4 ms·

There are some huge differences between the dot-com bubble and cryptocurrencies. Firstly, practically everyone who invests in cryptocurrencies knows that there

There are some huge differences between the dot-com bubble and cryptocurrencies. Firstly, practically everyone who invests in cryptocurrencies knows that there is a chance that they could drop massively - Nobody is being deceived. If anything, I would say that most buyers tend to underestimate the technical accomplishments and the amount of vision behind most popular cryptocurrencies. Secondly, unlike companies, cryptocurrencies can never* go bankrupt. They cannot be shut down by any single government. There will always be developers with machines somewhere willing to mine coins. It's already possible to build businesses/services on top of blockchains and these businesses have a huge advantage over regular businesses; they can never go bankrupt. Also, they are completely autonomous. There was a lot of publicity around DAO (and its subsequent failure) but in spite of this, there are already value-creating businesses based on Blockchain technology which are currently operating under the radar: e.g. IOTA is a cryptocurrency but it's also platform that lets users buy and sell data directly from internet-connected sensors also Siacoin is a file-storage service, Power Ledger is an electricity marketplace... There are many others. Another huge advantage of most blockchain-based businesses is that anyone with hardware (or virtual machines) can participate in the value-creation process and be rewarded for it. * Unless maybe there is another massive Carrington Event... But even then it's unlikely that the blockchain of major cryptocurrencies will be completely wiped out.

