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I am still struggling to understand the whole crypto currency thing. I just don't get it. Clearly, it has become a tool for speculation and quick money for most

I am still struggling to understand the whole crypto currency thing. I just don't get it. Clearly, it has become a tool for speculation and quick money for most people. Everyone is trying to get on the crypto bandwagon but to speculate. What is the point ? I thought it was supposed to decentralize currency and make it easy to "transact" with low fees and less redtape. Also I could be really dumb but isn't centralized wallets/exchanges like coinbase defeating the entire purpose of crypto currency ? Weren't we supposed to manage it peer to peer so that anyone could get paid anytime without worrying about borders and boundaries ?

yohann305 9y ago
well said. You know what makes me really sad? This money ($Billions+) is being stored in cryptocurrencies instead of being put to good use, such as investing in companies that actually build things... Am I seeing it wrong? Tell me! Note: I am not a big fan of the stock market either (it's pretty much a fake investment), we need investing 2.0, we have the tools, we just need the "Elon Musk" of finance Note #2: I don't do what i'm preaching. I do own Ethereum because i'm hoping the smart contract layer might actually become useful someday (right now there are about 1000 DApps and they aren't that useful just yet IMHO)
- JonFish85 9y ago
  Just to play devil's advocate on this, the money in the stock market (i.e. any stock transaction outside of a public offering) is generally not being invested in companies that actually build things, it's getting stored.
  - yohann305 9y ago
    i totally agree, i am not a big fan of the stock market, we need investing 2.0, we have the tools, we just need the "Elon Musk" of finance
  - criddell 9y ago
    It's stored, but isn't it also being loaned out as well? Isn't that part of how the money supply grows - fractional reserve?
    - JonFish85 9y ago
      "isn't it also being loaned out as well" Hm? In the stock market, you pay a current stockholder for their share(s). The company sees no money from the transaction. It sounds like what you're thinking of is banking, which is something different.
      - vasilipupkin 9y ago
        incorrect. the company sees money from the transaction in several indirect ways. the existence of the market is what enabled the company to go public in the first place.
        hndamien 9y ago
        They also see money from the increased valuation of the stock they are still holding. This can be used to be borrowed against or sold.
      - criddell 9y ago
        I was mostly thinking about brokers. If I buy stock and hold it in my brokerage account, doesn't the brokerage use that money and stock to generate even more wealth? For example, they might loan my stock to somebody that wants to short that company.
  - blibble 9y ago
    not really true, your broker will often lend out your shares for a fee or use them as collateral for their own business
- to3m 9y ago
  The people that got the money probably didn't put it under their bed.
- gonvaled 9y ago
  What do you mean "stored"? The fiat used to buy bitcoins went to sellers, so they have it. The current "valuation" suffers from the same issues as the valuation of any asset.
  - PeterisP 9y ago
    A significant part (literal billions of dollars) of fiat used to buy bitcoins went to miners direct electricity expenses, and those extreme amounts of resources were permanently spent, possibly wasted. It's not a zero-sum game, as sustaining the current system costs a lot. A quick, rough calculation - if ~30 TWh were spent on mining Bitcoin, and the marginal rate of death for electricity generation is at least 100 per TWh (https://www.forbes.com/sites/jamesconca/2012/06/10/energys-deathprint-a-price-always-paid https://www.forbes.com/sites/jamesconca/2012/06/10/energys-d... or https://www.nextbigfuture.com/2016/06/update-of-death-per-terawatt-hour-by.html https://www.nextbigfuture.com/2016/06/update-of-death-per-te...), this means that we have sacrificed the lives of at least 3000 people to make this happen. Are the benefits worth this cost?
    - chrisdbaldwin 9y ago
      Are the costs of the current paradigm any different?
      - PeterisP 9y ago
        Yes, any other international electronic payment system (Fedwire, SEPA, SWIFT, Visa, Mastercard, etc) requires much, much less (Thousandfold? more? It's tricky to estimate) energy resources per transaction. Bitcoin consumes more electricity than whole small nations, and in each of those small nations that electricity is sufficient to run a financial industry that processes much more transactions than Bitcoin, and leaves enough energy for other industries as well. Bitcoin proof-of-work principle means that the power wasted (intentionally, to prove that work has been done) on a single transaction is absolutely ridiculous. Clearing transactions, the (comparably small) part of a financial transfer that Bitcoin does, is comparably simple and easy and constitutes a minority of both the effort and cost of financial transactions. Things like dispute resolution, fraud control, client-side tools, customer service and acquisition, etc take more than that, but that's not included in the standard Bitcoin transaction fee / miner's expense.
- criddell 9y ago
  Do you have the same complaint about gold? To me, they seem very similar from a gambling perspective.
  - yohann305 9y ago
    yes, i'd rather buy a farm and no gold (someday i'll buy a urban farm)
  - madeofpalk 9y ago
    Is gold used as an investment/speculation vehicle? My impression was that generally was quite ill advised to 'invest' into gold.
  - j0rd 9y ago
    Gold has been used as a store of value for countries which do not trust their fiat. It's also used to speculate. It's also used in industry. It's actually pretty easy to turn gold into fiat and vice versa outside of north America. It's also fairly easy to do it in North America as well. The spread between buy/sell is also quite low.
- binaryorganic 9y ago
  There's beginning to be a lot of movement in the alt-coin space where people are trying to DO things with the blockchain, far beyond just a store of value. There's not a lot of love here on HN for a lot of that effort, but it's not terribly controversial to say that there are a large number of dev teams working on products in a multitude of fields that are putting the blockchain to work. The controversy seems to be whether blockchain tech is a sensible solution to some of these problems (that is, people ARE actually building lots of things, but the verdict is contentiously out on how sensible/lasting those things will be).
