5 ms·

Crypto is 'backed' by the sunk cost of the energy used to mine it.

serial_dev 6y ago
I think it's backed by the hope that on a couple of years it will be worth lot more (instead of looking backwards, people look forward and hope to get rich).
- aaron_m04 6y ago
  Why can't it be the hope that it's worth something (not necessarily a lot more)?
meowster 6y ago
That sounds like the Sunk Cost Fallacy. Just because something valuable was already wasted, doesn't make the result valuable.
- jasonlaramburu 6y ago
  Agreed, that is why on a long enough timeline someone will end up holding the bag.
  - unkulunkulu 6y ago
    A lot of people are comparing crypto to some kind of ponzi pyramid thing, ie a scam where some people will get rich but a lot will suffer. But isn’t that true about everything, ie smarter/more lucky ones will find ways to increase their wealth and those making suboptimal decisions will get broke? It looks like only when it gets obvious how the scheme works it becomes a scam.
    - jasonlaramburu 6y ago
      The challenge with crypto is it is so easily manipulated/wash traded by those with large holdings. So those who are later to the game (with smaller holdings) are at a systemic disadvantage.
  - meowster 6y ago
    It could stabilize at a price and not crash, but who knows. I sold most of my crypto because it's too risky/sketchy for me now.
thebean11 6y ago
ETH is backed by the distributed computer you can pay ETH to execute software on.
- hannasanarion 6y ago
  And what is the value of a distributed computer? Turns out, virtually nil, because it's been around for 8 years and nobody is using it, because there is no real-world use case for contracts written as software.
  - thebean11 6y ago
    > it's been around for 8 years and nobody is using it That's laughably wrong, go look up how much revenue the Ethereum network is bringing in with smart contract fees.
    - hannasanarion 6y ago
      And what are those smart contract fees being used for? - Speculators buying ETH to ride the bubble - A revolving door of Proof-of-concept startups with backing from starry-eyed VCs and no viable business plans that pop up, use a bunch of compute, and then fail, every couple of months. Ethereum mining conglomerates don't even use Smart Contracts, they just cite "a long history of successful payouts", trust, and old-fashioned promises written in vernacular English.
      - thebean11 6y ago
        So you're moving the goalpost from "no users" to "no users I approve of"? A few other use cases: DeFi (mainly crypto backed loans), NFTs (so far not too interesting to me), distributed ETH2 staking pools, distributed betting markets (the coolest one in my opinion).
        hannasanarion 6y ago
        No, the goal posts are standing still at "competitively successful commercial activity". The fact that somebody somewhere hammers nails with glass jars doesn't mean that glass hammers are about to take over the hardware world. Early investors getting rich off of a Ponzi scheme doesn't make the Ponzi a good businessman. DeFi is used almost exclusively as margin for speculation. Since smart contracts have no legal force, the only way lenders can be guaranteed their money back is by demanding collateral that is greater than the value of the loan. When is the last time you needed a loan of $10,000, for which you were happy to put up $15,000 of your own dollars in escrow as collateral, other than securities gambling? NFTs are just cryptokitties by another name, ETH2 staking pools are just private equity firms but without security because millions of dollars are stolen out of them every year, and crypto distributed betting markets are patently illegal. Which brings us right back to where these conversations always end: the only things blockchain has or will ever be useful for are speculation and obscuring criminal activity.
quesera 6y ago
I'd modify that to: "Crypto is 'backed' by the value of the sunk cost of the energy used to mine it." ...which is to say: nothing. But for as long as collective agreement persists, there is volatility. And where there's volatility, there are profitable trades. The natural question becomes "Why does, and for how long will, the collective agreement persist?". For that, I have no answer. :)
nprz 6y ago
We can (and China already does) use energy that would otherwise be wasted to mine bitcoin: https://twitter.com/nic__carter/status/1369007894969122816?s=20 https://twitter.com/nic__carter/status/1369007894969122816?s...
- zacmps 6y ago
  This only holds water if you completely disconnect supply from demand, which is obviously ridiculous.
- mr_woozy 6y ago
  Same here in Iceland where we mine 11% of the btc Network.
koonsolo 6y ago
Proof of Stake cryptocurrencies are not mined, so where do they get their value from? Plenty of them have high market caps.
- jasonlaramburu 6y ago
  I suppose the value is derived from staking your coins on PoS. There is real opportunity cost associated with locking up assets.
quartus 6y ago
This is an interesting thought that crypto (or at least proof of work crypto) is backed by a sunk cost of an otherwise useless task. But let me extend that paradigm: why is (or isn't) gold also not baked by a sunk cost? What was the point of all that expensive mining and digging if not for the sole purpose to extract that shiny metal from the earth's crust?
- saalweachter 6y ago
  Mining gold removes it from the earth in the future; mining Bitcoin secures the blockchain in the past. If the moment you stopped mining gold, it began to sink into the earth again, would the amount of mining you did in the past have value in the future?
- jasonlaramburu 6y ago
  To some degree they are similar. The one difference is perhaps that BTC mining income is effectively guaranteed, ie if you join a mining pool and invest enough money, you will get a return of known quantity. In contrast, you could invest a virtually unlimited amount of money in a gold mining operation but not get anything back.

