6 ms·

Up to Two-Thirds of Bitcoin Transactions Have No Economic Value

56 points by mancerayder 8y ago

tunap 8y ago
Relativey speaking, all the GPU sales and spiking utility bills are of economic value to the suppliers. /s
- deleted 8y ago
  [deleted]
api 8y ago
With things like HFT what proportion of stock market transactions have economic value?
- mancerayder 8y ago
  Matt Levine talks about this, and despite its obvious pitfalls (in terms of unfairness amongst players in the market), HFT does provide utility of arbitrage. Also, all that moving around of stocks theoretically provides more liquidity - i.e., it's easier to find a counterparty when you buy and sell; you don't sit there waiting for the trade to execute. I'm no expert, however.
  - physguy1123 8y ago
    There's a distinction to be made between many different players in 'hft'. You have market makers, latency arb, plain old short-term quant trading which all provide different sorts of 'economic value. Most players are running a mix of some to all of these strategies - for example, in options, fast trading on spot moves is really some weird mix of everything from latency arb to market-making to long-term option pricing. One could argue that pure latency arb (what flash boys portray as hft) is fairly useless since it's just trying to catch stale quotes that market makers would move otherwise, but that's a very small portion of the industry.
- vkou 8y ago
  The energy cost of an HFT transaction is much lower then the energy cost of a blockchain transaction. The question is not how wasteful a system is. The question is, what is the value / waste ratio of it.
ISL 8y ago
They sure have value to the miners, and presumably to those who pay those miners transaction fees. A Bitcoin transaction isn't free.
paulmd 8y ago
They are just arbitrarily declaring various things to be non-economic transfers. They have enough economic value for the participants to pay to execute them. If you are going to slice it like that, there are plenty of ACH/SWIFT transfers that are actually just people moving money from account to account or institution to institution too, rather than actual inter-party transactions. And specifically, if mining pools distributing rewards to participants don't have economic value, then neither does Uber. Mining pools are literally just "the gig economy" for computational power. I'm as critical of Bitcoin as anyone else but this is just an ad for Elementus's services. "If you want to understand what you're getting into, pay us!".
- frgtpsswrdlame 8y ago
  Well you could define 'economic' transactions as those that leave one of the participants with less bitcoin and another participant with more bitcoin. In that sense mining pool distributions are double-counting - the distribution of the mining reward to the pool and then the distribution of that same reward from the pool to an individual member. (I understand that correctly right?) A mixer is just shuffling it's coins around so it's non-economic. Spoofed trades are obviously non-economic. 'Market Manipulation' could mean lots of stuff but I wouldn't be surprised if there are bots that enter lots of offsetting trades on both sides of the orderbook to generate volume around specific events. If they're offsetting that's non-economic. Now maybe 'non-economic' isn't the best term but I do think those sorts of activities should be given a meaningful distinction from the other third of the volume that is 'normal transactions' of individuals buying and selling from/to each other.
  - hobofan 8y ago
    > Spoofed trades are obviously non-economic. In a model where Bitcoin is the only available currency, you could certainly assign an economic value to a mixer - the value of the created privacy (yes, I know that mixers are flawed). There are also cryptocurrencies that have (a higher level of) built-in privacy, like ZCash, and that people are using it should also be an indicator that there is economic value in those transactions since the only real reason to use ZCash is to get that additional bit of privacy.
nonbel 8y ago
Its amazing to see how much people waste in general. I did an analysis the other day and came up with ~ 3 TWh per year wasted just because reddit wants to use "fancy" (annoying to me) layouts: >"So about 3 TWh extra electricity is being used each year. This is about the total used each year by Papua New Guinea, which is ranked 133/219 in electricity consumption by country." https://news.ycombinator.com/item?id=17449349 https://news.ycombinator.com/item?id=17449349
- BookmarkSaver 8y ago