  - balefrost 9y ago
    I guess it depends on how you define "blockchain". If it's a system that involves distributed, untrusted participants and the need for proof-of-work, then I too wonder how useful that ends up being in the general case.
    - erikpukinskis 9y ago
      The general case is: federation of individuals can compete with single large corporation because cryptocontracts provide equivalent operational stability to what a single controlling entity can provide. When corporate bylaws are written in code, you can replace a single legal entity with thousands of former employees operating as sole proprietorships.
      - balefrost 9y ago
        Sure, but you don't need proof-of-work for that. All you need is for every participant to ratify the bylaws-as-code, which you can do with simple public/private signing. The only reason that proof-of-work is needed for a currency is that the ledger is changing constantly. For something that changes infrequently, the double-spend problem (or the contractual equivalent) isn't nearly as big of a deal. Like I said, it depends on how you define "the blockchain". Many problems don't involve an open set of untrusted peers, and many problems don't require proof-of-work. So if you include those in the definition, then the blockchain isn't appropriate for a lot of those problems. And if you exclude those aspects, then what do you have left? A chain of cryptographically signed nodes that each point to their predecessor? That's been an underpinning of x.509 for, what, over 20 years? It's nothing new.
- mistercow 9y ago
  I don't think you're seeing it entirely wrong, but there are other effects this is having other than locking away money. One positive effect this is possibly having (I haven't seen a direct analysis of this) is to boost GPU R&D. Right now it sucks for people who want to use GPUs for other things, because it's causing shortages, but that's presumably not a permanent state of affairs. And better GPUs will be good for a lot of other fields, particularly AI.
- makomk 9y ago
  Part of the reason Bitcoin's value exploded the way it did is probably because stock market valuations have been looking rather frothy lately; there's a lot more money out there looking for good uses to which it can be put than there is actual investments.
DennisP 9y ago
That was the point, according to the original Bitcoin paper: https://bitcoin.org/bitcoin.pdf https://bitcoin.org/bitcoin.pdf It's just not reality for today's Bitcoin. We'll need better scaling in production to make it reality, either on Bitcoin or other cryptocurrencies.
- snikeris 9y ago
  The dream lives on in Bitcoin Cash. Edited to provide additional information: - low fees ($0.01) to have your transaction confirmed in next block - zero confirmation transactions safe for most users - same pre-fork ledger - businesses are starting to integrate with the technology because it's usable again (e.g. yours.org)
  - lawlessone 9y ago
    No that was just a scam to avoid the implementation of segwit and off chain transactions. Even satoshi(before you try to cite him) himself said off chain might be needed.
    - snikeris 9y ago
      If Bitcoin Cash is still going strong in a year, with businesses continuing to build on it, would you still consider it a scam?
      - lawlessone 9y ago
        Yes i will, there are some other terrible coins still going(tron, IOTA).It's survival doesn't make it not a scam. Doge coin is still going even though the creator did it as a joke. Bitcoin cash has by forking from bitcoin itself also guaranteed it would have users as it gave everyone who had bitcoin some bitcoin cash. It's a clone of bitcoin with the brakes removed.
        snikeris 9y ago
        What would change your mind about Bitcoin Cash being a scam? For me, it would be its value plummeting to near-zero. If no one values it or uses it for anything, I'll be convinced it was a scam. Now, your turn.
ebbv 9y ago
Remember the Pet Rock? Well.....
baxtr 9y ago
Same here. I’m also worried that a lot of people around the globe will lose their hard earned savings. Think about, it’s the first time in human history that a Ponzi scheme can go global thanks to modern communication tools and low barriers to participate. Most coins/ICOs are currently selling a dream. Nothing more
- rburhum 9y ago
  Not to be nitpicking, but Charles Ponzi and Madoff did fraud at global scale.
  - saalweachter 9y ago
    Where Bitcoin really innovates in the Ponzi-space is decentralization. You could arrest Madoff and put an end to his scam, there is no easy way to shut down Bitcoin. It is like HYDRA.
    - rburhum 9y ago
      Shutdown exchanges in the US, South Korea, China and Japan and you'll see how quickly everything explodes. Just the mere suggestion that South Korea was about to do this tanked the market.
  - baxtr 9y ago
    Good catch. I’m not familiar with the original Ponzi scheme, but as far as I know Madoff was targeting rich people. The crypto scheme has reached the gambling masses at scale
theseatoms 9y ago
The long-term value will be in the ability to send censorship-proof funds anywhere there's an internet connection. The Lightning Network (yet to be deployed in production) is supposedly going to reduce transaction fees and confirmation times. >but isn't centralized wallets/exchanges like coinbase defeating the entire purpose of crypto currency This is true. This is my biggest problem with the current ecosystem. If history is any guide, they'll eventually suffer from some sort of scandal and/or run that drives customers to a superior competitor. This only kicks the can, I realize, and is far from the original vision. But at least each centralized service learns from the costly mistakes of previous ones.
- schmidty 9y ago
  There are 100 lightning nodes running in production currently.
  - just_one_time_ 9y ago
    It is not a usable system. If you think it is read up some more on the traveling salesman problem.
  - theseatoms 9y ago
    I stand corrected.
- just_one_time_ 9y ago
  Coinbase is best thought of as an on ramp. Best case, one can deposit funds, trade to BTC and withdraw to a personal wallet in a matter of days. There is no reason to keep funds on a website and it is advised against in the community.
- phpnode 9y ago
