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I recently was lucky enough to have a conversation with a co-founder of a large cryptocurrency (identifying details redacted for his privacy), and among many ot

by alehul 9y ago

I recently was lucky enough to have a conversation with a co-founder of a large cryptocurrency (identifying details redacted for his privacy), and among many other interesting ideas, he talked about the inflection point for a potential crypto-filled future. He doesn't see people being willing, en masse, to convert the currency they receive (in a paycheck, for example) into another currency unless absolutely necessary. This is a chicken-egg problem if you want crypto widely adopted, where you need the vendors to adopt crypto but it'll likely have to be the government or company first that distributes it to citizens/employees. He specifically mentioned Switzerland as a great country to explore a system like this (think Anti-Venezuela lol); if they were to found/back a decentralized currency, it could quickly reach mass adoption and we could actually function in society on crypto. I'm interested to see whether Switzerland could go that far with their approach. The incentives that could be provided to make it worthy for a country like Switzerland to found/back a currency which they don't ultimately control are unclear, but nonetheless an idealistic concept.

Hermel 9y ago
From an economic perspective, you always have to ask: what are the incentives for someone to switch currencies. At first sight, it does not seem to matter much which unit of account you are using. However, there is in fact a strong financial incentive for the young, working generation to switch to a new currency, thereby devaluing all the nominal savings of the old, retired generation. So even in a country like Switzerland, Bitcoin or another cryptocurrency could be used by the young to brake free from paying an unfairly large share of their income to the old.
- KasianFranks 9y ago
  It's simple, the crypto market rate beats the standard money market rate by leaps and bounds when the average consumer goes cash e.g. during the next downturn or bear market.
- amelius 9y ago
  > However, there is in fact a strong financial incentive for the young, working generation to switch to a new currency, thereby devaluing all the nominal savings of the old, retired generation. Huh? They could switch too. I don't see the advantage. Also, block chain is the perfect tool for governments to track their citizens' spendings.
- nosuchthing 9y ago
  a strong financial incentive for the young, working generation to switch to a new currency, thereby devaluing all the nominal savings of the old, retired generation. That's not how economics works. First, who is producing the new supply? How is the new supply being produced? Hopefully by them, and not a 3rd party that exploits the production and sale of this new medium... The reason proof of work coins have no inherent value, is because there's zero economic demand except from speculators. Coins are generated though software which has a measurable cost, and why would a vendor or nation state expose their real world assets to be traded for a database token produced though this software method? You can't just tell all the kids to start using seashells or cryptocoins for their money because it would have to equate or surpass the abilities of normal cash.. for both client and vendor. If anything, one can imagine a nation state issuing a protocol tied to their centralized treasury but that's not too different than using a debit card.
- pjc50 9y ago
  Changing your unit of account does not make a difference to your employer, your landlord, your utility company, or the shop you buy your groceries at.
- Yizahi 9y ago
  a) switch to a new currency b) thereby devaluing all the nominal savings of the old, retired generation In reality it won't work like that (A -> B). In this world you most likely will devalue net worth of 99% of people (poor) and prop up net worth of 1% of people (rich) simply because they OWN actual assets - whole factories and industries, mines, planes, ships, hotels, etc. everything that is bigger than a phone and more useful than a house. This move (if hypothetically it ever happened) will create even bigger disparity and faster than now, in years instead of decades.
mtgx 9y ago
I'm not sure there's much of a chicken and egg problem at all. The cryptocurrency adoption has steadily increased so far. If anything the biggest problem is understanding how to use cryptocurrencies in the first place. For mass adoption that's where we need to see innovation most (and of course scalability, which is directly tied to mass adoption). I don't see the government adopting/not adopting a cryptocurrency affect adoption in a major way on its own. People who don't understand how to use cryptocurrency still wouldn't use it unless it was forced upon them somehow, like their employer saying their salary will be exclusively offered as cryptocurrency from the next month forward. But that could cause all sorts of issues.
- Asdfbla 9y ago
  >The cryptocurrency adoption has steadily increased so far. For speculation and investment, not for anything currency-like, though.
  - ghthor 9y ago
    Why is that do you think?
    - ldiracdelta 9y ago
      I'd say lack of transaction speed, they're not easy to use, and almost all crypto-currencies lack privacy. Should everyone in the world get to know that I stupidly bought a soda from the vending machine at 3pm? Or worse..
roymurdock 9y ago
It sounds like what you're describing is replacing the functional (read: relatively stable inflation-wise) swiss franc with... ? Assuming you implemented a POW blockchain-based, decentralized (anyone can download and run a node), virtual currency, this would remove control over the supply and generation of the currency from the Swiss National Bank (fiscal and monetary policy experts) and give it to...Chinese cryptocurrency miners + whatever group of developers Switzerland decides to put in charge of maintaining and upgrading the swiss blockchain? What your friend is referring to is actually an idealized economic concept, the "Stablecoin" - one that is pegged to the exact right basket of goods, services, and semi-finished industrial products that it experiences little to no inflation/deflation and can be counted on as a store of value. All countries are or should be trying to create a Stablecoin relative to their own economies - allowing private citizens to assume their $5,000 USD will be able to buy roughly the same amount of goods and services in, say 6 months. All this to say...the Swiss have already created a Stablecoin for their economy...the franc. There is no reason to break up and decentralize an organization that is competently managing a currency. It only makes sense in cases (such as Venezuela) where the central authority is doing a terrible job of managing their currency, and is nowhere near achieving "Stablecoin" status. Or for markets where there is no accepted "Stablecoin" because they are illegal/no enforcement mechanism to honor the transaction (e.g. you can't bring a lawsuit in a US court against a drug dealer if he takes your USD and sells you bad drugs).
