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I recently decided to think deeply about Bitcoin and I think my initial skepticism about Bitcoin was wrong. Most of the criticisms of Bitcoin are centered arou

I recently decided to think deeply about Bitcoin and I think my initial skepticism about Bitcoin was wrong. Most of the criticisms of Bitcoin are centered around the fact that Bitcoin has a very low throughput. However this is not necessarily a problem. And here is one hypothetical example of how we can overcome this issue: When countries owe each other money they used to transfer gold back and forth or trust someone else to do it for them. So all transactions within a country would happen in a local currency and then once in a while "settlement" would happen. Bitcoin is digital gold for settlements among digital currencies. For eg I could start a new Stable coin called MyDogeCoin HQed in Switzerland and each MyDogeCoin is backed by 1 Bitcoin. Anyone who trusts me can transact in MyDogeCoins and can convert their MyDogeCoins into Bitcoins if they are willing to wait and pay a sizable fee to account for Bitcoins slowness. However most people don't need this it just needs to be possible. Now anyone using MyDogeCoin can send money to each other quickly as long as they trust me. This isn't any different to how you trust a country. And many countries like Zimbabwe aren't trust worthy at all. This has BTC behind it. Now suppose you want to send MyDogeCoin to MyMemeCoin HQed in Singapore and is similar. We trust each other and hence we do the transfer. Once in a while we do a "settlement" on the BTC blockchain. This way we don't need that many TPS. And large untrusted nodes can use the BTC blockchain as a trustless settlement layer. Since BTC is the final trustless layer its a foundation. Now I realized how BTC can have long term value and it could be around even a 100 years from now. Doesn't mean its not over priced now but it will have a non zero value over the long term and is revolutionary. Unless the government goes to war against it. The US government used to use gold and then basically defaulted and forced everyone to accept dollars by force. Thats not sustainable.