  I see this argument about censorship resistance a lot but I don't really understand it. If the main purpose of the technology is to evade law enforcement is this not a massive reason for governments to ban cryptocurrencies? The user of the technology is presumably committing a crime.
rburhum 9y ago
You need a point where the cryptocurrency changes to fiat (e.g. USD). At certain scale, you cannot meet at a venue and do face-to-face cash transactions. That is why those exist. Also, those are friction points where anti-money laundering programs and (light) anti-fraud regulations exist.
monadmancer 9y ago
The crypto people who claim to "get it" say it's a game theoretic hack to bootstrap the development of a global distributed ecosystem which will ultimately allow for internet technologies we haven't conceived of yet.
Cthulhu_ 9y ago
Centralized wallets are so that clients don't need to download the whole blockchain locally; this will always remain a challenge for blockchain tech, unless there's a p2p version where everyone in the network only needs part of the blockchain, or there's some other form of smart sharding. Centralized exchanges will remain a thing for rapid and cheap exchange; Bitcoin in particular has the flaw that it's slow and expensive to transfer between wallets, so the exchanges provide a fast alternative. You give up the decentralized nature in favor of fast and cheap transfers between wallets and currencies. This is more for the traders though.
- ryanisnan 9y ago
  So perhaps you can help clarify one thing. In the absence of an exchange, if I wanted to pay you $20, how exactly would this establish itself as truth on the block chain?
  - vec 9y ago
    In theory, we could either have one of us run a mining node for long enough to confirm the transaction or we could find a third-party miner to do it for us on whatever terms we could negotiate directly with them. In practice, running a mining node without specialized equipment is prohibitively expensive so we're stuck finding a third party. Most of those third parties are looking to do a volume business and aren't interested in one-off small dollar transactions, so it's centralized exchanges or nothing.
    - hndamien 9y ago
      No, that isn't how it works at all. You would broadcast a transaction to your friend for $20. It would sit in the mempool and eventually get picked up by miner and would then be forever logged in the blockchain.
      - ryanisnan 9y ago
        So is it possible to broadcast a transaction saying "they paid me X", or is it limited to broadcasting transactions saying "I paid them X"?
ezoe 9y ago
This. I was following bitcoin(not mined or owned it) from the beginning but these days, people don't run full node or not even have a wallet in their local storage. They just relies on convenient online wallet services. It just ruins the whole point of bitcoin.
bobcostas55 9y ago
Here's the best possible view of crypto: When the internet first got going, everything worked with protocols. Protocols are open, decentralized, interopable. Think email. Anyone can send an email as long as they follow the protocol. Then people figured out that you can't make any money from protocols. Instead we got platforms: closed, centralized, and most importantly monetizable. Think facebook. Cryptocurrencies are a way to combine open protocols with making money. Instead of building a cloud-storage business, you build a cloud-storage protocol and make money on the coin that is used within that protocol. ICOs are how you fund development of these protocols. Now, in reality, a huge number of coins are borderline useless or outright scams, and the current valuations are absurd. But long-term I think it's a very valuable technology.
- dvdhnt 9y ago
  I really like your description - it's easy to understand and is brutally honest.
- ljoshua 9y ago
  For those of us still trying to wrap our heads around the value you described here (btw I do like the level of simplification you've introduced), can you explain how the coin would effectively be used in the cloud-storage protocol you suggested? I'm just not connecting the dots yet.
  - tashoecraft 9y ago
    https://sia.tech/ https://sia.tech/
  - monadmancer 9y ago
    Protocol operators running "full nodes" are paid in tokens for performing the service outlined in the protocol. The protocols are ultimately developer tools for user facing apps. Most of the user facing apps aren't mature enough to be notable, just like the internet wasn't all that exciting in the early 90s.
    - 9y ago
colordrops 9y ago
That's why the BCH fork was created. The BTC chain's devs mostly work for Blockstream, who's business model is to create layer 2 payment solutions, so it's in their interest to choke off the main chain.
- haakon 9y ago
  > The BTC chain's devs mostly work for Blockstream This is not true, at all. Only one of the regular Bitcoin Core contributors, Pieter Wuille, works at Blockstream. Other companies, Chaincode in particular (http://chaincode.com/#team http://chaincode.com/#team) have many more Bitcoin Core developers.
  - colordrops 9y ago
    If you are going to correct someone you shouldn't lie: Current and former Blockstream employees that work on core or have worked on core: * Dr. Pieter Wuille * Greg Maxwell (CTO) * Andrew Poelstra * Mark Friedenbach (Founder) * Luke Jr (Contractor for Blockstream)' * Jorge Timón (Founder) * Patrick Strateman (core tech engineer) * ฿tcDrak (anonymous dev, but publicly support blockstream) The list is more extensive than this, but I can't be bothered to waste my time. Your propaganda and lies are disgusting.
    - haakon 9y ago
      Wow, I was going by who currently works for Blockstream, and who contributes to Core. Your list is not that. Luke was never an employee at Blockstream, Poelstra doesn't contribute to Core, Maxwell has left, BtcDrak only "supports" Blockstream, in your opinion etc. Perhaps Timón is still there, and I'm very sorry if I forgot him. I assure you it was not on purpose, and I'm sorry to see that you assume bad faith. I didn't mean to be "disgusting".
      - colordrops 9y ago
        Luke works for Blockstream as a contractor. Does that not count? Still seems like a conflict of interest. Maxwell JUST left a few days ago and spent plenty of time at both Blockstream and Bitcoin Core simultaneously. Timon is still there. You also left out Strateman. In any case, your strong assertion that only one contributor works at Blockstream is flat out wrong and easily shown to be wrong by anyone with 2 minutes to google. You seem to know all these people, which indicates intentional deception rather than ignorance. I use the word "disgusting" because the choking off of BTC is an intentional play to further a greedy business model and not just an act of stupidity.
