of a single windmill.

Transferring SPL USDC is easier, faster, less wasteful, and less expensive than transferring dollars in a bank account.

> Given that transferring crypto is hard, slower, more expensive, riskier, public, and more wasteful than real banking

Literally none of this is true except maybe "riskier".


Yes of course they'd be excited about it. It's gambling, and people really like gambling.

To be blunt, they fucking love it. Like they’ll build an entire city in the middle of an uninhabitable desert just to do it. They’ll give up their kids future for it. People making $7.25 an hour will spend hundreds of dollars a week on scratch off lottery tickets in order to participate in it.

An endless demand for new ways to gamble is the least fucking confusing cultural development to ever happen.

Put people in a prison and they’ll do it with cigarettes. Give a bunch of construction workers a lunch break and they’ll bet on which pigeon is gonna to take off first. Hand a group of people a round ball or a deck of cards and they’ll figure out how to do it.

Beanie babies, little ceramic figures, baseball cards, coins. The desire for people to speculate on synthetically created scarcity is boundless, spanning generations.

Speculation is common to every culture in every era of human history. It's an amazing use case for a new technology with billions and billions of dollars in pent-up demand.

Crypto (and NFT's) are a gambling fad. People will keep doing it until it’s banned, matures, or gets replaced by the next gambling craze.


I’m unsure what you mean by “no chargebacks” - chargebacks are provide the consumer recourse in the event of a dispute.

Yeah, that whole no chargebacks concept as a “feature” of cryptocurrency has always been a head scratcher to me. I mean, yes, businesses may like that, but crooks like that even more, and it’s almost purely a negative to the vast majority of people, i.e. consumers.

And it’s a core motivation for cryptocurrency, in the original Satoshi paper.


The idea was it would make transacting cheaper. Not sure that worked in practice.

It's beneficial for consumers because businesses can charge less for their products since they're don't have to account for as much shrinkage. I know at least one business that charges substantially less for crypto transactions because of this.

I feel this is an overly optimistic view. There's not many situations in the last 50 years where "businesses being able to charge less" have led to them actually charging less. It reeks of Telcos telling congress how much new laws will drop their prices, then they fire half their employees and raise prices anyways.

This is a microcosm of most of my issues with crypto discussions. In a (quite naive) vacuum, the arguments sound great. If you wanted to run Earth 2.0 with crypto, have at it. It doesn't fit in alongside the existing systems and, by the time it becomes "the main system", you can be certain that those in power have modified it to have the same issues as the original system we all hated.


Then you would expect people in the EU to not be interested in crypto, yet it's the opposite. You can pull up search volume for "Bitcoin" across the world (using Google Trends), many European nations are at the top.

As a matter of fact, their search volume is higher than US.


The difference is that those people can honestly see and use crypto as speculative assets, which is fine (if we ignore externalities for a second), not making up use cases.

I often wonder how large a portion of all crypto holders are just FOMO-ing into a speculative asset because the number keeps going up, with no loyalty to the concept of cryptocurrency or its use cases.

Once you accept that the future is unknown, you'll see that every asset is a speculative asset, no?

For the longest time, real estate was assumed to be 100% safe until 2008, etc.


Yes but real assets have a lower chance of their value completely evaporating in an instant.

You can also use some of them, like live in a house asset.


The difference between investment and speculation is pretty established, isn't it? For example https://www.investopedia.com/ask/answers/09/difference-betwe...

Except that investing in Bitcoin has shown the exact opposite of high probability of failure, yet people still claim speculation.

According to that definition, I am investing in cryptocurrencies.

Just because the future is uncertain doesn't mean you can't do research to make a reasonable forecast. Typically speculation is specifically buying/selling without any reasoning other than 'I think someone will pay higher for this in the future'.

Many assets don't even have to appreciate. A car is an asset if I have paid it off. I don't expect someone to pay me more than I paid for it unless it is a collectible or I live in the year 2021.

On your last sentence, I don't know who thought real estate was 100%, because nothing is 100% safe as a store of value, but I guess they paid for it in the end.


Then I can say that I've done my research and I think it's reasonable that USD won't remain global reserve currency forever and that it's replacement won't be a governmental currency, but a decentralized one and Bitcoin would be the only reasonable candidate.

Does this mean that I'm not speculating all of a sudden because I've done research and came up with a reasonable forecast?


Yes, I would say you are not speculating because speculating is simply buying/selling and hoping to profit.

Whether or not your forecast is reasonable or even useful is not within my sphere of knowledge. I can also almost certainly say that the USD wont be the global reserve currency forever, but making decisions based on a forever timeline poses a wide range of risks.


People won't invest in a reserve currency, they will use it for trade. Anything people are buying and holding is by definition not a reserve currency. You are describing "treasure".

I mean people buy USD through forex markets all the time, the same way that people buy Bitcoin through crypto exchanges. Also, it won't become reserve currency overnight, it's a gradual process and until it happens it acts as a store of value with a huge upside.

> easy electronic transfers within 5 seconds for no charge

This is certainly not the case everywhere in the EU. In Germany for example it usually takes days. Not sure about other countries.


In Germany there's SOFORT, it takes litterally the time to click through the interface to transfer money.

I can get money from Germany to Colombia in under a minute via n26 and transferwise. Maybe we're not talking about the same country.


Well sure, I can send money around using third-party services, but the official banking system is not that fast.

Also amounts > 20000 in a weekend? How much fees do you pay on that?

I've actually never woken up on a Saturday morning and thought shit, I could really use 20000 EUR right now, so I couldn't tell you what the limits are. I've never hit them.

Fees however, are around 1EUR


Maybe on a Friday evening?

Anyway, still seems inferior to nano.


By law it must take at most a single day intra-country, and instant wire transfers are pretty common (though sometimes not free).

Most Bitcoin transactions have a quite high transaction cost, and I would argue that chargebacks are an important consumer protection.

Tx cost on BTC main layer has been ~7ct for months, what are you talking about?

Only if you do your transaction on the blockchain. Most are done internally. It's like your bank is not sending someone with a suitcase full of money just because you pay your phone bill.

It's strange to me how the only two options are "pay obscene transaction fees" or "just keep your crypto in a centralized exchange and hope they don't go MtGox". Is it impossible to achieve the stated benefit of being able to make quick and easy transactions and being decentralized?

I spent some time researching the best low transaction fee easily accessible crypto for making a sort of crypto Patreon, but the vast vast majority of all crypto information available was folks speculating what was going to go "up", nobody seems interested in what is actually a decent form of money (cheap&easy to exchange, cheap&easy to transfer, and stable).

I suppose it makes some sense from a game theoretic standpoint. If we consider the decision making entities in the game to be the massive crypto exchanges and miners, the best way they make money is by transaction fees and exchange fees, so they aren't likely to come up with a great micro-transaction and micro-exchange fee system. Oh well.


> Is it impossible to achieve the stated benefit of being able to make quick and easy transactions and being decentralized?

