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Trust is a big part of a credible cryptocurrency. Can you really trust a currency that the vast majority of people don't understand? I don't think cryptos will

Trust is a big part of a credible cryptocurrency. Can you really trust a currency that the vast majority of people don't understand? I don't think cryptos will ever take off without widespread institutional and gubernatorial support. Governments will probably issue cryptos themselves eventually. They are an opportunity for the government to create a centralized Federal Retail Bank that reduces the amount of rents and subsidies captured by commercial banks. Every citizen would have a free digital checking account, fully backed by the issuing government. When someone wants a loan, commercial banks and fintech companies would get temporary access to user data to compete on providing that loan. The data would only be used for that loan in particular, and it would be illegal to use it for any other purposes, or to retain it after the loan is done. The government cryptos would have to be as impermeable to hackers as your current digital bank account with (insert Big Bank here). Obviously, while such a system has tangible consumer benefits, it wouldn't be nearly as libertarian as Bitcoin.

baby 7y ago
I don't think your argument makes sense. People use things that they don't understand every day. Do you understand how a plane works? Or how the current banking system works? Or even how HTTPS and the CA system work?
- keenmaster 7y ago
  People generally know how dollars work. They don’t know much about the monetary system from a macro standpoint, but a dollar is a dollar. There’s no wallet code on a flash drive that you can lose. There’s no weird pseudo-bank. There’s no mining (which adds huge transaction costs to the network). If a new VC-backed company called Mt. Zox said “keep your cryptos with us, we have the latest in crypto security. Here are all the virtually incomprehensible protections we have. Trust us, we’re better than the Other Guys” how can you fully evaluate them? Even if they have great standards on paper, how do you know that they will be upheld in practice? How do you know that there’s no backdoor for hackers or company founders to use? Even if you do all your research before investing, you’re still a sitting duck with the tail risk of capricious losses. My point isn’t that full understanding is a prerequisite for widespread crypto adoption. However, there is a “tangibility-trust” axis with currencies. The less tangible the currency is, the more trust is required in the issuing institution. Gold is more tangible than dollars. Physical dollars are more tangible than digital dollars. Digital dollars are more tangible than cryptos. Bitcoin took a step down in both intangibility and institutional trust. It is, essentially, a currency backed by full faith in speculation, illicit activity, asset hiding, and under the radar transactions. Side note: I changed “trust something” to “trust a currency” in my OP to be more specific.
  - baby 7y ago
    People understand dollar bills, but they don’t understand their credit card and the visa/mastercard network. You’re making the error of talking about cryptocurrency from the network perspective instead of the ecosystem perspective. You can compare a cryptocurrency with a financial backbone. A bank/credit card/any financial service can be sitting in front of both a cryptocurrency network or the current financial network and users wouldn’t see a difference (well except lower fees)
    - keenmaster 7y ago
      Theoretically, what’s going on behind the scenes shouldn’t matter. However, you could only trust the system to properly implement this extremely intangible technology if you fundamentally trust the organizations involved. Again, how do you know that their representations regarding the currency are true? How do you know that the amount of crypto withheld for the founding organization is fair or won’t overly dilute the network? How do you know there are no backdoors? If the crypto is pegged to another currency/commodity/crypto, how do you know that the peg will work in practice (this is very hard)? How do you know that the organization is actually holding the pegged currency in reserve, like they said they would? Even if the currency is perfect, how do you know that your wallet provider is safe/not inadvertently malicious? What recourse will you have if you get hacked? (none, and if someone says “that’s not fair, Chase can be hacked too” - sure, but that’s less likely, and the U.S. will step in to help, which gets back to my point about institutional backing) Some of these concerns exist with large established banks, but we don’t really care because 1. They have a great history of keeping your assets safe 2. They have the backing of the government. 3. The Federal Reserve is in charge of our monetary system, and whatever beef one may have with them, they are far, far better than a small group of friends who wrote a white paper somewhere. Don’t forget the massive cost to compensate miners for all the time, electricity, and computing power that they use. If you amortize those costs, they far surpass even Amex’s credit card fees. Also, what’s with the whole >50% control condition? So now I have to worry about a top secret Russian organization with dozens of 160 IQ scientists racing to create a quantum computer that can overwhelm some/all cryptos and bring wealth to the motherland? I’m half-joking, but that’s the kind of technological weirdness that I’m not comfortable with, much less the average person.