- ghthor 9y ago
  There is no reason the governance needs to change, they could still create a distribed mined coin and maintain goverance over the issue and destruction of tokens to maintain stable trading values.
  - roymurdock 9y ago
    Wrong...if you create a distributed mined coin, you're giving power to the miners. You can try and push updates (say from version 1 to version 2) to the nodes, but if the miners choose to ignore those updates, they can hard fork the network and run it according to a past version, or their own version, essentially creating a derivative currency. This has happened to Bitcoin - see bcash, bitcoin gold, bitcoinX, etc. Decentralizing control by definition gives power to all of the nodes in the network, requiring their buy-in to conduct any type of "monetary policy" by changing the source code and rolling out an upgraded application. Any changes that could increase the hash rate, increase the max number of tokens, "destroy" transactions, rollback to a certain state, etc. would require miner cooperation. Whereas right now central banks can just "create" liquidity by tweaking monetary policy without needing the banks and populace to approve and agree to these changes.
blunte 9y ago
Of course it depends on what you intend to do with your money, but for living and operating, local currency is usually most important. Cryptocurrencies serve many specialized needs, particularly in global transfers, but they have little use in day to day, local transactions. Anything that can be traded for value can be considered a currency, so you could theoretically trade equities with other people for goods and services. But usually, that is much less practical than exchanging local fiat currency. Same goes for virtual currencies. Instead, you'll perhaps use virtual currencies as an intermediate currency for simplified financial transfers, or perhaps for storing some of your investments, or for utility reasons (such as tokens which are the utility fee tokens for some exchanges), or perhaps as a form of startup investment (as with ICOs). I do wonder if the effectiveness of bitcoin as a transfer currency was any motivation behind the recent improvement in EU bank to bank transfers. What previously took one or maybe two business days for SEPA transfers has recently been improved to be near instant (so I've read; I haven't paid attention lately). Maybe the banks felt pressure to keep up? Meanwhile, US banking customers are still passing handwritten pieces of paper around. Once US customers get verified accounts with some of the cryptocurrency money exchangers, quick USD->bitcoin->bitcoin->USD transfers are nice and fast and relatively inexpensive (with the recent dramatic drop in bitcoin mining fees).
- ghthor 9y ago
  Day to day transactions are actually the most likely to be disrupted by crypto when the UX & education hit the right point. The reason for this is crypto can trade with almost zero fees, which compared to card transaction fees make paying in crypto better for merchants, like taking cash.
  - dmitriid 9y ago
    So that’s why most crypto currencies have exhorbitant (compared to credit card transactions) fees?
    - blunte 9y ago
      Which ones do you include in your "most" category? Bitcoin fees, for example, are based partly on the amount of data in the transaction. It's not really a percent of amount sent factor. Whether you send 100 BTC (which is a lot of money) or 0.001 BTC, you'll pay about the same fee assuming the same number of input and output addresses. Also, while bitcoin fees had gotten quite high toward the end of 2017 and early 2018, lately they have reset back down to a very low level. I routinely send batch payments from a dozen input addresses to some output addresses with a value total of a few thousand dollars, paying less than $1 in fees. And anyway, you can't send people money to their credit card. UPDATE: It appears bitcoin fees are back on the rise..., 10x what they were a day ago.
quadcore 9y ago
He doesn't see people being willing, en masse, to convert the currency they receive (in a paycheck, for example) I think he meant in the short term, didnt he? In the long term, this is obviously wrong. For two reasons. 1) You dont get a craze like we are witnessing when people dont like the technology. At some point, you have to stop making things complicated: people want it, they are not afraid of it, they are damn excited about it. It's the new gold rush. 2) Cryptocurrencies, once mature, will offer a significant increase in banking quality, innovation and competition. Your current banking system and VISA are 19th-century in comparison of what's coming. In short, we have: people-love-it + old-system. I call the result of that equation obvious on the long term.
- spiralx 9y ago
  I look forward to that glorious day when Bitcoin, now mature, has crushed the global financial system and established a new era of whale dominance. I'm just not sure that I have enough years left in me to wait until the impossible future arrives...
csomar 9y ago
We'll need two things in a crypto-utopia 1. Decentralized derivative adjusted assets. Basically you are holding a contract of 100 Units (instead of 100USD) that represent a decentralized smart contract which trades against other cryptos. Crypto goes up or down but your contract holds a stable value. 2. Automatic search for gateways and routing of transactions. The merchant just shows you the amount in the universal unit (ie: 35 Units) and a QR Code. You scan the QR code and the merchant is paid. The applications and blockchains figure out the rest and connects the different blockchains together.
- kimi 9y ago
  Yes, or a bunch of coins in your pocket. Not so utopic, but they don't require data access and require no electricity.

