I see this point rehashed on HN over and over. I'd love if there was a more productive discussion of cryptocurrencies. I don't think they are going away anytime soon. Too many technologists and others are thinking about them now. I personally think store of value is a strong use case, at least for those of us who consider them to have value.
Just wondering, what would it take for you (and others who share similar views) to change your mind about crypto? How long does the technology need to be around to be validated? Would you feel better about the space if it was regulated (which would bring scams, manipulation, and illicit activity down), or would you still think it's all nonsense?
The "change my mind" criterion for this would be actual price stability. That is, a significant market for goods and services which can be bought at a fixed crypto price over a period of a year or more with zero price variation. People getting paid salary in fixed crypto denominations. People taking out 10-year mortgages in fixed crypto denominations at interest rates comparable to fiat mortgages.
It is feasible that cryptocurrency might be more stable than, say, the Bolivar. It is not feasible that it will be more stable than the dollar.
If you want a really concrete use case, suppose you want to buy a new Macbook next year and you want to save on a weekly basis. If you'd done that over various periods over the last year you'd end up with between 150% and 70% of the price of the Macbook. Now, so long as "number go up" you're winning ...
Yep. Stability is really the only gap in the market for a "store of value". Shares are fairly fungible and have a "number go up" tendency as well, but there's actual reason for their numbers to go up other than convincing more people to believe they're a share of value than believed last year.
I have heard Metcalfe's Law applied to crypto networks, and I think it actually does make sense. I.e. as the number of participants goes up, the value increases, similar to how as the number of users goes up on a social media or other technology platform, those networks are considered more valuable. Crypto is a technology so I think it makes some sense to apply the same framework.
Crypto doesn't claim to be a telecoms network, it claims to be an asset. If you double the number of people owning stocks, or bond or oil, it doesn't make the stock, bond or oil four times as valuable as before. It simply updates the market value of stock, bond or oil to whatever the new users paid for it - which might even be less than before (whilst the use value of collecting the dividends or coupon payments or burning the oil to individual end users doesn't tend to change much in response to more people using it at all)
And even if we grant a Metcalfe exponential relationship between crypto prices and crypto participants, you're still running into the basic Ponzi scheme problem that if all your value comes from the price appreciation predicated on the number of HODLers growing, it'll hit that ceiling eventually. Which means it isn't a particularly great store of value, compared with something like a stock that generates future income regardless of whether new people enter the stock market or not
Aren't social media networks like Facebook/Meta and Twitter valued higher as an increasing number of users join the network? Or new startups trying to get more users? Do you consider those ponzi schemes? Also, I'm just wondering, do you like tech stocks? And do you think high P/E ratios would be possible if new investors weren't buying those stocks?
Also, if there's not enough Bitcoin ever going to be created for everyone alive even now to own just one (21 million max supply cap), and assuming the interest in it only increases over time, how would a ceiling ever be hit?
> Anyway aren't social media networks like Facebook/Meta and Twitter valued higher as an increasing number of users join the network? Or new startups trying to get more users? Do you consider those ponzi schemes?
Facebook/Meta and Twitter getting more MAUs means that they sell more ads. Zuck would still be rich if nobody was willing or able to buy FB at all.
But if their only product was FB and TWTR stock, the only thing that stock did was allow you to hold, give or sell it, and the only argument for buying it was an entirely recursive argument that it was a store of value because people will value more in future because more of them will want to buy it because its a store of value and an appeal to Metcalfe's law for the valuation because stock markets are a bit like telecoms networks then yes, they would definitely be Ponzi schemes.
Question makes more sense flipped on his head: if you think everything that looks a little bit like a telecoms network in terms of having lots of participants obeys Metcalfe's law, then why aren't actual Ponzi schemes actually extremely valuable to participate in?
> Question makes more sense flipped on his head: if you think everything that looks a little bit like a telecoms network in terms of having lots of participants obeys Metcalfe's law, then why aren't actual Ponzi schemes actually extremely valuable to participate in?
Yeah, good point there. I think the thing with a Ponzi scheme, the way I see it, is that I can't transfer a share of that Ponzi scheme across the world, 24/7. I could only hold it, and if it is a Ponzi scheme, it would eventually collapse. I do see value in the monetary transfer aspect to crypto as well, so that's part of it, and I personally don't think crypto will collapse, at least not Bitcoin, Ethereum, and probably several of the other major ones. The rest, I have no idea, and maybe some of those other altcoins could be considered Ponzi schemes. Definitely some of the altcoins are pump and dump schemes, if not Ponzis, and definitely some altcoins will collapse. I just don't think applying Ponzi scheme to the entire crypto ecosystem is fair.
Also, sorry, I edited the comment you responded to, so it changed a bit. I do wonder what you think about the ceiling I mentioned, in regards to that there's only 21 million Bitcoin ever going to be created, and that's not enough for everyone in the world to have even one full Bitcoin. If interest grows, and population continues to grow, then how would a ceiling ever be hit? I don't see that as a Ponzi scheme, I see that as interest in a scarce asset, that you can't make more of, while we are in an inflationary period, with governments printing money all around the world. Just wondering if you have any thoughts on that.