baby 7y ago

I don't think your argument makes sense. People use things that they don't understand every day. Do you understand how a plane works? Or how the current banking system works? Or even how HTTPS and the CA system work?

keenmaster 7y ago
People generally know how dollars work. They don’t know much about the monetary system from a macro standpoint, but a dollar is a dollar. There’s no wallet code on a flash drive that you can lose. There’s no weird pseudo-bank. There’s no mining (which adds huge transaction costs to the network). If a new VC-backed company called Mt. Zox said “keep your cryptos with us, we have the latest in crypto security. Here are all the virtually incomprehensible protections we have. Trust us, we’re better than the Other Guys” how can you fully evaluate them? Even if they have great standards on paper, how do you know that they will be upheld in practice? How do you know that there’s no backdoor for hackers or company founders to use? Even if you do all your research before investing, you’re still a sitting duck with the tail risk of capricious losses. My point isn’t that full understanding is a prerequisite for widespread crypto adoption. However, there is a “tangibility-trust” axis with currencies. The less tangible the currency is, the more trust is required in the issuing institution. Gold is more tangible than dollars. Physical dollars are more tangible than digital dollars. Digital dollars are more tangible than cryptos. Bitcoin took a step down in both intangibility and institutional trust. It is, essentially, a currency backed by full faith in speculation, illicit activity, asset hiding, and under the radar transactions. Side note: I changed “trust something” to “trust a currency” in my OP to be more specific.
- baby 7y ago
  People understand dollar bills, but they don’t understand their credit card and the visa/mastercard network. You’re making the error of talking about cryptocurrency from the network perspective instead of the ecosystem perspective. You can compare a cryptocurrency with a financial backbone. A bank/credit card/any financial service can be sitting in front of both a cryptocurrency network or the current financial network and users wouldn’t see a difference (well except lower fees)
  - keenmaster 7y ago
    Theoretically, what’s going on behind the scenes shouldn’t matter. However, you could only trust the system to properly implement this extremely intangible technology if you fundamentally trust the organizations involved. Again, how do you know that their representations regarding the currency are true? How do you know that the amount of crypto withheld for the founding organization is fair or won’t overly dilute the network? How do you know there are no backdoors? If the crypto is pegged to another currency/commodity/crypto, how do you know that the peg will work in practice (this is very hard)? How do you know that the organization is actually holding the pegged currency in reserve, like they said they would? Even if the currency is perfect, how do you know that your wallet provider is safe/not inadvertently malicious? What recourse will you have if you get hacked? (none, and if someone says “that’s not fair, Chase can be hacked too” - sure, but that’s less likely, and the U.S. will step in to help, which gets back to my point about institutional backing) Some of these concerns exist with large established banks, but we don’t really care because 1. They have a great history of keeping your assets safe 2. They have the backing of the government. 3. The Federal Reserve is in charge of our monetary system, and whatever beef one may have with them, they are far, far better than a small group of friends who wrote a white paper somewhere. Don’t forget the massive cost to compensate miners for all the time, electricity, and computing power that they use. If you amortize those costs, they far surpass even Amex’s credit card fees. Also, what’s with the whole >50% control condition? So now I have to worry about a top secret Russian organization with dozens of 160 IQ scientists racing to create a quantum computer that can overwhelm some/all cryptos and bring wealth to the motherland? I’m half-joking, but that’s the kind of technological weirdness that I’m not comfortable with, much less the average person.