Yes. A transaction is a network-scale operation. It needs to be broadcast and confirmed by at least half the network. Otherwise it wouldn't be decentralized.

As that network increases in size, the resources required for that operation increase proportionally.

"Decentralization" is a bad meme that seems to work at small scales but its adherents refuse to zoom out and accept how technically ridiculous it is at current scales (millions/billions of people).


Why should a transaction need to be a network scale operation in a decentralized scheme? The ultimate decentralized payment mechanism is bartering, in which the transaction only includes the people making the transaction.

Now, I don’t know how to translate that to the digital world, but there’s no clear reason why a decentralized network must inform the entire network of everything that happens in it.


In this context we're referring specifically to decentralized finance, currency, etc.

Sure, but still I can transact using currency in the real world without (directly) involving a central authority, announcing my transaction to the whole world, or paying any fees. I cannot do that in the digital world.

Here are some projects working towards addressing the issues of blockchain scalability:

- Lightning network on bitcoin. Super cheap and fast transactions, makes micropayments a reality (this is what Twitter is using)

- Layer 2 solutions on Ethereum. There are two optimistic rollups currently on main net (Arbitrum and Optimism). Reddit has recently committed to building on Arbitrum. There are also ZK rollups (starkware, zksync) coming in the next year or so.

- Less decentralized layer 1 chains like Solana, Avalanche, BSC, Fantom

It's unfortunate that people looking to enter the space have a hard time finding real and relevant info. Not sure what the solution is for fixing the information problem, but there are lots of people building real tech in the space


As I understand it these layer 2 solutions typically require a resolution transaction in order to actually extract value, which has similar costs to a normal on-chain transaction. In the ideal world folks would be able to use the existing infrastructure of established Bitcoin atms to make transactions with low fees, but that doesn’t seem like it will happen any time soon.

Things like the Twitter solution aren’t great, Twitter owns all the currency and is kind enough to let you have some sometimes. If I were to make my app I wouldn’t want ownership of any of the currency, too much liability.

I’m not very interested in the promises of bleeding edge crypto startups, in my experience they almost never pan out, and certainly aren’t accessible to the masses.


Not sure what you mean about layer 2 solutions being similar in cost to layer 1 transactions. See here: https://l2fees.info. Arbitrum and Optimism are both running in "safe mode" so their tx cost will continue to go down.

I agree that the twitter solution isn't great. Just pointing out that Lightning network is a tech that can be used for cheap transactions.

100% agree that none of these solutions are accessible to the masses. Tons of UX issues, most people don't want to self custody, layer 2s can require bridging, etc. But, I don't think it's terribly hard to see how these issues will be addressed and they are actively being worked on


So I may be wrong here but my understanding is that you can’t go directly from fiat to L2 transacting. My goal is to minimize the loss from patron’s bank account to creator’s bank account, and every extra step along the way is a couple percent out of the creator’s bank account and into exchanges/miners’.

Edit: put more simply, a hundred people each want to give $5 to a single person. What path do they follow to ensure that the person can get as close to $500 in their bank account as soon as possible. Bonus question: what is the relation between how much they can get into their bank account and how long they wait?


Ah I gotcha, yea that is mostly true at the moment. I'm pretty sure the only way to go directly from fiat to L2 is through Binance which can transfer to Arbitrum (someone correct me if I'm wrong). All the major centralized exchanges are working on this, so I expect to see more support for direct to layer 2 transfers soon.

Not sure about the amount of time between exchange and bank account, I think that is going to depend on each exchange.


So it's just a different institution doing transactions internally with extra steps.

Not exactly, the "extra steps" are necessary to create separability so that the user can have their choice of institution to deal with.

> Most are done internally

You mean with one centralized authority you have to trust?


The technology doesn't really matter that much. If the US banking system wants to compete, it could try paying yield on savings. That's one weird trick that has made banking attractive for well over 1,000 years. A banking system that does not pay yields to savers is just a glorified collection of ledgers.

A crypto system that pays yields on monopoly money is just a glorified collection of ledgers moving fake money around, no?

What are yields a product of with crypto? If not productivity of underlying assets, it must be speculation, which isn't sustainable. You eventually run out of greater fools.


There are hundreds of fake monies used all over the world, including many countries with dual currency systems in which they use one fake money internally and one fake money externally. Bitcoin and frankly many other random altcoins are more credible than many of those hundreds of moneys.

The history of banking is replete with unsustainable arrangements involving the quest for yields deriving from speculative assets. Banking systems are continually expanding, exploding, and then expanding again. If we want to make the normal banking system competitive, it has to pay yields even though doing so means risk. The crypto explosion is best understood as a technologically enabled resumption of the usual cycle of banking despite the industrial west's attempt to suspend that cycle through extraordinary regulatory action.


The reason yields are low has nothing to do with the denomination of the currency but with the macro economy. Like gravity you can't fight it.

I doubt it, that's what Venmo, PayPal, Cash app, and a thousand other services solve. Crypto isn't nearly as convenient as any of those.

The problem with bank accounts is the banks. The promise of crypto is that you don't need to trust any institution, such as a bank, to keep track of your money.

Now you need to trust developers who wrote the client code, trust large mining(/staking whatever) pools not to collude and 51% you, and uhhhh trust yourself to not lose the fucking keys, or to be an expert in all the various "protection" schemes like multi-signature wallets (until they explode because there's a bug in them)… You also have to 100% trust yourself to not get scammed — there's no chargeback if you do.

Regarding not losing the keys (ie. responsibility for your own security), this was my #1 grounds for skepticism in crypto when I first entered the space. I could predict that without some compromise on this, most people would not use crypto. However, social recovery is already one potential solution for that, so don’t discount that surprising ideas can come up (https://cryptonews.com/news/social-recovery-wallet-is-better...)

Which could be compelling if you lived in a society where the banks were extremely unstable, but looks terrible if you live in one with regulation, deposit insurance and and other account protections.

How much of the world have you described?

Bitcoin is better in those unstable currency countries. The market will decide (has decided in some cases). So maybe inexorably bitcoin will be the reserve currency for a large portion of the planet. And at some point there will be a tipping point where it's going to be attractive enough to all other central banks.

It turns an everyday person worldwide into equals with central banks. That's pretty radical.


Banks are the government's instrument of total surveillance and enforcement in the financial sector.

You weren't here in 2008?

I was (if 'here' is the US), and I didn't lose money in my bank accounts?

It was a very close call, all because the banks were so reckless. Are you sure next time they will have enough money to bail them out again?

Of course, "too big to fail" - some of them almost certainly should have, though I would have expected the FDIC to work as intended then (instead of using public funds to prop up the banks themselves, it could have covered our deposits).

The promise of crypto(currency) is that you buy some and then you get rich.

I'm not even trying to be super-negative here - after all, if it does become a lasting store of value, accepted as money in the long term, then early adopters will be holding something valuable. It could happen. But right now the hype is self-perpetuating.


