I never understood this analogy, and now I’ve seen it enough to finally ask in good faith —-
If tulips bulbs were of a limited supply, (relatively) infinitely divisible, (relatively) impossible to forge, and could be transferred anywhere in the world, in any amount, (relatively) instantaneously… Would it really be that crazy to imagine that they may have kept significantly more value? Or be used as a kind of currency?
It seems like anything with those properties could be a good basis for a currency, whether it’s Beanie Babies or Pokémon cards (neither of which actually do have those properties), or cryptographically secure blocks of teleporting cheese.
True until another batch of cryptotulip bulbs is released under a new name with slightly different properties and it joins the cryptotulip ecosystem. Any one species of cryptotulip might be a limited supply, but on the whole it's a very inflationary ecosystem, with trust on which is the "true currency" extremely malleable and divided. Even the "original" BitTulip has as many haters expecting its inevitable dethroning as it has proponents.
Even if the original Dutch tulips had somehow limited supply growth per species - say only selling neutered bulbs incapable of reproducing, while "miner" growers do the actual growing - you still have inflation from new sellers growing new species. Are people just supposed to arbitrarily say "Only orange Tulipa gesneriana tulips are a valid currency"? How does that consensus happen in a decentralized environment, when clearly it's not happening in this crypto bubble?
Is the argument that the limited supply comes from limited farmland? (AKA limited miners to generate the underlying security?) If so, how does that scale past the point where farming/mining is taking a significant chunk of the world's energy/land and just maintaining the currency is costing more than it saves on efficient asset transfer of actually productive useful things (like say - growing more crops, or using GPUs for AI)?
"Proof of Stake solves this!" you say? Well, now we're back to arbitrarily naming a tulip species as the only True Currency, with no physical resources backing it, and no particular reason people will stay loyal to it...
(Granted, the current non-crypto alternative is a heavily-armed centralized tulip farm that can grow its supply as it sees fit, and use its military to stifle other growers and guarantee its continued dominance. It allows a few other varieties (CAD, GBP, Yen, etc) but makes sure those growers back their supplies with a large stock of USDtulips, making them subsidiary growers bound to rise and fall with the central farm.)
> How does that consensus happen in a decentralized environment, when clearly it's not happening in this crypto bubble?
The earth is a decentralized environment in which USD, EUR, GBP, and JPY float against each other, and their value at any time is determined by market confidence. You shouldn't expect 100% global consensus on a particular cryptocurrency any more than you expect 100% global consensus on (say) USD or EUR.
If I print a stack of ThrowBills, would you buy them for $1? If I mint ThrowCoins, would you buy them for 1 BTC? If you decline my offer, then you understand that value does not come for free (crypto or not), and merely inventing a new tulip does not inflate existing tulips -- it competes with them.
This is nonetheless a new mechanism of inflation which bypasses the supposed benefits of a fixed supply currency, instead letting inflation float as a hard-to-quantify measure which vaguely resembles the average inflation of the entire coin market, but is actually more like the speculative value of the market cap of each currency (e.g LTC is not really worth $1.5B, that's an abstraction off the price of its latest trades). Moreover this dilution isn't without cost, as it gives a path forward for perpetual splitting of the market into a number of currencies each with a greater chance of losing public trust in a market crash scenario - as each one has a weaker consensus requirement and requires fewer people deciding to no longer hold it before it becomes worthless. All it takes is a temporary lack of confidence - this is why the more widely held a currency is the more stable it is.
Back to tulips: though inventing a new tulip does not inflate existing tulips, any level of public support for that tulip dilutes everyone's confidence in the original tulip, and creates two more unstable tulip currencies vs just the one. This is because everyone has just a bit more doubt on which one they should hold.
"But that's decentralized then. If people lose confidence in one of those tulips - good thing you diversified in both.". Sure, except for losing confidence in one is likely to create a cascading effect of lack of confidence in the others as the public starts to rightfully doubt their magical belief that a useless commodity is valuable. Same panics happen with banks. And a big plethora of smaller currencies means the initial dominos of the panic are that much easier to push over - leading to the possibility of the entire market wiping. Tulips all the way down.
Again, not that this isn't the same process found in conventional finance. There's just additional confidence that there will be (perhaps violent) interventions to stem any such lack of confidence/panic before it becomes critical. And there's been a long history of independent currencies being shut down with the same force due to not wanting to compete.
It is well known, but it is not well understood, especially by those who use it as a comparison for crypto. The popular narrative is akin to a sensationalized tale which is contested by modern research on the subject. There is a misconception of the scope and effect of it, when in reality it was localized to a small number of wealthy merchants engaging in speculation on luxury goods with minimal economic damage overall as opposed to the popular narrative that it was a society wide mania which caused financial ruin for many. Basically the only thing they have in common is that they occurred in wealthy societies.
The number of people who were in tulip mania isn't relevant. Yet, whenever this comparison occurs, people try to debunk a comparison that isn't being made - instead of looking at the actual comparison that is being made.
Instead of being dismissive, could you then explain what is the comparison being made then? I illustrated how they are not very similar but you haven't really given any additional context on what should then be compared.
If tulips bulbs were of a limited supply, (relatively) infinitely divisible, (relatively) impossible to forge, and could be transferred anywhere in the world, in any amount, (relatively) instantaneously… Would it really be that crazy to imagine that they may have kept significantly more value? Or be used as a kind of currency?
It seems like anything with those properties could be a good basis for a currency, whether it’s Beanie Babies or Pokémon cards (neither of which actually do have those properties), or cryptographically secure blocks of teleporting cheese.