inter_netuser 6y ago
And down the rabbit hole we fall.
nickysielicki 6y ago
> Bitcoin is digital gold for settlements among digital currencies. What are the implications of this on the network stability wrt mining? Doesn't bitcoin need transaction volume to remain a stable network? My read is that the incentive structure changes. Right now, miners are motivated by block rewards. In the future, they'll be motivated by transaction fees. If transactions are rare, mining profitably is going to become much more difficult. Pair this with 51% attacks, and the long ramp-up of mining capabilities starts to look like it will regress after the the rewards go to zero. Can the network survive that?
- cyphertruck 6y ago
  To answer that question you have to make assumptions about the cost of mining, the cost of attacks and the cost of hash power at a point 117 years from now. But we know in the future hash power (technology) will be cheaper and thus bitcoin security will be cheaper, while bitcoin will be more valuable (or non-existing — it has to be either or). Also remember if you have wealth in bitcoin you would likely mine at a loss merely to secure your own bitcoin. I can’t imagine mining going away. I think every appliance in a household will end up mining a little bit and it will be intrinsic to the fabric of the economy. The way the internet is now.
  - shawnz 6y ago
    > Also remember if you have wealth in bitcoin you would mine at a loss merely to secure your own bitcoin. You could also send null transactions which do nothing but pay a transaction fee
    - nickysielicki 6y ago
      If you're freely giving away money (either in the form of null transactions or putting money into mining) just to secure value that you're holding, you've clearly mispriced the asset you're trying to secure!
      - shawnz 6y ago
        If you put money in a savings account with interest below inflation, just to secure the value that you're holding, did you misprice the value? Or for example if you buy gold and then pay someone to watch it for you, does that mean you mispriced it?
        nickysielicki 6y ago
        Both of those examples (holding money in savings account, holding paper PMs) are ultimately about liquidity, I don't see how bitcoin relates.
cyphertruck 6y ago
In Bitcoin, the “local currency” equivalent to your “MyDogeCoin” example is called The lightning network. Simplifying a bit to support your analogy: Bitcoin lets you lock coins on the chain for a certain amount of time. Two people can do this, then trade bitcoin transactions back and forth without submitting them. For example, I lock coins and give my coworker a bitcoin transaction I have signed giving him $10 worth of bitcoin for my share of the days lunch. Next day he fives me one for $13 for his share, and I give the restaurant $43 for the bill— all these transactions are literally trading bitcoin IOUs, but in a nearly trustless way. This means a great deal of transactions can happen off chain without the risk of theft.
UncleMeat 6y ago
That's all fine, but the argument isn't that BTC has some use case. The argument is that BTC has some use case that is so valuable that the combined value of all BTC should be in the tens or hundreds of trillions of dollars.
Geee 6y ago
There are also trustless ways to do that. Bitcoin's Lightning Network does exactly this in trustless way, and it's feeless, instant and private. Every "Lightning bitcoin" is cryptographically backed by real bitcoin. In the end, all transactions are settled on the Bitcoin main chain. Then there are centralized credit networks backed by Bitcoin. Paypal and Visa (with a custodian / bank) already provide this, in combination with a seamless exchange to local currency that is accepted by the merchant. For custodians, it's possible to algorithmically prove reserves, so that every user can verify that their "bitcoin IOU" is backed by actual bitcoin, but no one currently provides this afaik.
nerdkid93 6y ago
> then basically defaulted and forced everyone to accept dollars by force I found 3 instances of "defaults" over the history of the U.S. Federal Government[0], and I cannot figure out to which of those occurrences you might be referring. Bretton Woods was the agreement that made the USD the world's reserve currency, and that lasted for 30ish years while the U.S. was still on the gold standard. [0] Has the U.S. Government Ever "Defaulted"? https://fas.org/sgp/crs/misc/R44704.pdf https://fas.org/sgp/crs/misc/R44704.pdf
ori_b 6y ago
Why are you so excited about a really inefficient clearing house? We already have those.
- danlugo92 6y ago
  Ask Venezuelans and Iranians.
  - zepto 6y ago
    It doesn’t seem like Bitcoin has actually solved any problems for them.
    - danlugo92 6y ago
      According to localbitcoins, $235 million was traded in 2018 alone in Venezuela, that's a lot for such an small economy. It's solving /some/ problems, for /some/ people, maybe businessmen that create jobs or wealth even.
      - zepto 6y ago
        > It's solving /some/ problems, for /some/ people, maybe businessmen that create jobs or wealth even. Sure, but by that logic, selling crack cocaine solves some problems for some people, maybe businessmen that create jobs or even wealth.
        danlugo92 6y ago
        Such an apt analogy of course...
  - ori_b 6y ago
    Why are they interested in producing a public record of their transactions? Isn't that dangerous given their current political situations?
  - hannasanarion 6y ago
krrrh 6y ago
One of the properties of gold that roughly held true for centuries was a stable value. When gold threatened to become too scarce for a growing economy the incentive to mine, explore, and develop new mining technology increased. Goldbugs often point out that an ounce of gold has always been close to the price of a nice suit (admittedly a fuzzy measure, and it’s sometimes a really nice suit, and sometimes just a really nice jacket). Bitcoin has gone from pennies, to around $100 for a year, to around $1000 for a year or two, to between $20000 and $3000 for a few years, and now to $50-60k. I guess you could argue that this is just going to take a few decades to stabilize, but that’s a pretty big bet, and a pretty weird way to design the next monetary framework. There was a pretty interesting Clubhouse discussion on the weekend where Eric Weinstein praised the genius of Bitcoin but bemoaned the stupidity of its design (“a QWERTY problem”), and Lex Fridman tried to charitably compare Bitcoin to JavaScript as a flawed tech that had great distribution and has been making the best of it since then. They were both rudely dismissed by a group of Bitcoin maximalists as “not getting it”. The question I’ve asked since the start is, if this is a functional idea, why is the dumb beta version still the dominant implementation? There’s a bizarre religiousity and post hoc rationalizations for some of the weirdest decisions in its design, and mistaking speculative mania and nominal price for success, while proposed uses for Bitcoin and the blockchain have been quietly discarded. Bitcoin’s valuation is more of a symptom of post-2008 monetary conditions than a long-term challenge to them.
- freeone3000 6y ago
  Because it's the one that's caught on. There's no actual need for inherent utility of it that can't be papered over by running everything through one of a few big exchanges. Or, preferably, ONE big exchange, where all settlements can take place off-chain and the blockchain sits in a big vault and everyone just trusts you can redeem your account balance for Bitcoin if you ever want it, but you won't want it, because the balance is more valuable than the actual Bitcoin. (I'm drawing a comparison to gold here, but this is also true for other commodities, and for that matter, stocks.)
  - danShumway 6y ago
    > Or, preferably, ONE big exchange, where all settlements can take place off-chain and the blockchain sits in a big vault and everyone just trusts you can redeem your account balance for Bitcoin if you ever want it, but you won't want it, because the balance is more valuable than the actual Bitcoin. That's an important point, because it prompts the question: what is the problem that Bitcoin is solving if the preferable outcome is that it does exactly the same things that gold and centralized banks already do? The more that I hear people justify slow transaction times, high fees, and a general lack of platform evolution, the more it sounds to me like the only problem that Bitcoin is solving in the real world is that gold is already stable, and speculators need a new thing to jump on. The arguments people are making today about why slow transactions are irrelevant are not the same arguments that people were making when Bitcoin was new. It's revisionist history. And when people are talking about centralization as the end goal... this is also part of why I'm skeptical about claims that proof of stake is going to solve anything on the environmental front, or that microtransactions are ever actually going to get better. The overwhelming perspective I'm seeing here is that nobody involved in speculating on Bitcoin cares about the technological side at all, and I don't see what incentive there is for anyone to make mining easier, cheaper, more democratic, or more environmentally friendly. The whole point seems to be that people want to get in early and then erect as high barriers of entry as possible. What makes people think that anyone speculating on Bitcoin is going to care about proof of stake? At the point where bitcoin becomes a nationally backed currency that is just a backbone for other smaller systems and is (for most people) completely independent from their regular everyday transactions -- there's no advantage to creating that world, that is the world we already have. The only difference is that a few people on Reddit haven't gotten rich off of the world we have. The fact that the majority of the market is still standardized on Bitcoin despite a plurality of clearly better coins drives home to me that the discussion about Bitcoin has nothing to do with practical merits of the system, and everything to do with a bunch of people trying to extract as much money as possible before tragedy of the commons sets in. We can make centralized banks without bitcoin. If that's the end goal, then we should absolutely get rid of the blockchain because blockchain is not necessary for a centralized bank exchange with a small number of government-level actors. I'm surrounded by people who tell me that Bitcoin is a giant innovation, but who are then openly hostile to any kind of improvement to the platform and who are continually dismissing valid criticisms of its technology and governance model as irrelevant because those criticisms don't directly impact Bitcoin's value as a purely speculative currency. What you're describing when you propose a single, centralized exchange is, "we want to make banks a second time the same way, except less efficiently with fundamentally outdated technology, because we want some of the pie this time." Which, great, but as a non-speculator, why on earth should I support that or care about it?
svachalek 6y ago
This idea is a big one behind the development of modern crypto currencies. Ideas like "Layer 2", "Zero Knowledge Rollups", and "Parachains" are all built on the idea that not everything that happens needs to be on the main blockchain. Personally I suspect that eventually a more modern blockchain will become the base level of record, or more likely that we may never settle on a single one, but indeed with proper layering it could all be BTC in the end.
rax0m 6y ago
Good takeaway. Sounds like something straight out of The Bitcoin Standard [1]. [1]: https://www.goodreads.com/book/show/36448501-the-bitcoin-standard https://www.goodreads.com/book/show/36448501-the-bitcoin-sta...
stjohnswarts 6y ago
But why use bitcoin? It is completely inferior to a lot of the coin technology that came after which can be used as "moneY' and not a store of value. I think that ultimately this will be its downfall and something else will replace it. Unlike gold it doesn't have any inherent value and isn't necessarily forever. It's almost impossible to lose a few tons of gold, whereas bitcoin can be wiped out (on a national "store" level) with one dumb (or insane) wallet holder(government official)