> If everybody in the US had access to bank accounts with easy electronic transfers within 5 seconds for no charge, no chargebacks and so on, as people are used to in the EU, would people still be excited about Bitcoin?

As someone born in the EU (now living in South-East Asia) I am still excited about Bitcoin. Because I feel it's the only safe haven for my honestly earned money out of reach of governments and banks. I feel Bitcoin is a too important technology to fail, especially as the world will slowly move towards Central Bank Digital Currencies that will have the same problems as fiat right now.

I view inflation as something bad for society (a hidden tax and form of theft) and CBDCs will be inflationary currencies. I also don't like that governments and central banks will get even more control over people's lives once physical currencies are gone. If you behave bad through the eyes of governments or banks (e.g. using too much electricity, eat too much meat, work as a prostitute, etc...) they might be able to take restrict your earning potential or spending. That is not a world that I'd like to live in.


Why do you consider it a safe haven for your money when the volatility is so high?

> Why do you consider it a safe haven for your money when the volatility is so high?

Because I believe in the long term Bitcoin will always go up, as it has done in the past. Especially if central banks keep printing money at high volume, which -at this point- seems unavoidable for the Fed & ECB.

I don't care too much for short term volatility. And as Bitcoin adoption grows, volatility should reduce anyways.


"Modern" banking systems still suck if you want to move large amounts of money, move money globally, move money without asking for regulatory permission and waiting for regulatory delays, avoid having your assets temporarily seized because the comptroller makes a paperwork error, etc. etc.

Quite a bit of it also comes from the fact that people are tired from the fed printing money at will, devaluing people's hard work they put in for years to save some money.

Secondly, people in the EU are also excited about bitcoin regardless of the fact that they have what you mentioned.


> easy electronic transfers within 5 seconds for no charge, no chargebacks and so on, as people are used to in the EU

Um, no. I'm not used to that. My latest online German-bank-to-German-bank giro transfer took the usual two-to-three business days.


Not much. The hype is mostly gambling, ponzi schemes and the like.

If PayPal would have realized the vision of Elon Musk, there would be no banks anymore. In that scenario, it would be really hard for crypto to emerge.

But right now, that market is fully open.


Most people on HN are rational people who look at the world in a rational way. Bitcoin and friends are not operating in a rational market, therefore we don't understand them, and most of us would probably be pretty lousy investors since we would try to make decisions rationally instead of memeing and YOLOing.

But, and this is a key point, that doesn't make us right and them wrong. It's just a different kind of market, one that I am not very good at, but it is for sure possible to make money in it. You just need to be a different kind of person. We can say our way is "better", but who are we to decide that?


HN’s attitude is very surprising to me. I would think that they could get very excited about flash loans, decentralized exchanges (automated market makers), daos, and other concrete innovations coming out of crypto asset projects.

I think it’s mostly jealousy and a feeling that they missed the boat, so they want to see it sink. I think that because I’ve had the feeling many times.

They may not realize these are early days. The average person saw the bubbles in tech company stocks and even to this day I find myself having to argue with people who think that tech is in a bubble despite the fact that these companies are now some of the biggest, most profitable, and most powerful in the world.

Everyone on HN is asleep and a company offering a product called SushiSwap is a multi billion dollar unicorn. I think 99% of crypto projects are scams, but they are also exploratory. Even if they crash now, these decentralized apps are significantly more solid than pets.com ever was. Does HN really think that just evaporates?

I would ask anyone on HN who is doubtful to do this - go read the UniswapV2 contract. If you don’t think that’s a cool innovation, please come back and let me know, I’m interested.

The situation on HN really feels to me like one of “live long enough, see yourself become the villain.” They are playing the role of the old men in suits in the 90’s sitting around a table in New York and looking at those internet hippies in California saying “we build real things, not these internet funny money companies”.

And what happened? It’s like Zuckerberg said to the suits in the Social Network - “I could buy Mt. Auburn Street, take the Phoenix Club, and turn it into my ping-pong room.”


I was excited 4 years ago when I first discovered these crypto concepts. As time has gone on and I've learned more about them, they are less interesting and come with a ton of baggage. There are interesting things like formal verification, but I expect that these types of things will be taken without the blockchain.

You shouldn't dismiss HN attitudes as jealousy or asleep, that is derogatory.


Yeah the language is a bit strong. I’m serious about the jealousy though - perhaps it’s just me. But when I see someone making a boatload on Tesla and I’m sitting there thinking it’s ridiculous, where does that really come from? All I know is I probably wouldn’t care either way if I’d owned some…and since my experiences with day trading and algorithmic trading, I’m convinced 90% of finance is emotional. It clouds the mind and corrupts usually rational people.

You are sitting there thinking it's ridiculous on Tesla. Are you thinking it's ridiculous on Google? Or Apple?

Don't give yourself a hard time :) I think the Tesla stock price is ridiculous. It's not a jealousy thing. I don't think Google or Apple share prices are ridiculous, and more people made more money out of those two.

If someone makes money in a ridiculous way, it's ok to think it's ridiculous.


True. The point I was making was one about emotion in finance - when I’m making money it’s easier to ignore rational doubts, and when I’m missing out it’s easier to focus on the negatives because a little voice in the back of my head wants it to fail.

You want it to fail or you want to be right? Nothing wrong with wanting to be right. If Tesla stays at a crazy high valuation for the long term, then several mental models I use and find valuable fall to pieces. That would be very annoying for me on several dimensions because it's likely they wouldn't be replaced with useful mental models. They'd be replaced with "ITS ALL JUST CHAOS".

Markets look to the future. The Tesla valuation makes sense if they are going to do a trillion of business at some future point.

Everyone thinking about the Tesla valuation is aware markets look to the future :)

Even then - your statement is simplistic - the future cashflows are discounted back to today. As an example, if their revenue is $1 trillion (assume no inflation for simplicity) in 50 years, and we assume 10% net income margin (probably in the ballpark of reasonable) they make $100 bill which is discounted 50 years to today at maybe 8% (?), that year's earnings is worth around $2 billion today.

You may reasonably counter that they will grow much faster than that - and this is where people (like me) question it. The total industry is ~$3 trillion or so, globally. 85 million units. Telsa will hit maybe 900k units this year. So its a tough sell that they'll get to 25-30 mill units anytime soon (from a demand or supply side).

Don't get me wrong - Tesla is brilliant, Elon is brilliant. It doesn't mean the company is worth infinity. There is some concrete number which makes sense... and to many folks, 1 trillion is an order of magnitude too high.


Yeah but re mental models you combine that with "...Mr. Market’s quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business..."

Sure. But old Ben Graham also said that in the long-run the market is a weighing machine. Note above I said "long term". If Tesla stays long term at current prices or above, I've completely misunderstood several things in a pretty fundamental way. As an example - gold has stayed at prices which don't make much sense to me for a very long time. So my mental model for that market is "it's crazy town, stay away". That's not a very useful model. I hope I don't arrive at the same place on what is a pretty simple company - they sell cars.