  Man I hate analysis like these. At least yours isn't as flawed as that guy on reddit who didn't understand the difference between a Watt and a Joule (or kWhr), but what you did is still incredibly basic and ineffective. You aren't accounting for reddit simply frontloading the first page view, compared to old reddit reloading pages each link you click, or countless other possible optimizations. Just measuring single page-loads using a browser extension is far to simplistic of a metric.
  - nonbel 8y ago
    >"Just measuring single page-loads using a browser extension is far to simplistic of a metric." All I know is the site has become almost unusable on an old tablet I have, it sits on a loading screen for tens of seconds before loading some simple text content. So whatever they are doing is not very efficient. I'd love to see better analyses along these lines though. How many TWh per year on pron, how many on netflix/streaming video, how many on drinking/partying. There's all sorts of unnecessary stuff we have no intuition for.
- Bedon292 8y ago
  That is really interesting to think about, however isn't a bunch of that going to be cached? IE the JS doesn't get loaded every page view, just the content. And now I need to go down a rabbit hole to find out the cost / GB currently. I would expect that it has gone down in the last 6 years.
  - nonbel 8y ago
escapecharacter 8y ago
Possibly even 100% of transactions amirite!?
cam3ham 8y ago
lol what does this even mean
- sctb 8y ago
  We've already asked you to please post substantively. We ban accounts that won't. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
mtgx 8y ago
Wasn't that the case for most of the internet's history?
deleted 8y ago
[deleted]
wmf 8y ago
This is all true yet I don't know whether such stats are helpful or misleading for cryptocurrency investors. All of the value of cryptocurrencies is currently due to speculation. You can verify this by putting the economic activity into the velocity of money equation and you get a fundamental value around 1% of the current price. So even if "real" economic activity were to increase massively, it's not clear that there would be any discernible impact on prices. (And yeah, if my salary counts as an economic transaction then why shouldn't miner payouts? You can avoid double-counting by not counting coinbase transactions.)
aaron-santos 8y ago
How many cash transactions have no economic value?
wufufufu 8y ago
As a bitcoin critic, this is a pointless criticism. No one uses bitcoin as a currency, and everyone knows that already.
cwkoss 8y ago
I'd be curious about the figures for a similar analysis with the US dollar. Ex. for a credit card transaction, the 'economic value' of the transaction (purchase price) would be half or less of the total amount of dollars moving (price from CC to merchant, payments from customer to CC). Even if a customer pays off the balance instantly, two transfers of the amount of the purchase price are made: 50% economic value transactions. If making minimum payments, economic value seems like it could constitute less than a third of total amount transferred. If CC, merchant, and customer all use different banks, there may be more transfers necessary behind the scenes.
- Retric 8y ago
  There is utility in using a CC for consumer protection. CC companies get paid for this as a cut from the merchant which requires a transaction of some kind. AKA you to CC = X, CC to merchant X - Y. No way to move money like that without 2 simple transactions as 3 accounts are updated.
- sonnyblarney 8y ago
  All of the things that happen in a regular CC transaction have economic value, i.e. buying stuff, interest, loans, network charges, transaction fees etc. etc.. Even BTC-USD trades have economic value obviously. The article presents transactions which are basically kinds of accounting functions, i.e. tumblers to hide trails etc. etc.. As far as USD, maybe this would be the equivalent of moving USD from one account to another. Now, clearly it wouldn't be done if there was no value to the transaction ... but it's generally net neutral stuff. There's now way to compare to the USD because it's generally not something that is tracked at all with fiat currency because it would be pointless. But it just happens to go on the record with BTC.
pandler 8y ago
Out of curiosity, does anyone know of any information on a similar analysis of fiat currencies? My Google-foo is failing me.
thwd 8y ago
In the comparison with Ethereum: invoking a smart contract function does not require value transfer beyond gas (transaction cost). Most such calls carry no ether attached, this is how it's supposed to be.
s_kilk 8y ago
Two thirds seems low
- aurailious 8y ago
  I would have guessed about 100%.
panarky 8y ago
Also on the HN front page today: "close to 40% of multinational profits were artificially shifted to tax havens" https://voxeu.org/article/missing-profits-nations https://voxeu.org/article/missing-profits-nations What percentage of US dollar transactions have no economic value?