inter_netuser 6y ago

And down the rabbit hole we fall.

nickysielicki 6y ago

> Bitcoin is digital gold for settlements among digital currencies. What are the implications of this on the network stability wrt mining? Doesn't bitcoin need transaction volume to remain a stable network? My read is that the incentive structure changes. Right now, miners are motivated by block rewards. In the future, they'll be motivated by transaction fees. If transactions are rare, mining profitably is going to become much more difficult. Pair this with 51% attacks, and the long ramp-up of mining capabilities starts to look like it will regress after the the rewards go to zero. Can the network survive that?

cyphertruck 6y ago
To answer that question you have to make assumptions about the cost of mining, the cost of attacks and the cost of hash power at a point 117 years from now. But we know in the future hash power (technology) will be cheaper and thus bitcoin security will be cheaper, while bitcoin will be more valuable (or non-existing — it has to be either or). Also remember if you have wealth in bitcoin you would likely mine at a loss merely to secure your own bitcoin. I can’t imagine mining going away. I think every appliance in a household will end up mining a little bit and it will be intrinsic to the fabric of the economy. The way the internet is now.
- shawnz 6y ago
  > Also remember if you have wealth in bitcoin you would mine at a loss merely to secure your own bitcoin. You could also send null transactions which do nothing but pay a transaction fee
  - nickysielicki 6y ago
    If you're freely giving away money (either in the form of null transactions or putting money into mining) just to secure value that you're holding, you've clearly mispriced the asset you're trying to secure!
    - shawnz 6y ago
      If you put money in a savings account with interest below inflation, just to secure the value that you're holding, did you misprice the value? Or for example if you buy gold and then pay someone to watch it for you, does that mean you mispriced it?
      - nickysielicki 6y ago
        Both of those examples (holding money in savings account, holding paper PMs) are ultimately about liquidity, I don't see how bitcoin relates.