mabbo 9y ago
Here's my take: We rely on many central authorities because that was the only way to get safety, security, dependability. Governments enforce ownership, banks maintained records. When the systems were created it was the only way, short of physical ownership of all of your money (who wants $100,000 under their bed?). Blockchains and related technologies offer an alternative. You can have all the same things, but without the need for central authority. That appeals to some people. The centralized wallets and exchanges are indeed a potential problem, but you can always switch your money elsewhere, choose a different central authority or choose none. And whatever you choose, the underlying system is still free from central authority. No one can control what you own except you. The problem that I think is overlooked is that central authorities like governments do more than just that small list of things. They offer protection from inflation and deflation. They offer protection from scams (rollback of the transaction, if you will). They can use physical violence (arrest, confinement, and so on) to enforce their central authority. They can enforce, to some degree, that illegal actions aren't occurring using their centrally controlled currencies. Blockchains do not offer that- for better or worse, you decide.
- kylell 9y ago
  you should edit "some central authorities" in my country for example the central authority inflates the money without shame.
- TeMPOraL 9y ago
  > We rely on many central authorities because that was the only way to get safety, security, dependability. Governments enforce ownership, banks maintained records. When the systems were created it was the only way, short of physical ownership of all of your money (who wants $100,000 under their bed?). It most likely still is, and forever will be, in any practical sense. Bitcoin, et al. provide an alternative through literally flushing humongous amounts of energy down the toilet (ironically, at the very moment in history, when we can't afford to do that). Energy requirements for maintaining the integrity of blockchains is unbounded and scales up with network use. If we were to accept Bitcoin as the primary world currency and use the network for the next hundred+ years, I'm confident we'd had to eventually (within couple of centuries) start sucking stars dry to keep up with the energy requirements. Compare with the "traditional" economic system, which prefers to minimize waste and exploits benefits of centralization to improve efficiency, while still delivering mostly the same thing Bitcoin promises. (In fact, all this gives me an idea for a sci-fi story: humanity is visited by aliens and encouraged to join an interstellar trade empire; only too late they realize that the friendly aliens are going to suck the Sun dry within couple hundred years, in the process of maintaining a blockchain-based interstellar currency.)
creeble 9y ago
I get it a little, but still think this article summarizes the deficiencies well, and concurs with your confusion: Bitcoin Is None Of The Things It Was Supposed To Be https://theoutline.com/post/2592/bitcoin-is-none-of-the-things-it-was-supposed-to-be https://theoutline.com/post/2592/bitcoin-is-none-of-the-thin...
fullshark 9y ago
They keep moving the goalposts. At this point Crypto is just "whatever gets people to invest money into it." Imo it's an experiment in a decentralized privatized currency. And what we're learning is the benefits of centralized banking may outweigh the potential costs (namely inflation, a fairly justified fear depending on where you live).
tzakrajs 9y ago
It comes down to trust and funding. Distributed ledgers, blockchains, smart contracts seem like the only way to operate certain schemes that would typically take a government or other authority to implement in a way that provided parties guarantees about its fairness. The other aspect is that funding for some projects are not going to be achievable through traditional means because the profits from the network are too diffuse and are not concentrated in a single company's share holders. One such scheme is SONM, a soon-to-be network of computers that act like AWS, but in the fog. The network pays suppliers and hubs, while the value of their SNM coin finances the operation of the developers. The value of the coin is that it is the only way to get access to the compute, storage and network your company needs. The prices will be better than AWS.
thisisit 9y ago
One of the reasons centralized wallets/exchange exist is because the technology is difficult to use. This is also in part most of the talk around cryptocurrency is full of jargon, even for simple things which normal people would be able to understand. On that note, shameless self promotion in case someone wants to understand how transaction and fees work in bitcoin and most cryptocurrencies, I have written this post: https://medium.com/@smith.garg/fees-calculation-in-bitcoin-and-other-cryptocurrencies-explained-ef2f9ca35320 https://medium.com/@smith.garg/fees-calculation-in-bitcoin-a...
koonsolo 9y ago
Forget about speculations, market caps and all those investment strategies such as hodl. After you forget about that, take a look at the posibilities this new tech has to offer. 3rd gen crypto is here, with instant transactions and 0 fees. It's working today. Try RaiBlocks if you don't believe me. Imagine that you own a fully automated Tesla. When you're not driving it, it's making money, driving Lyft and Uber passengers. When it needs to recharge, it goes to the most advantaged station and recharges. The cool thing about this device is that it's a real actor in the economy, making money, and paying for things it needs. If you give this device some pocket money such as IOTA, it can receive payments from anyone, and pay for electricity in any station. Each coin that goes over budget is passed to your account, or maybe to multiple if it's co-owned. Remember 0 fees and instant transactions. In such a wold, why would you work with wire transfers from a bank account, if you can let machines work with "cash" internet money? If such internet money is worth $0.000001, it has value, because you can make instant, feeless transactions with it. A corrupt state is also not able to mess with your money. So yeah, I see a bright future for cryptocurrency. Even when the market crashes, it will still have value and plenty of usecases where it dominates all other options.