I think it's backed by the hope that on a couple of years it will be worth lot more (instead of looking backwards, people look forward and hope to get rich).

aaron_m04 6y ago
Why can't it be the hope that it's worth something (not necessarily a lot more)?

meowster 6y ago

That sounds like the Sunk Cost Fallacy. Just because something valuable was already wasted, doesn't make the result valuable.

jasonlaramburu 6y ago
Agreed, that is why on a long enough timeline someone will end up holding the bag.
- unkulunkulu 6y ago
  A lot of people are comparing crypto to some kind of ponzi pyramid thing, ie a scam where some people will get rich but a lot will suffer. But isn’t that true about everything, ie smarter/more lucky ones will find ways to increase their wealth and those making suboptimal decisions will get broke? It looks like only when it gets obvious how the scheme works it becomes a scam.
  - jasonlaramburu 6y ago
    The challenge with crypto is it is so easily manipulated/wash traded by those with large holdings. So those who are later to the game (with smaller holdings) are at a systemic disadvantage.
- meowster 6y ago
  It could stabilize at a price and not crash, but who knows. I sold most of my crypto because it's too risky/sketchy for me now.

thebean11 6y ago

ETH is backed by the distributed computer you can pay ETH to execute software on.

hannasanarion 6y ago
And what is the value of a distributed computer? Turns out, virtually nil, because it's been around for 8 years and nobody is using it, because there is no real-world use case for contracts written as software.
- thebean11 6y ago
  > it's been around for 8 years and nobody is using it That's laughably wrong, go look up how much revenue the Ethereum network is bringing in with smart contract fees.
  - hannasanarion 6y ago
    And what are those smart contract fees being used for? - Speculators buying ETH to ride the bubble - A revolving door of Proof-of-concept startups with backing from starry-eyed VCs and no viable business plans that pop up, use a bunch of compute, and then fail, every couple of months. Ethereum mining conglomerates don't even use Smart Contracts, they just cite "a long history of successful payouts", trust, and old-fashioned promises written in vernacular English.
    - thebean11 6y ago
      So you're moving the goalpost from "no users" to "no users I approve of"? A few other use cases: DeFi (mainly crypto backed loans), NFTs (so far not too interesting to me), distributed ETH2 staking pools, distributed betting markets (the coolest one in my opinion).
      - hannasanarion 6y ago
        No, the goal posts are standing still at "competitively successful commercial activity". The fact that somebody somewhere hammers nails with glass jars doesn't mean that glass hammers are about to take over the hardware world. Early investors getting rich off of a Ponzi scheme doesn't make the Ponzi a good businessman. DeFi is used almost exclusively as margin for speculation. Since smart contracts have no legal force, the only way lenders can be guaranteed their money back is by demanding collateral that is greater than the value of the loan. When is the last time you needed a loan of $10,000, for which you were happy to put up $15,000 of your own dollars in escrow as collateral, other than securities gambling? NFTs are just cryptokitties by another name, ETH2 staking pools are just private equity firms but without security because millions of dollars are stolen out of them every year, and crypto distributed betting markets are patently illegal. Which brings us right back to where these conversations always end: the only things blockchain has or will ever be useful for are speculation and obscuring criminal activity.

quesera 6y ago

I'd modify that to: "Crypto is 'backed' by the value of the sunk cost of the energy used to mine it." ...which is to say: nothing. But for as long as collective agreement persists, there is volatility. And where there's volatility, there are profitable trades. The natural question becomes "Why does, and for how long will, the collective agreement persist?". For that, I have no answer. :)

nprz 6y ago

We can (and China already does) use energy that would otherwise be wasted to mine bitcoin: https://twitter.com/nic__carter/status/1369007894969122816?s=20 https://twitter.com/nic__carter/status/1369007894969122816?s...

zacmps 6y ago
This only holds water if you completely disconnect supply from demand, which is obviously ridiculous.
mr_woozy 6y ago
Same here in Iceland where we mine 11% of the btc Network.

koonsolo 6y ago

Proof of Stake cryptocurrencies are not mined, so where do they get their value from? Plenty of them have high market caps.

jasonlaramburu 6y ago
I suppose the value is derived from staking your coins on PoS. There is real opportunity cost associated with locking up assets.

quartus 6y ago

This is an interesting thought that crypto (or at least proof of work crypto) is backed by a sunk cost of an otherwise useless task. But let me extend that paradigm: why is (or isn't) gold also not baked by a sunk cost? What was the point of all that expensive mining and digging if not for the sole purpose to extract that shiny metal from the earth's crust?

saalweachter 6y ago
Mining gold removes it from the earth in the future; mining Bitcoin secures the blockchain in the past. If the moment you stopped mining gold, it began to sink into the earth again, would the amount of mining you did in the past have value in the future?
jasonlaramburu 6y ago
To some degree they are similar. The one difference is perhaps that BTC mining income is effectively guaranteed, ie if you join a mining pool and invest enough money, you will get a return of known quantity. In contrast, you could invest a virtually unlimited amount of money in a gold mining operation but not get anything back.