The way I'm thinking about it is that some people may want to hold Bitcoin forever, and just loan it out, to put it to use, while also having a deflationary asset in their portfolio.
Shares in Ponzis are often easily transferable, as are penny stocks pumped by email spam and all the tokens and altcoins you mention that were created in obvious bad faith. Many of them have considerably fewer than 21 million in circulation too, and none of them claim to be worth as much as a Bitcoin. It doesn't make them good investments.
"If interest grows" is the big if and "price go up" is a very, very bad reason for interest in one particular coin to continue growing indefinitely when faced with all the alternative ways for people to park their money, from technically superior coins to investments they can actually live in (some available for less than a cryptographic string!) or stuff that pays actual dividends and gives you legal claim to actual real world assets. And for all the FUD cryptoenthusiasts like to spread about government money printing, it's the "fiat" world that has all the mechanisms that link money supply growth with market demand and real world activity, ability to shrink the money supply if its growing too fast, and the crypto world where basically the entire supply of coins has been printed in a few years by a small number of people trying to get rich and those coins will continue to exist for as long as the blockchain is maintained whether people want to buy them or not.
I don't think crypto in general is nonsense. I do think a lot of the hype is. Some of my concerns with it
* Is it a currency or an investment? None of the major coins seem usable as a currency to me, the values are too volatile.
* What does it offer me over using USD? For me at least I see very little value, I often cannot use it for purchases and most of the places that I have seen it offered do it for secrecy, VPN or counterfeit goods. I am not trying to perpetuate the idea that cryto is only used for illegal activities but for myself I have little to no benefit of using it for purchases.
* Would you compare your "store of value" use case the same as owning gold? It is interesting to hear coins having a store of value since for me at least the volatility kills it and without a huge use in the economy I don't have confidence in it holding up.
* Is it a currency or an investment? None of the major coins seem usable as a currency to me, the values are too volatile.
More of an investment, for the time being.
* What does it offer me over using USD? For me at least I see very little value, I often cannot use it for purchases and most of the places that I have seen it offered do it for secrecy, VPN or counterfeit goods. I am not trying to perpetuate the idea that cryto is only used for illegal activities but for myself I have little to no benefit of using it for purchases.
Yes, I've purchased like one thing with crypto and that was back when you couldn't buy hardware wallets with USD, so crypto was the only option.
* Would you compare your "store of value" use case the same as owning gold? It is interesting to hear coins having a store of value since for me at least the volatility kills it and without a huge use in the economy I don't have confidence in it holding up.
Yes, I do compare the store of value use case similar to owning gold. Gold is just much harder to transport, send across the world, store, etc. Gold has also been trading sideways for about a year, so I don't think it really protects from inflation (someone correct me if I'm mistaken about that). I actually do own both gold and crypto, so I've been able to compare them first hand.
Also, crypto is super volatile, for sure, but if you think about it over a multi-year horizon, similar to how someone would invest in an S&P 500 index fund, then I think crypto will in general appreciate and the volatility should go down as more people hold it and consider it valuable. The idea is that it stabilizes as its market cap goes up. Also just want to call out that I consider Bitcoin its own thing, apart from the rest of crypto, since Bitcoin actually has a max supply cap. Many cryptocurrencies do not (they can essentially print money), or their max supply is so ridiculously high as to barely matter at all.
Thanks for responding! I like to hear about how people are thinking about this, beyond the point that it's only used for illicit activities.
To be clear, what I said was that the real-world uses of crypto-as-a-medium-of-exchange are almost all tied to criminal activity.
I didn't say anything at all about crypto-as-a-store-of-value. Like any fiat currency, crypto has value iff people think it has value, no surprises there. At the moment, crypto's value is heavily tied to speculation about massive increases in its future value, which is not sustainable in the long term and is the biggest blocker for the medium-of-exchange usecase.
I have nothing against the idea of crypto - it's a good idea, especially with the stuff built on top of it around smart contracts, and the technology is neat - but until it stabilizes at predictable exchange rates it will never be used by the unsophisticated masses as a medium of exchange.
Do you think that it's possible that as the market cap of crypto grows, the volatility goes down? I believe this applies to traditional markets as well. It just takes more money to sway the price.
Also if people see value in it, vs other assets, wouldn't they want to hold it, so wouldn't value be stored in it? Curious if you have any thoughts about that.
The trouble with the usual measures of market cap, trading volume, etc. is that so much of it is faked. And lot of crypto is premined or is otherwise held by whales that don't have much use of it unless they find someone to dump their coins, and they have both means and motive to swing the market. So it's entirely possible that crypto market cap continues to "grow" but volatility just stay the same.
But otherwise, yeah, if there's enough people to make the whales look comparatively smaller, it may get more stable.
The only current usecase I'm aware of for crypto as a medium of exchange is for criminals, i.e. ransomware / extortion / etc.