yohann305 9y ago

well said. You know what makes me really sad? This money ($Billions+) is being stored in cryptocurrencies instead of being put to good use, such as investing in companies that actually build things... Am I seeing it wrong? Tell me! Note: I am not a big fan of the stock market either (it's pretty much a fake investment), we need investing 2.0, we have the tools, we just need the "Elon Musk" of finance Note #2: I don't do what i'm preaching. I do own Ethereum because i'm hoping the smart contract layer might actually become useful someday (right now there are about 1000 DApps and they aren't that useful just yet IMHO)

JonFish85 9y ago
Just to play devil's advocate on this, the money in the stock market (i.e. any stock transaction outside of a public offering) is generally not being invested in companies that actually build things, it's getting stored.
- yohann305 9y ago
  i totally agree, i am not a big fan of the stock market, we need investing 2.0, we have the tools, we just need the "Elon Musk" of finance
- criddell 9y ago
  It's stored, but isn't it also being loaned out as well? Isn't that part of how the money supply grows - fractional reserve?
  - JonFish85 9y ago
    "isn't it also being loaned out as well" Hm? In the stock market, you pay a current stockholder for their share(s). The company sees no money from the transaction. It sounds like what you're thinking of is banking, which is something different.
    - vasilipupkin 9y ago
      incorrect. the company sees money from the transaction in several indirect ways. the existence of the market is what enabled the company to go public in the first place.
      - hndamien 9y ago
        They also see money from the increased valuation of the stock they are still holding. This can be used to be borrowed against or sold.
    - criddell 9y ago
      I was mostly thinking about brokers. If I buy stock and hold it in my brokerage account, doesn't the brokerage use that money and stock to generate even more wealth? For example, they might loan my stock to somebody that wants to short that company.
- blibble 9y ago
  not really true, your broker will often lend out your shares for a fee or use them as collateral for their own business
to3m 9y ago
The people that got the money probably didn't put it under their bed.
gonvaled 9y ago
What do you mean "stored"? The fiat used to buy bitcoins went to sellers, so they have it. The current "valuation" suffers from the same issues as the valuation of any asset.
- PeterisP 9y ago
  A significant part (literal billions of dollars) of fiat used to buy bitcoins went to miners direct electricity expenses, and those extreme amounts of resources were permanently spent, possibly wasted. It's not a zero-sum game, as sustaining the current system costs a lot. A quick, rough calculation - if ~30 TWh were spent on mining Bitcoin, and the marginal rate of death for electricity generation is at least 100 per TWh (https://www.forbes.com/sites/jamesconca/2012/06/10/energys-deathprint-a-price-always-paid https://www.forbes.com/sites/jamesconca/2012/06/10/energys-d... or https://www.nextbigfuture.com/2016/06/update-of-death-per-terawatt-hour-by.html https://www.nextbigfuture.com/2016/06/update-of-death-per-te...), this means that we have sacrificed the lives of at least 3000 people to make this happen. Are the benefits worth this cost?
  - chrisdbaldwin 9y ago
    Are the costs of the current paradigm any different?
    - PeterisP 9y ago
      Yes, any other international electronic payment system (Fedwire, SEPA, SWIFT, Visa, Mastercard, etc) requires much, much less (Thousandfold? more? It's tricky to estimate) energy resources per transaction. Bitcoin consumes more electricity than whole small nations, and in each of those small nations that electricity is sufficient to run a financial industry that processes much more transactions than Bitcoin, and leaves enough energy for other industries as well. Bitcoin proof-of-work principle means that the power wasted (intentionally, to prove that work has been done) on a single transaction is absolutely ridiculous. Clearing transactions, the (comparably small) part of a financial transfer that Bitcoin does, is comparably simple and easy and constitutes a minority of both the effort and cost of financial transactions. Things like dispute resolution, fraud control, client-side tools, customer service and acquisition, etc take more than that, but that's not included in the standard Bitcoin transaction fee / miner's expense.
criddell 9y ago
Do you have the same complaint about gold? To me, they seem very similar from a gambling perspective.
- yohann305 9y ago
  yes, i'd rather buy a farm and no gold (someday i'll buy a urban farm)
- madeofpalk 9y ago
  Is gold used as an investment/speculation vehicle? My impression was that generally was quite ill advised to 'invest' into gold.
- j0rd 9y ago
  Gold has been used as a store of value for countries which do not trust their fiat. It's also used to speculate. It's also used in industry. It's actually pretty easy to turn gold into fiat and vice versa outside of north America. It's also fairly easy to do it in North America as well. The spread between buy/sell is also quite low.
binaryorganic 9y ago
There's beginning to be a lot of movement in the alt-coin space where people are trying to DO things with the blockchain, far beyond just a store of value. There's not a lot of love here on HN for a lot of that effort, but it's not terribly controversial to say that there are a large number of dev teams working on products in a multitude of fields that are putting the blockchain to work. The controversy seems to be whether blockchain tech is a sensible solution to some of these problems (that is, people ARE actually building lots of things, but the verdict is contentiously out on how sensible/lasting those things will be).
- balefrost 9y ago
  I guess it depends on how you define "blockchain". If it's a system that involves distributed, untrusted participants and the need for proof-of-work, then I too wonder how useful that ends up being in the general case.
  - erikpukinskis 9y ago
    The general case is: federation of individuals can compete with single large corporation because cryptocontracts provide equivalent operational stability to what a single controlling entity can provide. When corporate bylaws are written in code, you can replace a single legal entity with thousands of former employees operating as sole proprietorships.
    - balefrost 9y ago
      Sure, but you don't need proof-of-work for that. All you need is for every participant to ratify the bylaws-as-code, which you can do with simple public/private signing. The only reason that proof-of-work is needed for a currency is that the ledger is changing constantly. For something that changes infrequently, the double-spend problem (or the contractual equivalent) isn't nearly as big of a deal. Like I said, it depends on how you define "the blockchain". Many problems don't involve an open set of untrusted peers, and many problems don't require proof-of-work. So if you include those in the definition, then the blockchain isn't appropriate for a lot of those problems. And if you exclude those aspects, then what do you have left? A chain of cryptographically signed nodes that each point to their predecessor? That's been an underpinning of x.509 for, what, over 20 years? It's nothing new.
mistercow 9y ago
I don't think you're seeing it entirely wrong, but there are other effects this is having other than locking away money. One positive effect this is possibly having (I haven't seen a direct analysis of this) is to boost GPU R&D. Right now it sucks for people who want to use GPUs for other things, because it's causing shortages, but that's presumably not a permanent state of affairs. And better GPUs will be good for a lot of other fields, particularly AI.
makomk 9y ago
Part of the reason Bitcoin's value exploded the way it did is probably because stock market valuations have been looking rather frothy lately; there's a lot more money out there looking for good uses to which it can be put than there is actual investments.

