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Stable coin systems are going to be massively important and there's a ton of different projects trying to make it happen. This [1] is a really solid explanatio

Stable coin systems are going to be massively important and there's a ton of different projects trying to make it happen. This [1] is a really solid explanation on how one of them, Dai from MakerDAO, works. [1] https://medium.com/cryptolinks/maker-for-dummies-a-plain-english-explanation-of-the-dai-stablecoin-e4481d79b90 https://medium.com/cryptolinks/maker-for-dummies-a-plain-eng...

grandalf 9y ago
Dai seems like a clever idea, but I'm not convinced it will ultimately be necessary. For one thing, the idea that dollars are stable is illusory. And the volatility we see in BTC these days is largely due to the ratio of speculation to storing value in its usage pattern. So if you buy 500 Dai with Bitcoin today, and the price of Bitcoin goes up, you simply have more Dai to spend, and if the price goes down, you have less to spend, but all the while Dai was pegged to USD and the exchange was going on behind the scenes. Two factual quibbles with the article, in case you can offer insight: The example about doing a bet using Ether does not make sense, because chances are the smart contract would collect collateral for the bet at the time it was made, with the idea that upon resolution of the outcome the collateral would be used to pay off the bet. So if I bet 1 ETH on the superbowl outcome, 1 ETH is collected from me and from my counter-party, and then after the game finishes the smart contract awards 2 ETH to the winner. The other issue has to do with commerce. What's the difference between a store marking prices in USD and also accepting payment in BTC vs marking prices in Dai? During checkout, if I'm paying with BTC I'll see how much BTC my purchase will cost. If the price in dollars is more useful to shoppers than the price in BTC, then merchants will denominate in dollars. Dai would seemingly just involve a predefined method of doing the exchange rate math (and fees), but I'm not clear on why this is really a significant advantage.
wpietri 9y ago
One of the other parallels that interests me is that there's very little incentive to be publicly skeptical of the nonsense. People were immensely critical of Warren Buffett during the dot-com bubble. He was frank that their valuations didn't make sense to him, and he took a pasting for it. He turned out to be right, but only after taking a lot of heat: http://news.bbc.co.uk/2/hi/business/1217716.stm http://news.bbc.co.uk/2/hi/business/1217716.stm There's little glory or money in being critical of Bitcoin and cryptocurrencies. But there is a great deal of money and attention for hyping them. That means anybody new to the topic receives an unbalanced information diet, deepening the problem. Even if I were a Bitcoin fan I'd be concerned about this; bubbles misallocate resources and cause a lot of damage when they pop. The taint can last a long time. E.g., it took Florida decades to recover from their 1920s land boom.
- s17n 9y ago
  Calling bitcoin a bubble seems like the wrong word. There are basically two possible outcomes: total market cap zero, or in the trillions. How much you think bitcoin is worth depends on your guess (and it really is just a guess, nobody has any idea what is going to happen) about the relative likelihood of each.
  - rsynnott 9y ago
    I would have thought the third was that it maintains some sort of marginal utility, but isn’t worth much. Though it’s becoming increasingly useless, really.
  - aaavl2821 9y ago
    From Wikipedia: "An economic bubble or asset bubble (sometimes also referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, a speculative mania, or a balloon) is trade in an asset at a price or price range that strongly exceeds the asset's intrinsic value." Seems like a reasonable description of bitcoin to me I have yet to see a well thought out, rational, specific description of the intrinsic value of bitcoin. If it is the case that people think it will either be zero or a trillion market cap, that suggests to me that people aren't thinking seriously about the real world end game for bitcoin and thus that there's is no solid bounding of the potential intrinsic value Bubbles are formed by people who think they are being rational, but in fact are not. One sign that you aren't being rational is when you don't think critically, quantitiavely, specifically and probabalistically about possible future states
    - fosk 9y ago
      Is Gold in a bubble right now? Because the current price of Gold strongly exceeds the intrinsic value of the material and it has been like that for a while. Bitcoin has pivoted away from being a currency. Bitcoin is now a store of value, like gold.
      - aaavl2821 9y ago

grandalf 9y ago

Dai seems like a clever idea, but I'm not convinced it will ultimately be necessary. For one thing, the idea that dollars are stable is illusory. And the volatility we see in BTC these days is largely due to the ratio of speculation to storing value in its usage pattern. So if you buy 500 Dai with Bitcoin today, and the price of Bitcoin goes up, you simply have more Dai to spend, and if the price goes down, you have less to spend, but all the while Dai was pegged to USD and the exchange was going on behind the scenes. Two factual quibbles with the article, in case you can offer insight: The example about doing a bet using Ether does not make sense, because chances are the smart contract would collect collateral for the bet at the time it was made, with the idea that upon resolution of the outcome the collateral would be used to pay off the bet. So if I bet 1 ETH on the superbowl outcome, 1 ETH is collected from me and from my counter-party, and then after the game finishes the smart contract awards 2 ETH to the winner. The other issue has to do with commerce. What's the difference between a store marking prices in USD and also accepting payment in BTC vs marking prices in Dai? During checkout, if I'm paying with BTC I'll see how much BTC my purchase will cost. If the price in dollars is more useful to shoppers than the price in BTC, then merchants will denominate in dollars. Dai would seemingly just involve a predefined method of doing the exchange rate math (and fees), but I'm not clear on why this is really a significant advantage.

wpietri 9y ago

One of the other parallels that interests me is that there's very little incentive to be publicly skeptical of the nonsense. People were immensely critical of Warren Buffett during the dot-com bubble. He was frank that their valuations didn't make sense to him, and he took a pasting for it. He turned out to be right, but only after taking a lot of heat: http://news.bbc.co.uk/2/hi/business/1217716.stm http://news.bbc.co.uk/2/hi/business/1217716.stm There's little glory or money in being critical of Bitcoin and cryptocurrencies. But there is a great deal of money and attention for hyping them. That means anybody new to the topic receives an unbalanced information diet, deepening the problem. Even if I were a Bitcoin fan I'd be concerned about this; bubbles misallocate resources and cause a lot of damage when they pop. The taint can last a long time. E.g., it took Florida decades to recover from their 1920s land boom.

s17n 9y ago
Calling bitcoin a bubble seems like the wrong word. There are basically two possible outcomes: total market cap zero, or in the trillions. How much you think bitcoin is worth depends on your guess (and it really is just a guess, nobody has any idea what is going to happen) about the relative likelihood of each.
- rsynnott 9y ago
  I would have thought the third was that it maintains some sort of marginal utility, but isn’t worth much. Though it’s becoming increasingly useless, really.
- aaavl2821 9y ago
  From Wikipedia: "An economic bubble or asset bubble (sometimes also referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, a speculative mania, or a balloon) is trade in an asset at a price or price range that strongly exceeds the asset's intrinsic value." Seems like a reasonable description of bitcoin to me I have yet to see a well thought out, rational, specific description of the intrinsic value of bitcoin. If it is the case that people think it will either be zero or a trillion market cap, that suggests to me that people aren't thinking seriously about the real world end game for bitcoin and thus that there's is no solid bounding of the potential intrinsic value Bubbles are formed by people who think they are being rational, but in fact are not. One sign that you aren't being rational is when you don't think critically, quantitiavely, specifically and probabalistically about possible future states
  - fosk 9y ago
    Is Gold in a bubble right now? Because the current price of Gold strongly exceeds the intrinsic value of the material and it has been like that for a while. Bitcoin has pivoted away from being a currency. Bitcoin is now a store of value, like gold.
    - aaavl2821 9y ago