by alehul 9y ago

Hermel 9y ago

From an economic perspective, you always have to ask: what are the incentives for someone to switch currencies. At first sight, it does not seem to matter much which unit of account you are using. However, there is in fact a strong financial incentive for the young, working generation to switch to a new currency, thereby devaluing all the nominal savings of the old, retired generation. So even in a country like Switzerland, Bitcoin or another cryptocurrency could be used by the young to brake free from paying an unfairly large share of their income to the old.

KasianFranks 9y ago
It's simple, the crypto market rate beats the standard money market rate by leaps and bounds when the average consumer goes cash e.g. during the next downturn or bear market.
amelius 9y ago
> However, there is in fact a strong financial incentive for the young, working generation to switch to a new currency, thereby devaluing all the nominal savings of the old, retired generation. Huh? They could switch too. I don't see the advantage. Also, block chain is the perfect tool for governments to track their citizens' spendings.
nosuchthing 9y ago
a strong financial incentive for the young, working generation to switch to a new currency, thereby devaluing all the nominal savings of the old, retired generation. That's not how economics works. First, who is producing the new supply? How is the new supply being produced? Hopefully by them, and not a 3rd party that exploits the production and sale of this new medium... The reason proof of work coins have no inherent value, is because there's zero economic demand except from speculators. Coins are generated though software which has a measurable cost, and why would a vendor or nation state expose their real world assets to be traded for a database token produced though this software method? You can't just tell all the kids to start using seashells or cryptocoins for their money because it would have to equate or surpass the abilities of normal cash.. for both client and vendor. If anything, one can imagine a nation state issuing a protocol tied to their centralized treasury but that's not too different than using a debit card.
pjc50 9y ago
Changing your unit of account does not make a difference to your employer, your landlord, your utility company, or the shop you buy your groceries at.
Yizahi 9y ago
a) switch to a new currency b) thereby devaluing all the nominal savings of the old, retired generation In reality it won't work like that (A -> B). In this world you most likely will devalue net worth of 99% of people (poor) and prop up net worth of 1% of people (rich) simply because they OWN actual assets - whole factories and industries, mines, planes, ships, hotels, etc. everything that is bigger than a phone and more useful than a house. This move (if hypothetically it ever happened) will create even bigger disparity and faster than now, in years instead of decades.