DennisP 9y ago

That was the point, according to the original Bitcoin paper: https://bitcoin.org/bitcoin.pdf https://bitcoin.org/bitcoin.pdf It's just not reality for today's Bitcoin. We'll need better scaling in production to make it reality, either on Bitcoin or other cryptocurrencies.

snikeris 9y ago
The dream lives on in Bitcoin Cash. Edited to provide additional information: - low fees ($0.01) to have your transaction confirmed in next block - zero confirmation transactions safe for most users - same pre-fork ledger - businesses are starting to integrate with the technology because it's usable again (e.g. yours.org)
- lawlessone 9y ago
  No that was just a scam to avoid the implementation of segwit and off chain transactions. Even satoshi(before you try to cite him) himself said off chain might be needed.
  - snikeris 9y ago
    If Bitcoin Cash is still going strong in a year, with businesses continuing to build on it, would you still consider it a scam?
    - lawlessone 9y ago
      Yes i will, there are some other terrible coins still going(tron, IOTA).It's survival doesn't make it not a scam. Doge coin is still going even though the creator did it as a joke. Bitcoin cash has by forking from bitcoin itself also guaranteed it would have users as it gave everyone who had bitcoin some bitcoin cash. It's a clone of bitcoin with the brakes removed.
      - snikeris 9y ago
        What would change your mind about Bitcoin Cash being a scam? For me, it would be its value plummeting to near-zero. If no one values it or uses it for anything, I'll be convinced it was a scam. Now, your turn.

ebbv 9y ago

Remember the Pet Rock? Well.....

baxtr 9y ago

Same here. I’m also worried that a lot of people around the globe will lose their hard earned savings. Think about, it’s the first time in human history that a Ponzi scheme can go global thanks to modern communication tools and low barriers to participate. Most coins/ICOs are currently selling a dream. Nothing more

rburhum 9y ago
Not to be nitpicking, but Charles Ponzi and Madoff did fraud at global scale.
- saalweachter 9y ago
  Where Bitcoin really innovates in the Ponzi-space is decentralization. You could arrest Madoff and put an end to his scam, there is no easy way to shut down Bitcoin. It is like HYDRA.
  - rburhum 9y ago
    Shutdown exchanges in the US, South Korea, China and Japan and you'll see how quickly everything explodes. Just the mere suggestion that South Korea was about to do this tanked the market.
- baxtr 9y ago
  Good catch. I’m not familiar with the original Ponzi scheme, but as far as I know Madoff was targeting rich people. The crypto scheme has reached the gambling masses at scale

theseatoms 9y ago

The long-term value will be in the ability to send censorship-proof funds anywhere there's an internet connection. The Lightning Network (yet to be deployed in production) is supposedly going to reduce transaction fees and confirmation times. >but isn't centralized wallets/exchanges like coinbase defeating the entire purpose of crypto currency This is true. This is my biggest problem with the current ecosystem. If history is any guide, they'll eventually suffer from some sort of scandal and/or run that drives customers to a superior competitor. This only kicks the can, I realize, and is far from the original vision. But at least each centralized service learns from the costly mistakes of previous ones.

schmidty 9y ago
There are 100 lightning nodes running in production currently.
- just_one_time_ 9y ago
  It is not a usable system. If you think it is read up some more on the traveling salesman problem.
- theseatoms 9y ago
  I stand corrected.
just_one_time_ 9y ago
Coinbase is best thought of as an on ramp. Best case, one can deposit funds, trade to BTC and withdraw to a personal wallet in a matter of days. There is no reason to keep funds on a website and it is advised against in the community.
phpnode 9y ago
I see this argument about censorship resistance a lot but I don't really understand it. If the main purpose of the technology is to evade law enforcement is this not a massive reason for governments to ban cryptocurrencies? The user of the technology is presumably committing a crime.

rburhum 9y ago

You need a point where the cryptocurrency changes to fiat (e.g. USD). At certain scale, you cannot meet at a venue and do face-to-face cash transactions. That is why those exist. Also, those are friction points where anti-money laundering programs and (light) anti-fraud regulations exist.

monadmancer 9y ago

The crypto people who claim to "get it" say it's a game theoretic hack to bootstrap the development of a global distributed ecosystem which will ultimately allow for internet technologies we haven't conceived of yet.