simias 8y ago
I don't think this is particularly surprising or even a very useful metric, besides I don't understand why for instance "mining pools disbursing coins to members" is considered to have no economic value (the article mentions that "Ethereum co-founder Anthony Di Iorio" shares this sentiment but doesn't justify their choice). Maybe one could expect that trading and speculation would be higher but I suspect that the average bitcoiner just trades directly on the exchanges without ever owning a wallet, or maybe just for "cold storage" if they're wealthy enough. As such I expect most of it is done off-chain. What I would be curious to know is what portion of the remaining third is actually used to buy goods and services vs. speculation. And for those who actually use it as a currency, how much is for buying legal things. My gut tells me that the number must be ridiculously low.
- derefr 8y ago
  My understanding is that mining pools could just as well have been implemented as a feature of the protocol itself. In Bitcoin, for example, this would be a coinbase transaction with multiple recipients. If that change changes your reckoning of the accounting, then the difference between more and less trading volume in the network has come down to how you represent the ledger format. At which point you need to choose how to resolve that discrepancy—for example, by always choosing the most compact ledger format possible. (Analogy: figuring out how many cycles a series of CPU instructions takes to execute. If some of those instructions are hints or pragmas that the CPU consumes without a full cycle, then representing this CPU’s instructions in a RISC encoding will give you a different cycle-count estimate than encoding the instructions as CISC, where the hints/pragmas just become part of the CISC instruction they’re associated with.)
cateye 8y ago
This reminded me of this joke: Two brokers walk on the street and suddenly one of them proposes: if you eat that shit on the ground you get a million dollars. He eats it very quickly and is amazingly happy with his profit. A moment later the guy who had eaten the shit proposes the other: if you eat this shit you get a million from me. He also eats it without thinking. After 10 minutes one of them asks: why have we eaten all that shit? The other replies: Don't you see we have created two million trading volume? (Apologies if it isn't funny. Don't remember exactly the original and I'm also not a real joke teller type. )
- deleted 8y ago
  [deleted]
apo 8y ago
This article is unfortunately typical of the low quality of reporting on Bitcoin in the popular media. It provides no independently-verifiable evidence of the claim in the title, nor does it even make a small effort to explain the analysis supposedly done by Cryptocompite, a service whose website consists of nothing more than an email capture. FWIW, determining the nature of Bitcoin transactions is not trivial. The disposable pseudonym privacy model, coupled with CoinJoin transactions and now increasingly Lightning Network gives users a great deal of privacy power if they choose to use it. Many analyses I've seen are based on transactions whose users throw that privacy stuff out the window, re-using pseudonyms and posting them to social media.
ryanmercer 8y ago
Aside from speculation the bulk of any commerce done is likely for darknet purchases anyway. Go look up a list of common darknets, go open a few of the top sellers. Look at their listings, look at how many reviews each listing has. Go back 2 weeks later and check again, you'll be surprised. Now look at how many darknets there are with decent user bases and consider how many sellers each has with moderate activity. Most of that commerce is in bitcoin, some in monero or ETH but mostly bitcoin. I mean, you can pop on and buy several kilograms of cocaine in a single listing (or any other drug you can think of, some even sell guns and human bones, most also have cvv2 dumps and other identity theft stuff as well as stolen uber accounts any all sorts of other things). With the cocaine for example, you can pull up a 1kg+ listing that will have a dozen or more reviews indicating tens, or hundreds, of thousands of dollars in sales just for a single listing on a single market. People like to make-believe bitcoin is for legit commerce but it's mostly for speculation and criminal enterprise.
loco5niner 8y ago
Just Two-Thirds?
kapauldo 8y ago
USD: 99% goods and services, 1% speculation. BTC: 1% goods and services, 99% speculation. It's not that BTC is bad, it's just that its not being adopted as a currency.
Drdrdrq 8y ago
What, more than a third of btc transactions have some economic value? This is a fantastic result! /s

