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.
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.
The federal government also charges the banks for that insurance. It usually is not a loss for the government.
The federal reserve prints dollars and buys government bonds.
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.
No, they're competitors for the stores of sovereign wealth that are the backing of sovereign currencies.
Inflation/deflation is in my experience measured as money V. assets. Assets on their own are neither. Have I got that wrong?
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.
Why is that scenario worse than now? Why is bank the preferred medium to support when they default?
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.
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.
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.
What's the case for this statement? In general, I don't expect to commodities to change value just because some currency was redistributed.
You didn't read my comment correctly.
> stablecoins subvert the ability of the Federal Reserve to print money and give it to their friends at Goldman Sachs et al
> 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.
But when people say inflation in the context of cryptocurrency they usually mean "deflation".
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.
The volatility of Bitcoin, the fact it can hardly be used, the fact that almost no merchants accept it....
May I recommend https://www.lynalden.com/quantitative-easing-mmt-inflation/
Alright, exactly where do stablecoins come into play in this scenario?
This makes absolutely no sense whatsoever.
... 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.
1873 - https://en.m.wikipedia.org/wiki/Long_Depression
1910 - https://en.m.wikipedia.org/wiki/Panic_of_1910%E2%80%931911
1929 - https://en.m.wikipedia.org/wiki/Great_Depression
Monetary consistency sounds good, until it doesn't.
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?
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.
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.
It's not that crypto enthusiasts don't like middle men, it's that they want to be the middle men.
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.
Read, as distinct from our current champion middle-men, chosen by favor, regulation, and access to capital.
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.
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.
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.
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.
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.
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.)
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.
Home ownership in the US is around 65% , 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.
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.
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.)
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.
> 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.
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.
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.
Literally none of this is true except maybe "riskier".
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.
And it’s a core motivation for cryptocurrency, in the original Satoshi paper.
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.
As a matter of fact, their search volume is higher than US.
For the longest time, real estate was assumed to be 100% safe until 2008, etc.
You can also use some of them, like live in a house asset.
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.
Does this mean that I'm not speculating all of a sudden because I've done research and came up with a reasonable forecast?
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.
This is certainly not the case everywhere in the EU. In Germany for example it usually takes days. Not sure about other countries.
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.
Fees however, are around 1EUR
Anyway, still seems inferior to nano.
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.
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).
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.
- 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
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.
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
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?
Not sure about the amount of time between exchange and bank account, I think that is going to depend on each exchange.
You mean with one centralized authority you have to trust?
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.
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.
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.
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.
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.
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.
Secondly, people in the EU are also excited about bitcoin regardless of the fact that they have what you mentioned.
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.
But right now, that market is fully open.
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?
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.”
You shouldn't dismiss HN attitudes as jealousy or asleep, that is derogatory.
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.
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.
Such a turn off both technically and socially. I find it more toxic and tribal than politics at this point.
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.
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.
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.”
*frivolous in the sense of real utility. Obviously they make boatloads of money.
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.
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.
GPU prices is totally fair though.
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.
We know "trading stocks" is a valuable service. We're looking for a valuable service that requires crypto.
Are you claiming that this is an innovation associated with crypto? Can you elaborate or clarify, as the case may be?
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’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.
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.
"It has to be your lack of curiosity" (because there's no otherwise explaining your bad judgement).
And yes, that's also a market that dwarfs all of its neighbors.
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?
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
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.
Below commenters are just switching the tables around, not seeing absolute radical cynicism towards crypto/blockchain on HN.
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.
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.
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 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?
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.
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 ?
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?
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.
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.
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 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.
Very interesting, and real estate and stocks, whilst subject to bubbles, are not Ponzi schemes.
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.
USD and other fiats are doing the same. Just at a much slower rate.
It's basically just the Cantillion Effect by another name.
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.
A better degenerate gambler ?
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.
It's still a net gain for society though - introducing good hard money is extremely positive-sum.
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.
This doesn't address any of the OP's arguments, however.
> 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?
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.
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.
see China's Evergrande crisis as an example.
It can barely keep up with the very few transactions now. Its transaction costs are sky high
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.
Being able to trade gold without technology.
The energy to mine gold is much less (strange, very strange)
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.
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.
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.
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.
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.
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.
I guess I'm too old and curmudgeony to do that.
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.
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 could be used to censor someone from receiving donations/payments.
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.
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 .
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.
Is the takeaway that the crypto bubble stands for 99.76% of the activity?
You might be surprised by the places where crypto has the most penetration. https://bitcoinist.com/cryptocurrency-adoption-highest-5-cou...
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.
I think those are the makings of an effective bond investor. But as far as stocks, or stonks, go you're pretty correct here.
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.