michaelchisari 9y ago
knows that there is a chance that they could collapse completely - Nobody is being deceived I think this is your bias based on the people bought in within your circle, but when technologies like this hit the mainstream, that's never the case.
- jondubois 9y ago
  Maybe, but the word 'bubble' comes up quite regularly in the media when discussing Bitcoin. Surely it's somewhere at the back of people's minds.
  - RyanZAG 9y ago
    There's an interesting psychological effect there. Maybe before people buy it, the idea of it being a bubble is first and foremost in their mind. After they buy some, and they see it make them money, it's probably not a big concern for them anymore. Once they've convinced themselves that it's a valuable investment and have purchased multiple times, the very idea that it could be a bubble is something they will be purposefully be blocking out to keep their view of themselves as rational actors intact. So you'd probably be surprised how many people will very quickly refuse or mock the idea that Bitcoin could be a bubble. This is especially so if people do the usual thing and actually merge the idea of being a 'Bitcoin investor' into their own personal self image. At that point, all bets are off, and a Bitcoin crash can quickly become a suicide event. It's why we have laws around investments and gambling to try and protect people.
drcode 9y ago
Actually, I'm happy to go on record and say I'm 100% sure Bitcoin/Ethereum/etc will never collapse completely (i.e. obtain a value of $0)
- cbr 9y ago
  If a sha-256 exploit came out relatively suddenly, such that anyone could generate private keys for a given account key, bitcoin's value really would go to $0. I don't think this is likely, but I think maybe 1% over the next 10y is reasonable.
  - sciyoshi 9y ago
    Not quite. A sha256 preimage attack would possibly let one mine blocks more quickly, but would be significantly more difficult than a collision attack, which won't help you in this case. On the other hand, finding private keys for a given account would require solving elliptic curve discrete logarithms, and only then for bitcoin addresses which have been used as inputs to transactions. (This is one reason why change addresses are a good idea).
    - cbr 9y ago
      Generating a private key for a given public key is computationally infeasible with current approaches: right now you'd just have to brute force it. But if someone finds a vulnerability they might be able to cut that time down to where it's commercially viable to get the private keys. At which point there's no way for anyone to prove they're the true owner of an address.
- oculusthrift 9y ago
  if the value of a bitcoin was worth less than the amount to mine it everywhere in the world, why would people continue to mine?
Florin_Andrei 9y ago
Blockchain-like technologies are here to stay, for currency as well as other things. Whether it's the current incarnations (Bitcoin, Ethereum, etc) or some future ones, remains to be seen. I am certain the concept will persist. I am just unsure which version(s) of it will carry on the torch. > cryptocurrencies can never go bankrupt* Well, memes die all the time. CCs can still die, but arguably it will be a "true death" - sort of like a global agreement that the thing has become useless. I also want to point out that a lot of these algorithms are based on consensus. It is conceivable that someone with lots of resources could build up lots of fictional players to try and swing the "consensus" in a certain direction.
vannevar 9y ago
One big difference between the dot-com stocks and cryptocurrencies is that cryptocurrencies have a sizable captive market: people who have little choice but to use them. They are the best available solution for anonymous transactions and money laundering, so even with the enormous deflation and high transaction fees that have made them a failure in the legal economy, they're still very useful in illegal markets as a medium of exchange. While the deflation doesn't deter people from spending cryptocurrency in illegal markets, it does deter the recipients from cashing out. And this trend will accelerate as the deflation accelerates. If you're a drug dealer and you receive bitcoin, you have to cash out some portion to pay your people. But now, maybe they're ok with getting bitcoin, too. Even if they don't, you'll hang on til the last second before you cash out, and you'll strive to cash out less and less as the price rises faster and faster, essentially becoming a captive speculator. Of course, if the price crashes somehow, you'll cash out faster, but because accepting bitcoin is a core part of your business, you'll never stop buying entirely. The question is, where is the natural "floor", based on the volume of illegal transactions and the rate of mining? Is it close to $15K or closer to $1K?
- nicky0 9y ago
  Why only consider illegal transactions? Are you saying the number of legal transactions is negligible?
  - jackweirdy 9y ago
    Are there legal transactions where you're forced to use bitcoin? The no-choice transactions are the ones the parent commenter was discussing
  - vannevar 9y ago
    Compared to speculation and illegal transactions, I believe it is negligible. The number of places accepting cryptocurrency is not growing at anything like the rate at which the currencies are appreciating. There's just no incentive to use such an incredibly deflationary currency for purchases, given the difficulty compared to using ordinary credit. Except in markets that have no viable choice.
workthrowaway27 9y ago
> Secondly, unlike companies, cryptocurrencies can never* go bankrupt. They cannot be shut down by any single government. There will always be developers with machines somewhere willing to mine coins. Here's one way cryptocurrencies could go bankrupt: The US government decides it doesn't like cryptocurrencies because of their use in money laundering and other illicit activities, so it puts severe restrictions on conversion between USD and BTC (or whatever other cryptocurrency) by going after the exchanges. The value of a cryptocurrency is that you can convert it into a fiat currency, ie, one you can actually buy real things with. If that starts being restricted, then the value will plummet.

michaelchisari 9y ago

knows that there is a chance that they could collapse completely - Nobody is being deceived I think this is your bias based on the people bought in within your circle, but when technologies like this hit the mainstream, that's never the case.

jondubois 9y ago
Maybe, but the word 'bubble' comes up quite regularly in the media when discussing Bitcoin. Surely it's somewhere at the back of people's minds.
- RyanZAG 9y ago
  There's an interesting psychological effect there. Maybe before people buy it, the idea of it being a bubble is first and foremost in their mind. After they buy some, and they see it make them money, it's probably not a big concern for them anymore. Once they've convinced themselves that it's a valuable investment and have purchased multiple times, the very idea that it could be a bubble is something they will be purposefully be blocking out to keep their view of themselves as rational actors intact. So you'd probably be surprised how many people will very quickly refuse or mock the idea that Bitcoin could be a bubble. This is especially so if people do the usual thing and actually merge the idea of being a 'Bitcoin investor' into their own personal self image. At that point, all bets are off, and a Bitcoin crash can quickly become a suicide event. It's why we have laws around investments and gambling to try and protect people.