56 points by mancerayder 8y ago

tunap 8y ago

Relativey speaking, all the GPU sales and spiking utility bills are of economic value to the suppliers. /s

deleted 8y ago
[deleted]

api 8y ago

With things like HFT what proportion of stock market transactions have economic value?

mancerayder 8y ago
Matt Levine talks about this, and despite its obvious pitfalls (in terms of unfairness amongst players in the market), HFT does provide utility of arbitrage. Also, all that moving around of stocks theoretically provides more liquidity - i.e., it's easier to find a counterparty when you buy and sell; you don't sit there waiting for the trade to execute. I'm no expert, however.
- physguy1123 8y ago
  There's a distinction to be made between many different players in 'hft'. You have market makers, latency arb, plain old short-term quant trading which all provide different sorts of 'economic value. Most players are running a mix of some to all of these strategies - for example, in options, fast trading on spot moves is really some weird mix of everything from latency arb to market-making to long-term option pricing. One could argue that pure latency arb (what flash boys portray as hft) is fairly useless since it's just trying to catch stale quotes that market makers would move otherwise, but that's a very small portion of the industry.
vkou 8y ago
The energy cost of an HFT transaction is much lower then the energy cost of a blockchain transaction. The question is not how wasteful a system is. The question is, what is the value / waste ratio of it.

ISL 8y ago

They sure have value to the miners, and presumably to those who pay those miners transaction fees. A Bitcoin transaction isn't free.

paulmd 8y ago

They are just arbitrarily declaring various things to be non-economic transfers. They have enough economic value for the participants to pay to execute them. If you are going to slice it like that, there are plenty of ACH/SWIFT transfers that are actually just people moving money from account to account or institution to institution too, rather than actual inter-party transactions. And specifically, if mining pools distributing rewards to participants don't have economic value, then neither does Uber. Mining pools are literally just "the gig economy" for computational power. I'm as critical of Bitcoin as anyone else but this is just an ad for Elementus's services. "If you want to understand what you're getting into, pay us!".

frgtpsswrdlame 8y ago
Well you could define 'economic' transactions as those that leave one of the participants with less bitcoin and another participant with more bitcoin. In that sense mining pool distributions are double-counting - the distribution of the mining reward to the pool and then the distribution of that same reward from the pool to an individual member. (I understand that correctly right?) A mixer is just shuffling it's coins around so it's non-economic. Spoofed trades are obviously non-economic. 'Market Manipulation' could mean lots of stuff but I wouldn't be surprised if there are bots that enter lots of offsetting trades on both sides of the orderbook to generate volume around specific events. If they're offsetting that's non-economic. Now maybe 'non-economic' isn't the best term but I do think those sorts of activities should be given a meaningful distinction from the other third of the volume that is 'normal transactions' of individuals buying and selling from/to each other.
- hobofan 8y ago
  > Spoofed trades are obviously non-economic. In a model where Bitcoin is the only available currency, you could certainly assign an economic value to a mixer - the value of the created privacy (yes, I know that mixers are flawed). There are also cryptocurrencies that have (a higher level of) built-in privacy, like ZCash, and that people are using it should also be an indicator that there is economic value in those transactions since the only real reason to use ZCash is to get that additional bit of privacy.

nonbel 8y ago

Its amazing to see how much people waste in general. I did an analysis the other day and came up with ~ 3 TWh per year wasted just because reddit wants to use "fancy" (annoying to me) layouts: >"So about 3 TWh extra electricity is being used each year. This is about the total used each year by Papua New Guinea, which is ranked 133/219 in electricity consumption by country." https://news.ycombinator.com/item?id=17449349 https://news.ycombinator.com/item?id=17449349