cyphertruck 6y ago

In Bitcoin, the “local currency” equivalent to your “MyDogeCoin” example is called The lightning network. Simplifying a bit to support your analogy: Bitcoin lets you lock coins on the chain for a certain amount of time. Two people can do this, then trade bitcoin transactions back and forth without submitting them. For example, I lock coins and give my coworker a bitcoin transaction I have signed giving him $10 worth of bitcoin for my share of the days lunch. Next day he fives me one for $13 for his share, and I give the restaurant $43 for the bill— all these transactions are literally trading bitcoin IOUs, but in a nearly trustless way. This means a great deal of transactions can happen off chain without the risk of theft.

UncleMeat 6y ago

That's all fine, but the argument isn't that BTC has some use case. The argument is that BTC has some use case that is so valuable that the combined value of all BTC should be in the tens or hundreds of trillions of dollars.

Geee 6y ago

There are also trustless ways to do that. Bitcoin's Lightning Network does exactly this in trustless way, and it's feeless, instant and private. Every "Lightning bitcoin" is cryptographically backed by real bitcoin. In the end, all transactions are settled on the Bitcoin main chain. Then there are centralized credit networks backed by Bitcoin. Paypal and Visa (with a custodian / bank) already provide this, in combination with a seamless exchange to local currency that is accepted by the merchant. For custodians, it's possible to algorithmically prove reserves, so that every user can verify that their "bitcoin IOU" is backed by actual bitcoin, but no one currently provides this afaik.

nerdkid93 6y ago

> then basically defaulted and forced everyone to accept dollars by force I found 3 instances of "defaults" over the history of the U.S. Federal Government[0], and I cannot figure out to which of those occurrences you might be referring. Bretton Woods was the agreement that made the USD the world's reserve currency, and that lasted for 30ish years while the U.S. was still on the gold standard. [0] Has the U.S. Government Ever "Defaulted"? https://fas.org/sgp/crs/misc/R44704.pdf https://fas.org/sgp/crs/misc/R44704.pdf

ori_b 6y ago

Why are you so excited about a really inefficient clearing house? We already have those.

danlugo92 6y ago
Ask Venezuelans and Iranians.
- zepto 6y ago
  It doesn’t seem like Bitcoin has actually solved any problems for them.
  - danlugo92 6y ago
    According to localbitcoins, $235 million was traded in 2018 alone in Venezuela, that's a lot for such an small economy. It's solving /some/ problems, for /some/ people, maybe businessmen that create jobs or wealth even.
    - zepto 6y ago
      > It's solving /some/ problems, for /some/ people, maybe businessmen that create jobs or wealth even. Sure, but by that logic, selling crack cocaine solves some problems for some people, maybe businessmen that create jobs or even wealth.
      - danlugo92 6y ago
        Such an apt analogy of course...
- ori_b 6y ago
  Why are they interested in producing a public record of their transactions? Isn't that dangerous given their current political situations?
- hannasanarion 6y ago

krrrh 6y ago

One of the properties of gold that roughly held true for centuries was a stable value. When gold threatened to become too scarce for a growing economy the incentive to mine, explore, and develop new mining technology increased. Goldbugs often point out that an ounce of gold has always been close to the price of a nice suit (admittedly a fuzzy measure, and it’s sometimes a really nice suit, and sometimes just a really nice jacket). Bitcoin has gone from pennies, to around $100 for a year, to around $1000 for a year or two, to between $20000 and $3000 for a few years, and now to $50-60k. I guess you could argue that this is just going to take a few decades to stabilize, but that’s a pretty big bet, and a pretty weird way to design the next monetary framework. There was a pretty interesting Clubhouse discussion on the weekend where Eric Weinstein praised the genius of Bitcoin but bemoaned the stupidity of its design (“a QWERTY problem”), and Lex Fridman tried to charitably compare Bitcoin to JavaScript as a flawed tech that had great distribution and has been making the best of it since then. They were both rudely dismissed by a group of Bitcoin maximalists as “not getting it”. The question I’ve asked since the start is, if this is a functional idea, why is the dumb beta version still the dominant implementation? There’s a bizarre religiousity and post hoc rationalizations for some of the weirdest decisions in its design, and mistaking speculative mania and nominal price for success, while proposed uses for Bitcoin and the blockchain have been quietly discarded. Bitcoin’s valuation is more of a symptom of post-2008 monetary conditions than a long-term challenge to them.