mtgx 9y ago

I'm not sure there's much of a chicken and egg problem at all. The cryptocurrency adoption has steadily increased so far. If anything the biggest problem is understanding how to use cryptocurrencies in the first place. For mass adoption that's where we need to see innovation most (and of course scalability, which is directly tied to mass adoption). I don't see the government adopting/not adopting a cryptocurrency affect adoption in a major way on its own. People who don't understand how to use cryptocurrency still wouldn't use it unless it was forced upon them somehow, like their employer saying their salary will be exclusively offered as cryptocurrency from the next month forward. But that could cause all sorts of issues.

Asdfbla 9y ago
>The cryptocurrency adoption has steadily increased so far. For speculation and investment, not for anything currency-like, though.
- ghthor 9y ago
  Why is that do you think?
  - ldiracdelta 9y ago
    I'd say lack of transaction speed, they're not easy to use, and almost all crypto-currencies lack privacy. Should everyone in the world get to know that I stupidly bought a soda from the vending machine at 3pm? Or worse..

roymurdock 9y ago

It sounds like what you're describing is replacing the functional (read: relatively stable inflation-wise) swiss franc with... ? Assuming you implemented a POW blockchain-based, decentralized (anyone can download and run a node), virtual currency, this would remove control over the supply and generation of the currency from the Swiss National Bank (fiscal and monetary policy experts) and give it to...Chinese cryptocurrency miners + whatever group of developers Switzerland decides to put in charge of maintaining and upgrading the swiss blockchain? What your friend is referring to is actually an idealized economic concept, the "Stablecoin" - one that is pegged to the exact right basket of goods, services, and semi-finished industrial products that it experiences little to no inflation/deflation and can be counted on as a store of value. All countries are or should be trying to create a Stablecoin relative to their own economies - allowing private citizens to assume their $5,000 USD will be able to buy roughly the same amount of goods and services in, say 6 months. All this to say...the Swiss have already created a Stablecoin for their economy...the franc. There is no reason to break up and decentralize an organization that is competently managing a currency. It only makes sense in cases (such as Venezuela) where the central authority is doing a terrible job of managing their currency, and is nowhere near achieving "Stablecoin" status. Or for markets where there is no accepted "Stablecoin" because they are illegal/no enforcement mechanism to honor the transaction (e.g. you can't bring a lawsuit in a US court against a drug dealer if he takes your USD and sells you bad drugs).

ghthor 9y ago
There is no reason the governance needs to change, they could still create a distribed mined coin and maintain goverance over the issue and destruction of tokens to maintain stable trading values.
- roymurdock 9y ago
  Wrong...if you create a distributed mined coin, you're giving power to the miners. You can try and push updates (say from version 1 to version 2) to the nodes, but if the miners choose to ignore those updates, they can hard fork the network and run it according to a past version, or their own version, essentially creating a derivative currency. This has happened to Bitcoin - see bcash, bitcoin gold, bitcoinX, etc. Decentralizing control by definition gives power to all of the nodes in the network, requiring their buy-in to conduct any type of "monetary policy" by changing the source code and rolling out an upgraded application. Any changes that could increase the hash rate, increase the max number of tokens, "destroy" transactions, rollback to a certain state, etc. would require miner cooperation. Whereas right now central banks can just "create" liquidity by tweaking monetary policy without needing the banks and populace to approve and agree to these changes.