drcode 9y ago

Actually, I'm happy to go on record and say I'm 100% sure Bitcoin/Ethereum/etc will never collapse completely (i.e. obtain a value of $0)

cbr 9y ago
If a sha-256 exploit came out relatively suddenly, such that anyone could generate private keys for a given account key, bitcoin's value really would go to $0. I don't think this is likely, but I think maybe 1% over the next 10y is reasonable.
- sciyoshi 9y ago
  Not quite. A sha256 preimage attack would possibly let one mine blocks more quickly, but would be significantly more difficult than a collision attack, which won't help you in this case. On the other hand, finding private keys for a given account would require solving elliptic curve discrete logarithms, and only then for bitcoin addresses which have been used as inputs to transactions. (This is one reason why change addresses are a good idea).
  - cbr 9y ago
    Generating a private key for a given public key is computationally infeasible with current approaches: right now you'd just have to brute force it. But if someone finds a vulnerability they might be able to cut that time down to where it's commercially viable to get the private keys. At which point there's no way for anyone to prove they're the true owner of an address.
oculusthrift 9y ago
if the value of a bitcoin was worth less than the amount to mine it everywhere in the world, why would people continue to mine?

Florin_Andrei 9y ago

Blockchain-like technologies are here to stay, for currency as well as other things. Whether it's the current incarnations (Bitcoin, Ethereum, etc) or some future ones, remains to be seen. I am certain the concept will persist. I am just unsure which version(s) of it will carry on the torch. > cryptocurrencies can never go bankrupt* Well, memes die all the time. CCs can still die, but arguably it will be a "true death" - sort of like a global agreement that the thing has become useless. I also want to point out that a lot of these algorithms are based on consensus. It is conceivable that someone with lots of resources could build up lots of fictional players to try and swing the "consensus" in a certain direction.

vannevar 9y ago

One big difference between the dot-com stocks and cryptocurrencies is that cryptocurrencies have a sizable captive market: people who have little choice but to use them. They are the best available solution for anonymous transactions and money laundering, so even with the enormous deflation and high transaction fees that have made them a failure in the legal economy, they're still very useful in illegal markets as a medium of exchange. While the deflation doesn't deter people from spending cryptocurrency in illegal markets, it does deter the recipients from cashing out. And this trend will accelerate as the deflation accelerates. If you're a drug dealer and you receive bitcoin, you have to cash out some portion to pay your people. But now, maybe they're ok with getting bitcoin, too. Even if they don't, you'll hang on til the last second before you cash out, and you'll strive to cash out less and less as the price rises faster and faster, essentially becoming a captive speculator. Of course, if the price crashes somehow, you'll cash out faster, but because accepting bitcoin is a core part of your business, you'll never stop buying entirely. The question is, where is the natural "floor", based on the volume of illegal transactions and the rate of mining? Is it close to $15K or closer to $1K?

nicky0 9y ago
Why only consider illegal transactions? Are you saying the number of legal transactions is negligible?
- jackweirdy 9y ago
  Are there legal transactions where you're forced to use bitcoin? The no-choice transactions are the ones the parent commenter was discussing
- vannevar 9y ago
  Compared to speculation and illegal transactions, I believe it is negligible. The number of places accepting cryptocurrency is not growing at anything like the rate at which the currencies are appreciating. There's just no incentive to use such an incredibly deflationary currency for purchases, given the difficulty compared to using ordinary credit. Except in markets that have no viable choice.

workthrowaway27 9y ago

> Secondly, unlike companies, cryptocurrencies can never* go bankrupt. They cannot be shut down by any single government. There will always be developers with machines somewhere willing to mine coins. Here's one way cryptocurrencies could go bankrupt: The US government decides it doesn't like cryptocurrencies because of their use in money laundering and other illicit activities, so it puts severe restrictions on conversion between USD and BTC (or whatever other cryptocurrency) by going after the exchanges. The value of a cryptocurrency is that you can convert it into a fiat currency, ie, one you can actually buy real things with. If that starts being restricted, then the value will plummet.