BookmarkSaver 8y ago
Man I hate analysis like these. At least yours isn't as flawed as that guy on reddit who didn't understand the difference between a Watt and a Joule (or kWhr), but what you did is still incredibly basic and ineffective. You aren't accounting for reddit simply frontloading the first page view, compared to old reddit reloading pages each link you click, or countless other possible optimizations. Just measuring single page-loads using a browser extension is far to simplistic of a metric.
- nonbel 8y ago
  >"Just measuring single page-loads using a browser extension is far to simplistic of a metric." All I know is the site has become almost unusable on an old tablet I have, it sits on a loading screen for tens of seconds before loading some simple text content. So whatever they are doing is not very efficient. I'd love to see better analyses along these lines though. How many TWh per year on pron, how many on netflix/streaming video, how many on drinking/partying. There's all sorts of unnecessary stuff we have no intuition for.
Bedon292 8y ago
That is really interesting to think about, however isn't a bunch of that going to be cached? IE the JS doesn't get loaded every page view, just the content. And now I need to go down a rabbit hole to find out the cost / GB currently. I would expect that it has gone down in the last 6 years.
- nonbel 8y ago

escapecharacter 8y ago

Possibly even 100% of transactions amirite!?

cam3ham 8y ago

lol what does this even mean

sctb 8y ago
We've already asked you to please post substantively. We ban accounts that won't. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html

mtgx 8y ago

Wasn't that the case for most of the internet's history?

deleted 8y ago

[deleted]

wmf 8y ago

This is all true yet I don't know whether such stats are helpful or misleading for cryptocurrency investors. All of the value of cryptocurrencies is currently due to speculation. You can verify this by putting the economic activity into the velocity of money equation and you get a fundamental value around 1% of the current price. So even if "real" economic activity were to increase massively, it's not clear that there would be any discernible impact on prices. (And yeah, if my salary counts as an economic transaction then why shouldn't miner payouts? You can avoid double-counting by not counting coinbase transactions.)

aaron-santos 8y ago

How many cash transactions have no economic value?

wufufufu 8y ago

As a bitcoin critic, this is a pointless criticism. No one uses bitcoin as a currency, and everyone knows that already.

cwkoss 8y ago

I'd be curious about the figures for a similar analysis with the US dollar. Ex. for a credit card transaction, the 'economic value' of the transaction (purchase price) would be half or less of the total amount of dollars moving (price from CC to merchant, payments from customer to CC). Even if a customer pays off the balance instantly, two transfers of the amount of the purchase price are made: 50% economic value transactions. If making minimum payments, economic value seems like it could constitute less than a third of total amount transferred. If CC, merchant, and customer all use different banks, there may be more transfers necessary behind the scenes.

Retric 8y ago
There is utility in using a CC for consumer protection. CC companies get paid for this as a cut from the merchant which requires a transaction of some kind. AKA you to CC = X, CC to merchant X - Y. No way to move money like that without 2 simple transactions as 3 accounts are updated.
sonnyblarney 8y ago
All of the things that happen in a regular CC transaction have economic value, i.e. buying stuff, interest, loans, network charges, transaction fees etc. etc.. Even BTC-USD trades have economic value obviously. The article presents transactions which are basically kinds of accounting functions, i.e. tumblers to hide trails etc. etc.. As far as USD, maybe this would be the equivalent of moving USD from one account to another. Now, clearly it wouldn't be done if there was no value to the transaction ... but it's generally net neutral stuff. There's now way to compare to the USD because it's generally not something that is tracked at all with fiat currency because it would be pointless. But it just happens to go on the record with BTC.

pandler 8y ago

Out of curiosity, does anyone know of any information on a similar analysis of fiat currencies? My Google-foo is failing me.

thwd 8y ago

In the comparison with Ethereum: invoking a smart contract function does not require value transfer beyond gas (transaction cost). Most such calls carry no ether attached, this is how it's supposed to be.

s_kilk 8y ago

Two thirds seems low

aurailious 8y ago
I would have guessed about 100%.

panarky 8y ago

Also on the HN front page today: "close to 40% of multinational profits were artificially shifted to tax havens" https://voxeu.org/article/missing-profits-nations https://voxeu.org/article/missing-profits-nations What percentage of US dollar transactions have no economic value?