Cthulhu_ 9y ago

Centralized wallets are so that clients don't need to download the whole blockchain locally; this will always remain a challenge for blockchain tech, unless there's a p2p version where everyone in the network only needs part of the blockchain, or there's some other form of smart sharding. Centralized exchanges will remain a thing for rapid and cheap exchange; Bitcoin in particular has the flaw that it's slow and expensive to transfer between wallets, so the exchanges provide a fast alternative. You give up the decentralized nature in favor of fast and cheap transfers between wallets and currencies. This is more for the traders though.

ryanisnan 9y ago
So perhaps you can help clarify one thing. In the absence of an exchange, if I wanted to pay you $20, how exactly would this establish itself as truth on the block chain?
- vec 9y ago
  In theory, we could either have one of us run a mining node for long enough to confirm the transaction or we could find a third-party miner to do it for us on whatever terms we could negotiate directly with them. In practice, running a mining node without specialized equipment is prohibitively expensive so we're stuck finding a third party. Most of those third parties are looking to do a volume business and aren't interested in one-off small dollar transactions, so it's centralized exchanges or nothing.
  - hndamien 9y ago
    No, that isn't how it works at all. You would broadcast a transaction to your friend for $20. It would sit in the mempool and eventually get picked up by miner and would then be forever logged in the blockchain.
    - ryanisnan 9y ago
      So is it possible to broadcast a transaction saying "they paid me X", or is it limited to broadcasting transactions saying "I paid them X"?

ezoe 9y ago

This. I was following bitcoin(not mined or owned it) from the beginning but these days, people don't run full node or not even have a wallet in their local storage. They just relies on convenient online wallet services. It just ruins the whole point of bitcoin.

bobcostas55 9y ago

Here's the best possible view of crypto: When the internet first got going, everything worked with protocols. Protocols are open, decentralized, interopable. Think email. Anyone can send an email as long as they follow the protocol. Then people figured out that you can't make any money from protocols. Instead we got platforms: closed, centralized, and most importantly monetizable. Think facebook. Cryptocurrencies are a way to combine open protocols with making money. Instead of building a cloud-storage business, you build a cloud-storage protocol and make money on the coin that is used within that protocol. ICOs are how you fund development of these protocols. Now, in reality, a huge number of coins are borderline useless or outright scams, and the current valuations are absurd. But long-term I think it's a very valuable technology.

dvdhnt 9y ago
I really like your description - it's easy to understand and is brutally honest.
ljoshua 9y ago
For those of us still trying to wrap our heads around the value you described here (btw I do like the level of simplification you've introduced), can you explain how the coin would effectively be used in the cloud-storage protocol you suggested? I'm just not connecting the dots yet.
- tashoecraft 9y ago
  https://sia.tech/ https://sia.tech/
- monadmancer 9y ago
  Protocol operators running "full nodes" are paid in tokens for performing the service outlined in the protocol. The protocols are ultimately developer tools for user facing apps. Most of the user facing apps aren't mature enough to be notable, just like the internet wasn't all that exciting in the early 90s.
  - 9y ago

colordrops 9y ago

That's why the BCH fork was created. The BTC chain's devs mostly work for Blockstream, who's business model is to create layer 2 payment solutions, so it's in their interest to choke off the main chain.

haakon 9y ago
> The BTC chain's devs mostly work for Blockstream This is not true, at all. Only one of the regular Bitcoin Core contributors, Pieter Wuille, works at Blockstream. Other companies, Chaincode in particular (http://chaincode.com/#team http://chaincode.com/#team) have many more Bitcoin Core developers.
- colordrops 9y ago
  If you are going to correct someone you shouldn't lie: Current and former Blockstream employees that work on core or have worked on core: * Dr. Pieter Wuille * Greg Maxwell (CTO) * Andrew Poelstra * Mark Friedenbach (Founder) * Luke Jr (Contractor for Blockstream)' * Jorge Timón (Founder) * Patrick Strateman (core tech engineer) * ฿tcDrak (anonymous dev, but publicly support blockstream) The list is more extensive than this, but I can't be bothered to waste my time. Your propaganda and lies are disgusting.
  - haakon 9y ago
    Wow, I was going by who currently works for Blockstream, and who contributes to Core. Your list is not that. Luke was never an employee at Blockstream, Poelstra doesn't contribute to Core, Maxwell has left, BtcDrak only "supports" Blockstream, in your opinion etc. Perhaps Timón is still there, and I'm very sorry if I forgot him. I assure you it was not on purpose, and I'm sorry to see that you assume bad faith. I didn't mean to be "disgusting".
    - colordrops 9y ago
      Luke works for Blockstream as a contractor. Does that not count? Still seems like a conflict of interest. Maxwell JUST left a few days ago and spent plenty of time at both Blockstream and Bitcoin Core simultaneously. Timon is still there. You also left out Strateman. In any case, your strong assertion that only one contributor works at Blockstream is flat out wrong and easily shown to be wrong by anyone with 2 minutes to google. You seem to know all these people, which indicates intentional deception rather than ignorance. I use the word "disgusting" because the choking off of BTC is an intentional play to further a greedy business model and not just an act of stupidity.