blunte 9y ago

Of course it depends on what you intend to do with your money, but for living and operating, local currency is usually most important. Cryptocurrencies serve many specialized needs, particularly in global transfers, but they have little use in day to day, local transactions. Anything that can be traded for value can be considered a currency, so you could theoretically trade equities with other people for goods and services. But usually, that is much less practical than exchanging local fiat currency. Same goes for virtual currencies. Instead, you'll perhaps use virtual currencies as an intermediate currency for simplified financial transfers, or perhaps for storing some of your investments, or for utility reasons (such as tokens which are the utility fee tokens for some exchanges), or perhaps as a form of startup investment (as with ICOs). I do wonder if the effectiveness of bitcoin as a transfer currency was any motivation behind the recent improvement in EU bank to bank transfers. What previously took one or maybe two business days for SEPA transfers has recently been improved to be near instant (so I've read; I haven't paid attention lately). Maybe the banks felt pressure to keep up? Meanwhile, US banking customers are still passing handwritten pieces of paper around. Once US customers get verified accounts with some of the cryptocurrency money exchangers, quick USD->bitcoin->bitcoin->USD transfers are nice and fast and relatively inexpensive (with the recent dramatic drop in bitcoin mining fees).

ghthor 9y ago
Day to day transactions are actually the most likely to be disrupted by crypto when the UX & education hit the right point. The reason for this is crypto can trade with almost zero fees, which compared to card transaction fees make paying in crypto better for merchants, like taking cash.
- dmitriid 9y ago
  So that’s why most crypto currencies have exhorbitant (compared to credit card transactions) fees?
  - blunte 9y ago
    Which ones do you include in your "most" category? Bitcoin fees, for example, are based partly on the amount of data in the transaction. It's not really a percent of amount sent factor. Whether you send 100 BTC (which is a lot of money) or 0.001 BTC, you'll pay about the same fee assuming the same number of input and output addresses. Also, while bitcoin fees had gotten quite high toward the end of 2017 and early 2018, lately they have reset back down to a very low level. I routinely send batch payments from a dozen input addresses to some output addresses with a value total of a few thousand dollars, paying less than $1 in fees. And anyway, you can't send people money to their credit card. UPDATE: It appears bitcoin fees are back on the rise..., 10x what they were a day ago.

quadcore 9y ago

He doesn't see people being willing, en masse, to convert the currency they receive (in a paycheck, for example) I think he meant in the short term, didnt he? In the long term, this is obviously wrong. For two reasons. 1) You dont get a craze like we are witnessing when people dont like the technology. At some point, you have to stop making things complicated: people want it, they are not afraid of it, they are damn excited about it. It's the new gold rush. 2) Cryptocurrencies, once mature, will offer a significant increase in banking quality, innovation and competition. Your current banking system and VISA are 19th-century in comparison of what's coming. In short, we have: people-love-it + old-system. I call the result of that equation obvious on the long term.

spiralx 9y ago
I look forward to that glorious day when Bitcoin, now mature, has crushed the global financial system and established a new era of whale dominance. I'm just not sure that I have enough years left in me to wait until the impossible future arrives...

csomar 9y ago

We'll need two things in a crypto-utopia 1. Decentralized derivative adjusted assets. Basically you are holding a contract of 100 Units (instead of 100USD) that represent a decentralized smart contract which trades against other cryptos. Crypto goes up or down but your contract holds a stable value. 2. Automatic search for gateways and routing of transactions. The merchant just shows you the amount in the universal unit (ie: 35 Units) and a QR Code. You scan the QR code and the merchant is paid. The applications and blockchains figure out the rest and connects the different blockchains together.

kimi 9y ago
Yes, or a bunch of coins in your pocket. Not so utopic, but they don't require data access and require no electricity.