The market assumes that Tesla will be much more than selling cars. The scope is more "anything electricity or climate change related" (i.e. very broad) combined with a focus on vertical integration in each business unit.

The biggest attitude problem in crypto is to respond to technical questions and challenges with personal attacks.

Such a turn off both technically and socially. I find it more toxic and tribal than politics at this point.


I read the O'Reilly book. I (superficially) grasp the crypto and the distributed database concepts.

What doesn't make sense is how the rest of the system turns into real transactions.

PREDICTION: in another decade, this shall have arrived or been proven a fad.


>go read the UniswapV2 contract. If you don’t think that’s a cool innovation, please come back and let me know, I’m interested.

I feel like the coolness of Uniswap requires putting the cart before the horse. If I'm not convinced of the real utility of these tokens, why would I be impressed with the ability to move them around in various clever ways? I need to see a valuable external use case before I can see the value in what Uniswap enables.


I guess to me it’s more about progression. From Bitcoin, to Ethereum, to Uniswap, there is a strong development of the early ideas and technology. This doesn’t seem like it will just stop to me. It indicates a very bright future in my opinion. Also, although I get disillusioned, I personally have come to appreciate more that the value being produced is financial. There is clearly massive pent up demand for financial games. On Wall Street there is a huge market for firms that proudly do not pay attention at all to the underlying assets they trade in a “fundamentals” sense, and just play games with mathematical and technological advantage. From what I can tell massive segments of finance are just money games. This is a form of that, which is a real and tremendous market. A natural progression that people who say “high frequency trading provides no value” or “banks shouldn’t be allowed to deal in derivatives” will hate.

You should hear the kind of stuff people are coming up with…what if I could sell a token, and the interest generated from staking it gets repackaged into an options contract on another chain that then gets its value automatically updated every time someone sells and…

It seems nonsensical, until you go learn what all these quants are getting paid millions per year to do for hedge funds and you think to yourself “oh, it’s a similar thing. There is demand for this.”


I mean, if someone showed by some great new innovation to let HFT shops move faster, I'd also be a bit nonplussed. If the answer is just "well, this is no more useless other frivolous* money games", then I'm not really convinced.

*frivolous in the sense of real utility. Obviously they make boatloads of money.


Sure. I guess what I’ve come to accept more is that what people on Wall Street do is real. Games are real. I don’t personally buy into the “new world currency”, “real world use case, I’m gonna own my house on a blockchain” lines of thinking. The use case is still being fleshed out but in my opinion it’s much more likely to produce lots of Citadels than lots of Amazons or Googles if that makes sense. Whereas I think that HN believes it will just go away because it’s all a scam.

> From Bitcoin, to Ethereum, to Uniswap, there is a strong development of the early ideas and technology.

To do what useful thing, that isn't crime?

> From what I can tell massive segments of finance are just money games. This is a form of that, which is a real and tremendous market.

For what, except speculation and crime? What application? It's been twelve years. Crypto is almost as old as the smartphone.

> A natural progression that people who say “high frequency trading provides no value” or “banks shouldn’t be allowed to deal in derivatives” will hate.

Derivatives have obvious economic value. I can go into a room and write an economic model for them and it will agree with everyone else's because there's an objective theory that can be applied to get answers (and I have successfully done this in the past).

Any economic model for the value of cryptocurrency gives it a zero value.

More, crypto people don't have any competing valuation model or theory or explanation or anything. The values for all these coins simply come from nowhere.

> It seems nonsensical, until you go learn what all these quants are getting paid millions per year to do for hedge funds and you think to yourself “oh, it’s a similar thing. There is demand for this.”

You are wrong. I did this for a living for years.

All you are doing is adding the present value of future cash flows together to get the value. The tricky part is dealing with volatility, for which there's an "arbitrage-free" (no magic cash) model called Black-Scholes - and then there are a zillion details.

But cryptocurrencies _have no cash flows._ No cryptocoin produces or destroys fiat currency. The _only_ way you make $1 out of your crypto is if some Greater Fool buys your cryptocoin for more than you paid for it.

Eventually, there won't be a Greater Fool, then everyone will be left with a crappy and expensive payment system with huge transaction costs and nothing else. Everyone will rush for the doors, but there's no liquidation value and no fundamental value and no market makers.


I could replace your use of “cryptocurrency” here with “Pokémon cards” and nothing would change. Yet you don’t seem concerned with the buying, selling, trading, owning of Pokémon cards with regard to their utility. You are not the arbiter of utility. Nobody is. If you have no utility for digital cash, great. That doesn’t mean others don’t. You don’t have to play Pokémon if you don’t want to.

Cryptocurrencies, unlike trading cards, have large negative externalities. They are causing component shortages, driving up GPU prices, enabling new scams and ransomware, wasting electricity, accelerating climate change.

It might be justifiable if cryptocurrencies were providing real economic value, but if we're drawing analogies to Pokemon cards, then they are net-negative value to humanity and we should hope for them to fail as soon as possible.


What are the negative externalities of central banking and dollar hegemony? I'd argue the externalities of dollar dominance are orders of magnitude greater for enabling crime (and legal antisocial behavior), wasting natural resources and accelerating climate change.

GPU prices is totally fair though.


The automated market maker design of Uniswap is useful even for non-blockchain based scripts to e.g. trade stocks digitally.

It's just a simple way of creating an orderbook and liquidity. So you don't need to be convinced of the real utilities of tokens to appreciate the brilliance of the design.


Sure, but it's being presented as a reason to be excited about crypto, so any non-crypto applications aren't really relevant here.

Sounds like you're being deliberately picky to get your point across that crypto is shit.

Being insulting shows you don't actually have an argument.

We know "trading stocks" is a valuable service. We're looking for a valuable service that requires crypto.


How am I being insulting? What's the insult? ENS?

"Sounds like you're being deliberately picky"

That's not an insult.

Hmm, I don't think I am. I'm just saying that Uniswap for non-crypto assets isn't really a demonstration of how cool crypto is.

Did you check out ENS?

While extremely interesting and even innovative, of those innovations are only useful in the hermetic world of their own blockchain, due to the oracle problem. The idea of real-world DeFi is purely hypothetical, at this point.

Yeah to be honest with you, I don’t believe much at all in this talk about “real world” integrations. If you’re interested please check out a couple other comments I made on this thread that touch on that. My opinions are developing as I go.

Read through your other comments, and I don't think that there being a market for money games is sufficient to keep the crypto train going, if it can't find its way into the underpinnings of the real economy. People play money games with things that are indispensable, like the stock market. Failing that, I'm skeptical that people will find crypto interesting after it finds its top. It may just find itself as a perpetually fringe and somewhat seedy sector, like MLM -- a place where fortunes are made off the backs of folks who are betting their meager savings on a chance at better prospects.

I get that and think it’s possible for sure.

> automated market makers

Are you claiming that this is an innovation associated with crypto? Can you elaborate or clarify, as the case may be?