freeone3000 6y ago
Because it's the one that's caught on. There's no actual need for inherent utility of it that can't be papered over by running everything through one of a few big exchanges. Or, preferably, ONE big exchange, where all settlements can take place off-chain and the blockchain sits in a big vault and everyone just trusts you can redeem your account balance for Bitcoin if you ever want it, but you won't want it, because the balance is more valuable than the actual Bitcoin. (I'm drawing a comparison to gold here, but this is also true for other commodities, and for that matter, stocks.)
- danShumway 6y ago
  > Or, preferably, ONE big exchange, where all settlements can take place off-chain and the blockchain sits in a big vault and everyone just trusts you can redeem your account balance for Bitcoin if you ever want it, but you won't want it, because the balance is more valuable than the actual Bitcoin. That's an important point, because it prompts the question: what is the problem that Bitcoin is solving if the preferable outcome is that it does exactly the same things that gold and centralized banks already do? The more that I hear people justify slow transaction times, high fees, and a general lack of platform evolution, the more it sounds to me like the only problem that Bitcoin is solving in the real world is that gold is already stable, and speculators need a new thing to jump on. The arguments people are making today about why slow transactions are irrelevant are not the same arguments that people were making when Bitcoin was new. It's revisionist history. And when people are talking about centralization as the end goal... this is also part of why I'm skeptical about claims that proof of stake is going to solve anything on the environmental front, or that microtransactions are ever actually going to get better. The overwhelming perspective I'm seeing here is that nobody involved in speculating on Bitcoin cares about the technological side at all, and I don't see what incentive there is for anyone to make mining easier, cheaper, more democratic, or more environmentally friendly. The whole point seems to be that people want to get in early and then erect as high barriers of entry as possible. What makes people think that anyone speculating on Bitcoin is going to care about proof of stake? At the point where bitcoin becomes a nationally backed currency that is just a backbone for other smaller systems and is (for most people) completely independent from their regular everyday transactions -- there's no advantage to creating that world, that is the world we already have. The only difference is that a few people on Reddit haven't gotten rich off of the world we have. The fact that the majority of the market is still standardized on Bitcoin despite a plurality of clearly better coins drives home to me that the discussion about Bitcoin has nothing to do with practical merits of the system, and everything to do with a bunch of people trying to extract as much money as possible before tragedy of the commons sets in. We can make centralized banks without bitcoin. If that's the end goal, then we should absolutely get rid of the blockchain because blockchain is not necessary for a centralized bank exchange with a small number of government-level actors. I'm surrounded by people who tell me that Bitcoin is a giant innovation, but who are then openly hostile to any kind of improvement to the platform and who are continually dismissing valid criticisms of its technology and governance model as irrelevant because those criticisms don't directly impact Bitcoin's value as a purely speculative currency. What you're describing when you propose a single, centralized exchange is, "we want to make banks a second time the same way, except less efficiently with fundamentally outdated technology, because we want some of the pie this time." Which, great, but as a non-speculator, why on earth should I support that or care about it?

svachalek 6y ago

This idea is a big one behind the development of modern crypto currencies. Ideas like "Layer 2", "Zero Knowledge Rollups", and "Parachains" are all built on the idea that not everything that happens needs to be on the main blockchain. Personally I suspect that eventually a more modern blockchain will become the base level of record, or more likely that we may never settle on a single one, but indeed with proper layering it could all be BTC in the end.

rax0m 6y ago

Good takeaway. Sounds like something straight out of The Bitcoin Standard [1]. [1]: https://www.goodreads.com/book/show/36448501-the-bitcoin-standard https://www.goodreads.com/book/show/36448501-the-bitcoin-sta...

stjohnswarts 6y ago

But why use bitcoin? It is completely inferior to a lot of the coin technology that came after which can be used as "moneY' and not a store of value. I think that ultimately this will be its downfall and something else will replace it. Unlike gold it doesn't have any inherent value and isn't necessarily forever. It's almost impossible to lose a few tons of gold, whereas bitcoin can be wiped out (on a national "store" level) with one dumb (or insane) wallet holder(government official)