mabbo 9y ago

Here's my take: We rely on many central authorities because that was the only way to get safety, security, dependability. Governments enforce ownership, banks maintained records. When the systems were created it was the only way, short of physical ownership of all of your money (who wants $100,000 under their bed?). Blockchains and related technologies offer an alternative. You can have all the same things, but without the need for central authority. That appeals to some people. The centralized wallets and exchanges are indeed a potential problem, but you can always switch your money elsewhere, choose a different central authority or choose none. And whatever you choose, the underlying system is still free from central authority. No one can control what you own except you. The problem that I think is overlooked is that central authorities like governments do more than just that small list of things. They offer protection from inflation and deflation. They offer protection from scams (rollback of the transaction, if you will). They can use physical violence (arrest, confinement, and so on) to enforce their central authority. They can enforce, to some degree, that illegal actions aren't occurring using their centrally controlled currencies. Blockchains do not offer that- for better or worse, you decide.

kylell 9y ago
you should edit "some central authorities" in my country for example the central authority inflates the money without shame.
TeMPOraL 9y ago
> We rely on many central authorities because that was the only way to get safety, security, dependability. Governments enforce ownership, banks maintained records. When the systems were created it was the only way, short of physical ownership of all of your money (who wants $100,000 under their bed?). It most likely still is, and forever will be, in any practical sense. Bitcoin, et al. provide an alternative through literally flushing humongous amounts of energy down the toilet (ironically, at the very moment in history, when we can't afford to do that). Energy requirements for maintaining the integrity of blockchains is unbounded and scales up with network use. If we were to accept Bitcoin as the primary world currency and use the network for the next hundred+ years, I'm confident we'd had to eventually (within couple of centuries) start sucking stars dry to keep up with the energy requirements. Compare with the "traditional" economic system, which prefers to minimize waste and exploits benefits of centralization to improve efficiency, while still delivering mostly the same thing Bitcoin promises. (In fact, all this gives me an idea for a sci-fi story: humanity is visited by aliens and encouraged to join an interstellar trade empire; only too late they realize that the friendly aliens are going to suck the Sun dry within couple hundred years, in the process of maintaining a blockchain-based interstellar currency.)

creeble 9y ago

I get it a little, but still think this article summarizes the deficiencies well, and concurs with your confusion: Bitcoin Is None Of The Things It Was Supposed To Be https://theoutline.com/post/2592/bitcoin-is-none-of-the-things-it-was-supposed-to-be https://theoutline.com/post/2592/bitcoin-is-none-of-the-thin...

fullshark 9y ago

They keep moving the goalposts. At this point Crypto is just "whatever gets people to invest money into it." Imo it's an experiment in a decentralized privatized currency. And what we're learning is the benefits of centralized banking may outweigh the potential costs (namely inflation, a fairly justified fear depending on where you live).

tzakrajs 9y ago

It comes down to trust and funding. Distributed ledgers, blockchains, smart contracts seem like the only way to operate certain schemes that would typically take a government or other authority to implement in a way that provided parties guarantees about its fairness. The other aspect is that funding for some projects are not going to be achievable through traditional means because the profits from the network are too diffuse and are not concentrated in a single company's share holders. One such scheme is SONM, a soon-to-be network of computers that act like AWS, but in the fog. The network pays suppliers and hubs, while the value of their SNM coin finances the operation of the developers. The value of the coin is that it is the only way to get access to the compute, storage and network your company needs. The prices will be better than AWS.

thisisit 9y ago

One of the reasons centralized wallets/exchange exist is because the technology is difficult to use. This is also in part most of the talk around cryptocurrency is full of jargon, even for simple things which normal people would be able to understand. On that note, shameless self promotion in case someone wants to understand how transaction and fees work in bitcoin and most cryptocurrencies, I have written this post: https://medium.com/@smith.garg/fees-calculation-in-bitcoin-and-other-cryptocurrencies-explained-ef2f9ca35320 https://medium.com/@smith.garg/fees-calculation-in-bitcoin-a...

koonsolo 9y ago

Forget about speculations, market caps and all those investment strategies such as hodl. After you forget about that, take a look at the posibilities this new tech has to offer. 3rd gen crypto is here, with instant transactions and 0 fees. It's working today. Try RaiBlocks if you don't believe me. Imagine that you own a fully automated Tesla. When you're not driving it, it's making money, driving Lyft and Uber passengers. When it needs to recharge, it goes to the most advantaged station and recharges. The cool thing about this device is that it's a real actor in the economy, making money, and paying for things it needs. If you give this device some pocket money such as IOTA, it can receive payments from anyone, and pay for electricity in any station. Each coin that goes over budget is passed to your account, or maybe to multiple if it's co-owned. Remember 0 fees and instant transactions. In such a wold, why would you work with wire transfers from a bank account, if you can let machines work with "cash" internet money? If such internet money is worth $0.000001, it has value, because you can make instant, feeless transactions with it. A corrupt state is also not able to mess with your money. So yeah, I see a bright future for cryptocurrency. Even when the market crashes, it will still have value and plenty of usecases where it dominates all other options.