The decentralized exchanges are essentially just automated market makers, but in a different sense than existing automated market makers like Citadel. The contract deals more with balancing pools than a traditional market maker who just forwards orders to an exchange or matches it themselves.

Apologies for the delayed response. What you're describing is not novel to crypto. Citadel is a wholesaler, but plenty of other participants quote firm bid/offer prices on real exchanges (where the wholesaler sends their exhaust). In the US equity space there is RegNMS that seeks to model the marketplace as a single entity, so it's a bad example; but there are plenty of other examples of non-fungible products that trade more similarly to the crypto markets. For example, there are gold markets across the world with slightly different quality standards, units of measurement, delivery standards (or cash settlement rules), expiration dates, etc.

> I think it’s mostly jealousy and a feeling that they missed the boat, so they want to see it sink.

If crypto and defi live up to their promise, no one is going to "miss the boat". People at large will start getting paid in cryptocurrencies and they will start using them in transactions. If there are only a limited number of boats for this thing, that means it's a bubble and it's going to pop.

Personally, I struggle to see any real uses for cryptocurrency that are not at odds with it being deflationary. So, paradoxically, for as long as it keeps going up, I don't trust it will hold its value. Once the curve flattens and adoption picks up, then sure, I'll consider it, but at that point it doesn't matter if you get in early or not.


I commented this further down and am interested in your thoughts. One thing I’ve come to appreciate more when we talk about the “real value” being produced is that these are essentially just money games. Lots of established Wall Street firms play money games for a (very, very good) living.

I’ve come to accept more that what people on Wall Street do is real. Games are real. I don’t personally buy into the “new world currency”, “real world use case, I’m gonna own my house on a blockchain” lines of thinking. The use case is still being fleshed out but in my opinion it’s much more likely to produce lots of Citadels than lots of Amazons or Googles if that makes sense. Whereas I think that HN believes it will just go away because it’s all a scam.

For better or worse, there is huge pent up demand for money games. The average person doesn’t know it yet, but they want to own a swap on an option to buy a percent of the interest of a bond deal that they can then stake for percent ownership in an nft. It sounds insane to you and me right now. But I think they’re going to evolve to the use case of crypto, not the other way around.


I guess I can understand the idea of blockchains as a better way to play financial games. That's a valid use for which there is demand. Another use I can understand is hedging against political instability. Neither personally appeal to me, but I get it.

Still, it seems to me that an awful lot of people are playing this game with scant knowledge of the rules or of what's involved, which is a bit like investing in Tesla without understanding what a car is. I also feel that a lot of the "value" that has been built up is predicated on the idea that Bitcoin (and/or other coins) will indeed become the new world currency. I have seen a few people saying this very thing (or close to it) in this post's comments.

That's not to say they are wrong. However, if the outcome of defi is limited to playing financial games, there is a point where people will lose confidence in this "new world currency" forecast and the price of BTC will see a severe correction.

And that's one thing that I find bothersome in this whole craze: the fact that many ideas in the crypto space have legitimate value does not imply that it is profitable to invest in any existing technology. The future CAN be defi at the same time that Bitcoin might crash to zero, if it happens to be the wrong horse. Worse yet, existing entrenched interests in cryto have a vested interest in making sure that the only technologies that succeed are those they have a stake in, so if Bitcoin succeeds, that may very well be at the expense of vastly superior technology. I think there is a very real risk that the success of Bitcoin will either prevent or significantly delay the emergence of good, efficient blockchain technology.


One of the most realistic takes in this thread, thanks for sharing. I strongly agree. I am severely disillusioned about the early promises of crypto that I espoused. I have settled more on your view, but I think we will cull out the garbage pets.com equivalents and in 10 more years we will see serious companies that are publicly listed developing large scale financial games. Whether they have any connection at all to existing tech (99% of which I think are not just bad but actively toxic scams) is tenuous at best.

There’s astroturfing on HN, like every other open social media platform. The tilted dissonance around crypto, whether it’s the counterintuitive market behavior or climate change advocacy, is one of lacking curiosity, a hallmark of innovative cultures.

Funny how crypto people thinking insulting everyone else will change our minds!

"It has to be your lack of curiosity" (because there's no otherwise explaining your bad judgement).


How exactly is it bad judgement? I’d argue that working at google or investing and making money at google signifies equally bad judgement then, seeing as how it is a company that is eroding freedoms, regularly caught breaking laws, and rife with unethical business practices all in the name of innovation and technology. And yet nobody is decrying the evils of selling their stock in google to make some $.

It's like talking to an old person about computer games. They literally see 0 value and don't get why we are all excited about it. Most feel it's a net negative on society.

And yes, that's also a market that dwarfs all of its neighbors.


"You're old and foolish" is also not an argument in favor of cryptocurrencies.

You don't get it do you? There is no point in giving arguments to people who don't understand.

All this HN discussions have proven that already, no? Do you really think at this point you or me are going to change someones opinion with arguments?


That is not a logical argument.

No crypto booster has an answer to: It is not useful

Or It is a huge waste of energy

Or All the technology involved has better counterparts

I do not think I will change your mind, but others are reading this


All your questions have been answered plenty of times. The fact that the same stuff keeps being repeated says enough about the discussion.

Cross-posted: Transferring SPL USDC is easier, faster, less wasteful, and less expensive than transferring dollars in a bank account.

I am not asleep, but I'm definitely tired.

It would be an extraordinary event in human history if jealousy didn't play at least some role here.

But I think more than that it's become an identity thing. A social signal. So it's not really worth arguing about. Share you own thoughts and move on, don't get invested in debating it here. Elsewhere, perhaps, but not here.

I do want to add that while I don't completely agree with all your comments in this thread, I do appreciate seeing someone express an opinion on the topic that isn't a copy/paste of countless others before it.


I have exactly the same observation and personal experience, and commented the same thing a while back on another crypto-hatred thread here on HN.

Below commenters are just switching the tables around, not seeing absolute radical cynicism towards crypto/blockchain on HN.


I suspect that much of HN, either directly or via their backers/employers, also comes out of the angel-investment scene and has emotional ties to the more conventional funding mechanisms that were themselves disruptive to traditional finance. "You can't make someone understand something when their income depends on not understanding it" and all that.

I do not have a dog in this fight.

I do have an extensive economics education, and deep and wide IT experience.

I do not understand how crypto is any use for anything that is not illegal and/or immoral.

My conclusion is that it is largely for illegal transactions and scams.


What’s your opinion of uniswap, flash loans, and daos? These are the strongest use cases I know of. Would you mind taking a look at some of my other comments in this thread related to money games in traditional finance and let me know your take?

What is your response to the idea that it can automate the role of a trusted third party in commerce, thereby removing much of the opportunity for abuse of this role?

Trust really matters in commerce. Doing away with trust is bad. If we do not trust each other there is no technology on Dog's Green Earth that can save us.

Can you be trusted? Ask yourself.


>Can you be trusted? Ask yourself.

