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While this is sad, this is a self correcting problem. Miners and other people using bitcoins are going to get tired at some point of the loss from buying all th
by BenoitEssiambre 6y ago
While this is sad, this is a self correcting problem. Miners and other people using bitcoins are going to get tired at some point of the loss from buying all this energy to keep their bitcoin assets going.
The most scary part of cryptocoins is the deflationary cycle that makes these crypto asset potentially displace productive investment on an economy wide scale.
This is not self correcting. This is Moloch, it's a prisoner's dilemma, a bad Nash equilibrium where the incentives are to keep the vicious cycle going as long as possible because the first to leave the cycle are disadvantaged.
This is mostly a worry if many companies do like Tesla and jump on the band wagon. They may be tempted at an economy wide scale to reduce investment in production in order to hoard cryptocoins instead. This dynamic caused the great depression in the 1930s when businesses switched to hoarding gold tied currency instead of producing.
Now I'm not sure that crypto coins without being jacked up by central banks (like gold was during the great depression) are a powerful enough force to cause the type of havoc that gold did.
Then again, the potentially stronger network/memetic effects of cryptocoins, along with the amplification factor from markets being synchronized through instant global communications nowadays might make them dangerous to the economy even without central bank involvement. We saw how much people got hypnotized during the Gamestop episode. I don't think unsophisticated investors' hoarding is enough to cause problems but it is a bit unsettling that Tesla and other companies are starting to hoard. If enough businesses follow suit, you get into scary territory (It would also be worrisome if companies widely moved to add billions in gold to their balance sheet but the lesson has been learned in the 1930s with gold).
In theory, if central banks stay stimulative enough through all this, you can maintain growth in both productive businesses and crypto. As long as these central banks don't flinch at the sight of what may look like crypto bubbles.
- Bluestein 6y ago> We saw how much people got hypnotized during the Gamestop episode. I particularly like your use of "hypnotized", here ...
- ric2b 6y agoGold already exists and has for millenia, what about crypto currencies doesn't apply to it as well? The existence of deflationary assets doesn't seem to crash the economy as predicted.
- santoshalper 6y agoYes, clearly the market will solve this problem for us.
- martin-adams 6y ago> Miners and other people using bitcoins are going to get tired at some point of the loss from buying all this energy to keep their bitcoin assets going Someone might have a better insight to me. My concern is that the demand for energy will push up the price for everyone and it's actually those on lower incomes who will suffer the most. While the economics might eventually get there to solve the problem, could it do a lot of damage in the process?
- stjohnswarts 6y agoWe all suffer because it pollutes the environment ridiculous amounts for something that is still of dubious worth to society (we already have plenty currencies). The amount of power needed goes asymptotically to infinity as bit coins are mined. It will have to eventually fix itself because of that as other have argued, but before then it's going to do a lot of unnecessary damage to the environment.
- adamhp 6y agoDisclaimer: I'm fairly uneducated on cryptocurrency and failed miserably at economics, so these are just musings. Do you think any of those negative effects are counteracted by crypto creating a new ecosystem for the exchange of value? I'm not certain myself, but I'm curious what your thoughts are. It is slightly different than gold, in the sense that normal people (that can afford expensive graphics cards) can "earn" value—at the expense of energy consumption and thus proxying all of the destructive nature of that industry. On one hand, it doesn't really appear that it will increase the velocity of money, given that you're now just introducing a bunch of arbitrage opportunities in the exchange markets... That might even contribute to your point, that the larger "crypto" as a whole scales, the more it will serve to suck actual value out of the global economy. It's an interesting thing to consider.
- ROARosen 6y ago> Miners and other people using bitcoins are going to get tired at some point of the loss from buying all this energy to keep their bitcoin assets going The only reason miners mine (at least most of them) is because they get a return on their upfront energy costs by the rewarded BTC, so why would they suddenly get tired of it?
- stjohnswarts 6y agoAfter bitcoin collapses (bubble pops) they won't be willing to mine for 2 years to get a block of coins when it's worth maybe $2
- trident5000 6y ago"displace productive investment on an economy wide scale" Yes we need to keep buying overvalued equities. Instill fear. The matter of the fact is if something is worth investing in, it will get the investment regardless if btc is with us or not with us. Venture capital is still thriving today.
- loceng 6y ago"... a bad Nash equilibrium where the incentives are to keep the vicious cycle going as long as possible because the first to leave the cycle are disadvantaged." This is why Bitcoin is compared to a Ponzi-MLM scheme - and if the game doesn't continue then the latest adopters, who haven't sold or made any profit, are then left "holding the bag." This matching pattern is denied by pretty much every person in the army/mob of HODLers: - Bill Gates recently said only someone as rich as Elon should be willing to risk buying Bitcoin; Elon being the richest person on the planet - Elon Musk even recently tweeted that "Bitcoin is almost as much bs as fiat money", so even he doesn't believe it's the best or ideal final solution - I can't find the article, however within the last few weeks, an article by a senior partner at an international investment firm wrote about his thoughts on Bitcoin, and in the first few paragraphs he highlighted how people with a counter-narrative are hiding/afraid to speak out against it [because of the mob].
- tekknik 6y ago> While this is sad, this is a self correcting problem. Miners and other people using bitcoins are going to get tired at some point of the loss from buying all this energy to keep their bitcoin assets going. Except with deflating nature of BTC, and no accurate price prediction models, people always assume their BTC will be worth mor, so they justify mining at a loss currently for future speculative value. Not to mention this exact statement has been parroted while BTC move from CPU, to GPU, and finally to ASICs. There has always been someone there saying it’ll correct, except it never has.
- noxer 6y agoDon't worry it IS defensively self correcting no matter who joins and for what reason. To keep it going forever it would need endless quadratic grows which is not possible. Also there are solutions without PoW/PoS, they use FBA instead. As soon as they take over for any actual use, the energy wasting will come to an end.
- BenoitEssiambre 6y agoI mean, it _is_ going to eventually self correct. The question is, could it go on until causing another great depression and wwIII before it does?
- noxer 6y agoIf it would have anywhere near a direct effect on our daily life that alone would have such a negative effect on the price that it would instantly crash. The price and more so the ever increasing price is the only thing that keeps it alive and it directly correlates with the price expectation people have. There is no way enough people would think the price goes up if negative effects would become so real.
- BenoitEssiambre 6y agoWhat if the effects of cryptocoins are expected to affect other assets more negatively (people reduce buying from businesses because they want to hoard tokens instead so all assets but cryptocoins lose value while tokens are gaining). Then cryptocoins increasingly seems like the only asset worth buying. This is what makes this a bad Nash equilibrium and vicious circle. Now I think central banks can prevent this from affecting the greater economy by sufficiently stimulating investment (which would quickly push crypto coins prices up to a level where they can go down again). I think...
- noxer 6y agoThere where hugely popular deflationary assets in the past. Gold and Silver would also only go up in value over time if people would see it as more profitable than anything else. But reality kicks in at some point. PMs still goes up in value making new ATH every few year but they cant outperform stock. The people who still bet everything on gold or other PMs are the same who do so with bitcoin. They are attached to it. Its not a big problem because only a fraction of all people will get this kind of gold fever for a long period of time. The rest will move money to other assets and even short it. All of that leaves out any "authoritarian" intervention which at some point would be guaranteed if bitcoin would come close to a global risk. An yes, I know they cant shut down the network but like I said in my last post its all about the price tag. They can crash the price without attacking the network at all. Merely stating the goal to suppress it should be enough. No institution would bet against the gov so they would sell instantly.