simias 8y ago

I don't think this is particularly surprising or even a very useful metric, besides I don't understand why for instance "mining pools disbursing coins to members" is considered to have no economic value (the article mentions that "Ethereum co-founder Anthony Di Iorio" shares this sentiment but doesn't justify their choice). Maybe one could expect that trading and speculation would be higher but I suspect that the average bitcoiner just trades directly on the exchanges without ever owning a wallet, or maybe just for "cold storage" if they're wealthy enough. As such I expect most of it is done off-chain. What I would be curious to know is what portion of the remaining third is actually used to buy goods and services vs. speculation. And for those who actually use it as a currency, how much is for buying legal things. My gut tells me that the number must be ridiculously low.

derefr 8y ago
My understanding is that mining pools could just as well have been implemented as a feature of the protocol itself. In Bitcoin, for example, this would be a coinbase transaction with multiple recipients. If that change changes your reckoning of the accounting, then the difference between more and less trading volume in the network has come down to how you represent the ledger format. At which point you need to choose how to resolve that discrepancy—for example, by always choosing the most compact ledger format possible. (Analogy: figuring out how many cycles a series of CPU instructions takes to execute. If some of those instructions are hints or pragmas that the CPU consumes without a full cycle, then representing this CPU’s instructions in a RISC encoding will give you a different cycle-count estimate than encoding the instructions as CISC, where the hints/pragmas just become part of the CISC instruction they’re associated with.)

cateye 8y ago

This reminded me of this joke: Two brokers walk on the street and suddenly one of them proposes: if you eat that shit on the ground you get a million dollars. He eats it very quickly and is amazingly happy with his profit. A moment later the guy who had eaten the shit proposes the other: if you eat this shit you get a million from me. He also eats it without thinking. After 10 minutes one of them asks: why have we eaten all that shit? The other replies: Don't you see we have created two million trading volume? (Apologies if it isn't funny. Don't remember exactly the original and I'm also not a real joke teller type. )

deleted 8y ago
[deleted]

apo 8y ago

This article is unfortunately typical of the low quality of reporting on Bitcoin in the popular media. It provides no independently-verifiable evidence of the claim in the title, nor does it even make a small effort to explain the analysis supposedly done by Cryptocompite, a service whose website consists of nothing more than an email capture. FWIW, determining the nature of Bitcoin transactions is not trivial. The disposable pseudonym privacy model, coupled with CoinJoin transactions and now increasingly Lightning Network gives users a great deal of privacy power if they choose to use it. Many analyses I've seen are based on transactions whose users throw that privacy stuff out the window, re-using pseudonyms and posting them to social media.

ryanmercer 8y ago

Aside from speculation the bulk of any commerce done is likely for darknet purchases anyway. Go look up a list of common darknets, go open a few of the top sellers. Look at their listings, look at how many reviews each listing has. Go back 2 weeks later and check again, you'll be surprised. Now look at how many darknets there are with decent user bases and consider how many sellers each has with moderate activity. Most of that commerce is in bitcoin, some in monero or ETH but mostly bitcoin. I mean, you can pop on and buy several kilograms of cocaine in a single listing (or any other drug you can think of, some even sell guns and human bones, most also have cvv2 dumps and other identity theft stuff as well as stolen uber accounts any all sorts of other things). With the cocaine for example, you can pull up a 1kg+ listing that will have a dozen or more reviews indicating tens, or hundreds, of thousands of dollars in sales just for a single listing on a single market. People like to make-believe bitcoin is for legit commerce but it's mostly for speculation and criminal enterprise.

loco5niner 8y ago

Just Two-Thirds?

kapauldo 8y ago

USD: 99% goods and services, 1% speculation. BTC: 1% goods and services, 99% speculation. It's not that BTC is bad, it's just that its not being adopted as a currency.

Drdrdrq 8y ago

What, more than a third of btc transactions have some economic value? This is a fantastic result! /s