Talk about a con man's answer. I get multiple calls a week by people claiming to be my credit card provider, the tax arm of my country's civil service, or the president of the company I work for. Of course some people can't be trusted. Relying on universal trust is a recipe for universal corruption, and your answer to someone pointing that out is to try and turn the problem with trust on them specifically?

At least come up with some better lies, this is just insulting everyone's intelligence.


So you think we can do without trust?

Can it be replaced by technology?

The pertinent question is still: Can you be trusted? Your answer to those first two questions answers the third


Trust in my family? of course I need that.

Trust in my civil service? Depends on incentives. I'm lucky to live in a country where they're mostly aligned with the needs of the public, but even so there's a 'drift' in incentives that requires constant correction.

Trust in central banks and elected politicians? Absolutely not, what an absurd proposition. How have groups like that ever earned my trust? Why should I give it unearned? And if the answer is 'If you don't trust them they won't trust you', I already know these groups don't trust me. Nothing I do will change that.

Universal trust might be possible in a zero-privacy, one-social-credit-score-from-cradle-to-grave kind of society where I can know strangers with the same kind of detail I know family members. If that's what you're arguing for good on ya for standing apart from the herd. Personally I'm not for that future because I believe zero-privacy leads to a cultural conservatism that would prevent a lot of the interesting innovations we'd get in a some-privacy society.

But universal trust with privacy? Just trusting strangers because we 'have to'? That reliably becomes a kleptocracy. Why should anyone who advocates for a kleptocracy be trusted?


I mean trust strangers

Without being able to rust the people around you life is untenable. Levels of trust in a society are highly correlated with all sorts of measures of well being (which way causality runs I do not know)

Getting back on topic to crypto currencies: Money builds on this. Money is a web of trust. That is the point, and that is why backed currencies (gold, silver, whatever) are pointless. The point is trust. So it is running against the grain to try to replace trust with technology. With money we are trusting each other and the system. If you are in Zimbabwe, say, or Venezuela, perhaps, where the system is devoid of trust money has little value.


The anti-crypto case is not that it's "worse" than some other speculative investment asset (gold, comic books, etc), it's that crypto is a speculative asset, as opposed to the things it's sometimes claimed to be (e.g. currency, a new way to do finance, etc).

This is something I’m stumped myself about. HN etc says crypto has no value and I wonder about other things in conventional finance that are of speculative value :

Gold - Sure it’s a good store of value as a metal but so is bitcoin. If Gold can be valuable because lots of people value it as a store of value so can Bitcoin. In fact bitcoin is arguably better than Gold.

The total wealth of the world is 1000 trillion. Bitcoin is easily worth 0.1 - 0.5 % of that because of its permissionless advantage. Bitcoin has a non zero floor price. I think anyone would agree with this.

This is unlike say NFTs which are not likely worth anything with a potential floor of 0.

Loss making stocks like Snapchat - A company that said in its IPO filing that we may never be profitable and is still struggling with profitability is worth 100B.

If conventional finance is 50 % a Casino based on social factors why can’t there be one more ? Are the purveyors of the current system afraid that they’ll lose their cut ?

What is the right mental model here ?


> Bitcoin has a non zero floor price. I think anyone would agree with this.

I don't. I don't think it's literally zero - even if it drops to $.01 some people will still buy it on the theory that it might go up to $.02. But all of its value is speculative, I don't think it has any intrinsic value (which is equivalent to saying I don't think participating in the crypto economy, smart contracts and all that, has value). And the reasons are as explained in the article - beyond avoiding regulators, it doesn't allow us to do much that we couldn't do before, and what it allows us to do isn't all that valuable.

Even if I knew with absolute certainty that I would never be able to sell it for a profit, I might still buy gold, e.g. to make conductive wire. That's the intrinsic value. What's the equivalent for BTC? How many bitcoins would you buy if you knew that you would not be able to sell them for a profit?


Why does gold have a non zero floor price and not Bitcoin ? Is it merely because Gold has industrial uses ? That floor would be far lower than Golds current price.

Yes. Gold has both speculative value (you can sell it for more than you bought it for) and intrinsic value (you can use it for stuff). A bitcoin has speculative value only, as far as I can tell. Whether the same is true of crypto generally (including defi and daos and so forth) is open for discussion and one of the things being argued over in this thread.

Gold has important uses in industry

Gold has important uses in jewellery

Gold has a natural scarcity, is easy to store, hard to steal. Crypto has no natural scarcity (other than a reluctance to waste energy), is very hard to store and relatedly is very easy to steal.


One huge difference between Bitcoin and gold is that gold can be possessed purely on one's own. Bitcoin requires the continuous expenditure of energy to maintain the record of ownership.

> energy to maintain the record of ownership.

That is entirely incorrect.

Energy is expended to allow transfer of ownership, not to maintain the record.

If all miners save one dude with a laptop stopped to mine transactions tomorrow, you still wouldn't be able to spend Bitcoins for which you don't own the private key.


I agree with your technical clarification, but there would be no point in owning a balance if the ability for someone to receive it in a transaction without fear of double spend disappeared. Therefore, I stand by my statement. Bitcoin has no value without continuous expenditure of energy.

If we run out of energy aren’t there bigger things to worry about ?

All monetized assets like USD or gold are "speculative". I speculate that my dollar probably won't lose more than 10-20% of its value in the next year.

Anything that hasn't happened yet is "speculative" I guess, but in this context speculative means you bought it because you think you can sell it for more tomorrow, as opposed to buying it for its intrinsic value.

Right, like USD, except replace "for more" with "not too much less".

Ah, I think I see the misunderstanding now. I argued that cryptocurrency is only speculative, and hence unlike a currency which has other uses. I did not argue the inverse (that currency only has other uses, and is not speculative).

The value of the dollar has a floor in that the US government requires that you remit your taxes in dollars. Sure, the US could cease to exist, but that is far less likely than any scenario where bitcoin goes to zero.

The demand introduced by US tax obligations is a vanishingly small fraction of USD demand.

> Bitcoin and friends are not operating in a rational market

Have you considered the possibility that your personal model (which you presumably describe as rational) is just insufficiently complete to accurately model bitcoin? I think bitcoin is perfectly rational. A lot of people confuse things like impredicativity (e.g. in the pricing of monetized goods) with irrationality, but this is just a limitation of their mental model.


The issue is not whether a person can make money in a Ponzi scheme. We know it is possible. The issue is, is it a good idea?

It's really more of MLM than Ponzi at this point.

Buying low and selling high is not a ponzi scheme.

The losers in a Ponzi scheme buy high and sell low. What did the winners do?

So real-estate, stocks and gold are all ponzi schemes?

All of those have value even if you wouldn't be allowed to sell them. Stocks pay dividends, people use gold as jewellery, and you can live in real estate. Speculating on assets with real world value is different from speculating on assets nobody would care about unless they could sell it.

The whole point of these scams is to convince people to buy assets that nobody wants, but you convince them that some other guy really wants it a lot and will pay more for it in the future. And of course if he could convince some new guy of the same thing he can even sell it at a profit, but since there ultimately is nobody who wants this asset the chain has to break sooner or later.


So please tell me when that chain is going to break. Next year? Next decade? In 50 years? Is it still going to break within our lifetimes?

Go look up the definition and history of Ponzi schemes.

Very interesting, and real estate and stocks, whilst subject to bubbles, are not Ponzi schemes.


Your infer a lot from a little.

Seems to be your definition of a ponzi scheme. At least on wikipedia they don't agree with that definition.

I described attributes of a Ponzi scheme. These attributes may apply to other investments. I made no attempt to define anything. You infer where inference is not applicable.

Buy low sell high are not atrributes of a ponzi scheme.

And how is fiat not a Ponzi scheme?

And how IS fiat a Ponzi scheme? You don't buy into the US dollar expecting your "share" of dollars to go up. You just use it to pay for stuff.

In most modern economies fiat is backed by the 'full faith and credit' of the issuing government, which requires more young people paying into the pension system than retirees drawing from it. That's as clear an example of a Ponzi scheme as can be imagined, albeit moving on a slower timeframe than we usually think of such things working.

Fiat is backed by the insistence of the issuing government that you pay your taxes in that denomination. It has very little to do with pension systems, except to the extent that the government runs those also denominated in dollars.

But the US could end social security tomorrow and as long as it still required taxes and tariffs in the form of dollars, the dollar would still have value.


Zimbabwe required taxes and tariffs in the form of Zimbabwean dollars... You need a little more than just taxes and tariffs for a fiat currency to have value... You need a hard money that is not going to be devalued also. This is where all fiat falls short and has done since the demise of the gold standard.

Ok, but Zimbabwean dollar is not a Ponzi scheme either… the claim is about Ponzi scheme, not other things.

It's the best example of a fiat Ponzi scheme. Keep printing money to keep the guys near the printer (at the top of the pyramid) flush.

USD and other fiats are doing the same. Just at a much slower rate.

Edit:

It's basically just the Cantillion Effect[1] by another name.

[1] https://www.adamsmith.org/blog/the-cantillion-effect


With a well managed fiat, money supply growth tracks the growth of economic activity. In a Ponzi scheme... It is otherwise.

No expectation of future returns. People who hold cash expect to lose money.

We are perfectly capable to decide what is better because it isn't magic.

For every gain, somebody literally has to lose. All crypto money is just other people's money.

The people who win are vocal. The people who lose, stay silent, often in shame

And even if you disagree, those gains are not worth the destruction of our planet.


To play devil's advocate, the fact that it's someone's money and people are losing it doesn't automatically mean better or worse. For example, Netflix bankrupted Blockbuster and people lost money but it is clearly "better". I guess we're just still waiting for a popular use case, outside of crime, speculation and money transfers to places with no infrastructure.

You cant compare two companies providing service to millions of people worldwide with a completely dead transaction !! Yes there are winner and losers in useful business, but when someone times the btc market better than someone else, what has the universe naturally selected ?

A better degenerate gambler ?


Come on, be better than this.

This isn't about companies being made obsolete, this is about regular people losing a lot of money because they didn't understand the risks. They trusted some acquaintance or some family member and now they are ffed.


The people losing money to bitcoin are bagholders in inferior monetized assets like USD, real estate, etc.

It's still a net gain for society though - introducing good hard money is extremely positive-sum.


If a particularly powerful solar flare knocks out the internet for a couple of weeks my real estate investment will still keep me housed. Your bitcoin asset will do... what? Even USD (at least in physical form) is more useful in a crisis. I can put it in my pocket and trade it with the guy down the street for food/water (under the assumption that the government won't collapse). The amount of high-tech, fragile infrastructure bitcoin needs to function correctly is astounding. The entire idea of bitcoin being superior to traditional currencies depends on the idea that nothing really bad will ever happen again.

> If a particularly powerful solar flare knocks out the internet for a couple of weeks

You'd have more serious problems than cash liquidity.

> USD (at least in physical form) is more useful

Which is what, like a low single digit percent of USD? Most people I know don't even have a couple days' worth of paper USD.

> fragile infrastructure

Internet isn't fragile at all. It's extremely robust, especially for relatively low-bandwidth applications like bitcoin. It's certainly more robust than the card payment networks most people rely on.

> bitcoin being superior to traditional currencies depends on the idea that nothing really bad will ever happen again

Anything "really bad" enough to nuke bitcoin will probably also kill you and almost certainly tank the value of USD paper.


Rational/irrational is a vacuous distinction. Everyone has their own perspective on time and value.

This doesn't address any of the OP's arguments, however.


If you misquote just a little, their argument can be just as useless at supporting any shitty or illegal industry.

> But, and this is a key point, that doesn't make us right and [the people who scam old ladies by extremely pushy sales tactics for vacuum cleaners] wrong. It's just a different kind of market, one that I am not very good at, but it is for sure possible to make money in it. You just need to be a different kind of person. We can say our way is "better", but who are we to decide that?


Bitcoin is smart engineered gold. It's perfectly rational compared to the endless printing in fiat. Most engineers just accept keynesian economics because that's what they were taught.

They have a narrow world view beyond their tech expertise. I saw somebody criticize BTC because they couldn't imagine using so much energy "just to secure money". I was like what you just took for granted is perhaps society's most important need and unsolved problem.


The endless printing is more necessary than the strict stock control fot a currency. You cannot avoid people starving unless you do it, and you cannot live in peace unless you avoid people starving and getting desperate.

You do know there was no printing in the middle age. Good old days these all were.


>You do know there was no printing in the middle age. Good old days these all were.

Oh come now, there was plenty of printing in the latter days of Rome or Wiemar Germany and people managed to starve just fine despite it. Inflation correlates with optimistic times because it implies a debt taken on today will be easier to pay off with money earned tomorrow. That doesn't mean printing money reliably makes people optimistic.


I see the world transitioning to a USD central bank digital coin for currency and Bitcoin as the store of value in the future

There will likely be many national currencies, the Digital Yuan comes to mind as a major contender. A global currency increase the risk to larger scale domino effect in the economy.

global economy is much like communicating vessels, large scale domino effect is also possible, having a global currency such as bitcoin disconnected from nation events, is no more riskier than without it.

see China's Evergrande crisis as an example.


Why? What problems would Bitcoin solve?

It can barely keep up with the very few transactions now. Its transaction costs are sky high


"Smart engineered gold" is an oxymoron. Gold is a terrible platform for economic activity, because it is expensive to create and difficult to move/transact with.

Just because it was the best financial technology hundreds of years ago does not make gold, artificial or not, the best financial technology for today.

"Faster horses"...


It's all the good of gold with none of the bad

Bitcoins are both "expensive to create" and "difficult to transact with". It's all of the good with all of the bad, and then some.

Misses out on being able to simply store gold.

Being able to trade gold without technology.

The energy to mine gold is much less (strange, very strange)


Crypto adds it’s own bad parts.

The market aside from crypto is not rational.

The market we have today would be completely unimaginable to "traditional" market participants 12 years ago, 24 years ago and so on.

The myth of a rational market is a powerful one.

https://en.wikipedia.org/wiki/Irrational_exuberance

https://en.wikipedia.org/wiki/Greenspan_put

https://www.ft.com/content/9f7f32af-a71a-4892-b331-324aa14ff...


Taxpayers, law abiders, hell even environment conscious is who we are to say our way is better.

Are you implying that no rational person should ever buy Bitcoin? That seems a bit far-fetched, no?

At this point, considering that it's stronger than ever and it's pretty clear it's not going away, I would expect a rational person to allocate even a small percentage to it for diversification, in case they happen to be wrong on their conclusions or understanding of Bitcoin.


Couldn't you make the same argument for pets.com stock in early 2000? "Diversification" is a conveniently vague reason to invest in something when there are no "fundamentals" that can be evaluated. At the very least pets.com had some assets that could be sold off after the company went under. Bitcoin can't even claim to have that.

If this was 2013, I would agree with you, because the risk of it being worth nothing was much larger, but today the Bitcoin blockchain moves thousands of bitcoin per day (worth billions of dollars in value) and it's network effects are stronger than ever before and you can see usage go high through on-chain metrics (like # wallets, transfers) and increase in lightning network usage (1ml.com).

So I would say, investing in Bitcoin in 2013 probably has the same risk as investing in pets.com, but today, it would be like investing in Amazon a couple years after the dot com bubble when the trajectory is clearer. Just my 2 cents.


I think this is actually an argument for investing in crypto.com, other exchange companies, or some of the huge bitcoin mining operations. These are the entities creating value by keeping the bitcoin network running and moving $millions worth of bitcoin around between wallets. Owning bitcoin itself does not grant you any equity in these profit-making entities that actually make bitcoin work.

That's one way of looking at it, but most stocks don't pay dividends, so that "equity" is also not that tangible either, unless you're like a majority shareholder that you can change company direction. When you buy a stock, that money doesn't go to the company, it goes to previous investor, unless the company issues more stock (usually the opposite happens).

Also, Bitcoin's success doesn't mean those companies will succeed because it's decentralized and there's thousands of companies across the world and competition is very stiff. But those companies can't succeed without Bitcoin.


A stock literally represents a unit of ownership of the underlying company. No, it's not tangible in the "I can touch it" sense - unless you get a LOT of it as you said, but it's backed by hundreds of years of contract law precedent. When I own stock I get quarterly reports on the performance of the company - revenue, profit, etc. - these allow me to evaluate whether I think the company is doing well or poorly and gauge if I want to continue to invest.

Whether the stock pays dividends or not isn't really relevant to my argument. My point is that the price of Bitcoin is completely divorced from any sense of economic "value". There are no earnings to forecast, no revenues to examine. The only way to determine if bitcoin is going to go up or down is gauging sentiment (i.e. groupthink) or just faith. Even sports betting provides more information for decision making like past performance of the athletes.


When you buy bitcoin you are _investing_ in the possibility that the bitcoin will be part of the economic network.

The earlier you invest the better the returns. As time passes and bitcoin grabs hold a position the S curve of possible returns will be less. Same as investing in stocks.

The value is brought by being early adopter. Historically bitcoin is gaining adoption, but one would argue we're still early.

Paradoxically if you think that bitcoin is useless, it's early, if you think it's a sure thing, it's late.

That has nothing to do with bitcoin though, it's universally true for any type of risk investment.


"Investing" in a possibility that something might happen that is completely outside the control of the entity I'm investing in sounds like plain old gambling. Not that you can't do that with stocks also (see penny stocks, for example). It's like saying I'm "investing" in the ball landing on "00" when I put my chips on the table.

I guess I'm too old and curmudgeony to do that.


You can evaluate Bitcoin by how many users it has, how many transactions it facilitates, what kind of new concepts it enables, the usefulness of un-censorability, how many countries are adopting it (or likely to adopt it), etc.

If you're going to use athletes past performance for betting, you can always use Bitcoin's past performance of 300% YoY appreciation for forecasting it's price too, but we both know that's useless.


> how many users it has, how many transactions it facilitates, ... how many countries are adopting it (or likely to adopt it)

By these metrics, isn't fiat currency vastly more valuable? Yet even when a new fiat currency is created, you don't get a rush to "invest" in it.

> what kind of new concepts it enables, the usefulness of un-censorability

These are extremely squishy and any measure of value here is extremely subjective. Plus the latter property is not yet proven. Bitcoin, in particular, makes it very easy to trace the source/destination of a transaction. The same anti-money-laundering KYC practices that allow taking down drug dealers[1] could be used to censor someone from receiving donations/payments.

[1] https://www.theverge.com/2018/6/27/17509444/dark-web-drug-ma...


Don't mine gold during the gold rush, sell pick axes.

There are rational reasons for buying Bitcoin - most of them revolve around money laundering, drug trades, and ransomware.

This is the reason we should enforce "know your customer" laws on Bitcoin such that we have government ID for everyone for every transaction that hits the chain.


> most of them revolve around money laundering, drug trades, and ransomware.

You need a citation for that, because according to experts “In 2020, the illicit share of all cryptocurrency activity fell to just 0.34%,” reported Chainalysis [1].

For many, it's a hedge against inflation, for others it's the next potential global reserve currency, for some it's just a savings mechanism. There are more rational reasons than just crime that you're ignoring.

1: https://www.thomsonreuters.com/en-us/posts/investigation-fra...


> In 2020, the illicit share of all cryptocurrency activity fell to just 0.34%,

Is the takeaway that the crypto bubble stands for 99.76% of the activity?


Tell that to the people in Turkey who had there currency fall 10% against the dollar just this week. Tell that to Argentinians, or Nigerians, or Afghanistan.

You might be surprised by the places where crypto has the most penetration. https://bitcoinist.com/cryptocurrency-adoption-highest-5-cou...


> but it is for sure possible to make money in it.

If it's a bubble, what that means is that almost everyone is going to lose money on it.

> It's just a different kind of market,

Would you say that magic is a different kind of science? I'd say that magic is simply false to the fact. I think it can convince people to do things, but it has no objective reality beyond that.

And cryptocurrencies have the same relationship to economics that magic has to science.


> most of us would probably be pretty lousy investors since we would try to make decisions rationally instead of memeing and YOLOing

I think those are the makings of an effective bond investor. But as far as stocks, or stonks, go you're pretty correct here.


It is perfectly possible to be right for the wrong reasons. Unfortunately that can eventually catch up with you.

It's easy to complain and dismiss, but bitcoin literally made me rich

Yes, rationality is better than irrationality.

Sorry, but please speak for yourself.

Plenty of people here see the potential that cryptocurrencies and blockchains can offer.

Let's find out where it takes us, but at this point, we're winning :D.


Winning what ? US dollards?

You can't win with US dollars ;p

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