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I, Token: The untold story of the hole in Bitcoin's heart

105 points by SirLJ 5y ago

MathYouF 5y ago
The opening paragraphs are very frustrating for a software developer to read, because it assumes a very technologically ignorant perspective that might beg similar questions like "What IS a website" and having the asker be annoyed by having you describe the features of a website. At the end of the day, it is a series of electrical on and off switches stored in one or several computers. Is the value of websites indistinguishable from a bunch of batteries just because its form can't be meaningfully distinguished from a battery to a drunk 12th century techno illiterate in a tavern? To explain what a bitcoin actually is to people utterly ignorant and skeptical of how information stored on hardware works sounds like an exercise that can be left to the writer, they may have to spend the rest or their lives explaining every bit of tech to every layman. What is a book after all? Dead trees stained with ink? What intrinsic value does that hold? If someone were to ask stubbornly the value of any book, I'd be similarly disinclined to spend the time explaining that as well. Like with TVs and cell phones and plumbing, lay people will stop asking or caring about "What is bitcoin" once you can give a functional answer of "You can buy a house with it". Explaining what it actually is to people that obtuse will not get one any closer to that point anyway, so I'm not sure what the value is. The cycle for the next wave of technology whose final purpose and form baffles the general public will continue on and on, this is just a season we're in, like all the ones before.
- nixpulvis 5y ago
  > The opening paragraphs are very frustrating for a software developer to read, because it assumes a very technologically ignorant perspective that might beg similar questions ... It's an allegory. I see no problem here.
- MathYouF 5y ago
  I don't think anyone else was confused by this, but I'll endeavour to clarify for you. The allegory the writer of the article used is meant to reflect the same perspective of people in the modern day world and the rest of my comment pretty effortlessly transitions to discussing the limitations of those modern day peoples abilities to understand technical subjects. The frustration refers to the task given of explaining tech to the willfully tech illiterate. The first few paragraphs I reference clearly move from the allegorical to the concrete modern day person whose perspective I refer to as frustrating. I also do offhandedly refer to the allegory to make a passing reference to the article and show that the allegorical character isn't that different from the modern day target audience of the author. The rest of the article explores explaining crypto a frustratingly tech ignorant modern person. I think that context would be clear to anyone who even skimmed a good part of the article. You should consider reading the thing people are discussing before leaving a short derailing comment about it.
MarkPNeyer 5y ago
This article fits perfectly with something Orwell wrote, about how the use of complex language gives bad ideas an heir of authority. The example of the chair, where the author asserts that “functional definitions are wrong, only ‘structural’ definitions are correct” is a good test here. The author objects to the idea that “anything you sit on can be a chair” and then provides a definition of chair which does not include: - folding chairs - metal chairs - plastic chairs - any chair much bigger or smaller than a person (such as dollhouse furniture or some novelty item). Does that make any sense? The moment you try to fix the problem with the author’s definition , you should come to the conclusion that functional definitions correspond more reliably to what people mean. For example, how would this author define “food”? Look at the extremely convoluted definition of money the author proposes: > what is money?”, I would begin like this: A vast network structure, at the centre of which lies three sets of issuers issuing out three chained layers of legal IOUs – in physical and digital form – which will later return to the issuers to be destroyed, but which in the interim entrench themselves as economic network access tokens that circulate around an interdependent web of people who cannot mobilise each other’s labour without them. These tokens are activated in the context of legal systems set within political systems set within social systems set within ecological systems, and this mesh structure underpins modern capitalism and is etched into the very fabric of our being. If this is the definition of money, then it suggests people never used money at all until computers existed. Absurd. This is someone trying to sell an idea (MMT) and claiming that it’s the result of “more rigorous thinking”.
- doomroot 5y ago
  This is a well structured comment and much of the reason I still spend time on this site. Thank you.
- Retric 5y ago
  You’re complaining but not giving a better option. That definition of money applies to a physical Sestertius in 50 BC just fine. The same physical coin may be worth more as a collectors item today, but it’s no longer money. That’s what makes the definition so convoluted, stuff can go from money to not money very easily.
- 5y ago
mediocregopher 5y ago
The article's premise seems to me to be that real money is valuable because there's more to it than its properties and its form... > But a cash token is not mere paper, and the numbers we see in bank accounts are not mere numbers. They are accounting records of legally-enforceable promises... That sentence strikes me as the crux. But we never find out what is being promised. The word IOU is also used a lot, but we don't find out what we are owed. Is it access to a financial system? If so that's a flimsy argument, who's to say crypto couldn't create its own financial vortex (as the author describes it)?
- rantwasp 5y ago
  the author strikes me as ignorant TBH. Here is what people want when it comes to money: ability to exchange the money for goods. That’s it. Money is valuable because it can be exchanged and everyone has 1) accepted that you can exchange it 2) is using it for this exchange. What bitcoin is is captured in its name: bit coin == digital money. It’s not complicated. Also, breaking news: most money (like 90%+) today only exist in electronic form (in that sense the dollar is a digital currency with a paper form and so on) People hate bitcoin because they don’t understand what it is and perceive it as being somewhat of a threat. It’s not. The ultimate success or failure of bitcoin will depend on how many people use it and what it’s used for. Also, as a side note, the blockchain idea is revolutionary. Distributed consensus in a zero trust environment? yup. Has this been done before at this scale?
  - 4512124672456 5y ago
    > It’s not. The ultimate success or failure of bitcoin will depend on how many people use it and what it’s used for. Bitcoin has already failed as money. Even most coiners admit that nowadays. > Distributed consensus in a zero trust environment? The whole cryptocurrency environment still relies on plenty of trust (exchanges, programmers, apis...). It's just less regulated, and this is why it is full of scams (https://www.rekt.news/ https://www.rekt.news/).
    - rantwasp 5y ago
j3th9n 5y ago
"There are three classes of people: those who see, those who see when they are shown, those who do not see." -Leonardo da Vinci
- nixpulvis 5y ago
  Yet, you must first see to have been shown. Funny how that works.
  - karmakaze 5y ago
    I took that to mean 'to see without first being shown' from the context rather than literally. What is taking arbitrarily parts literally and feigning incomprehension? Noise.
    - deleted 5y ago
      [deleted]
- seanhunter 5y ago
  That quote is actually from Machiavelli's "The Prince" and is often misattributed to Leonardo. https://suebrewton.com/2016/07/31/no-leonardo-da-vinci-did-not-write-that-either/ https://suebrewton.com/2016/07/31/no-leonardo-da-vinci-did-n...
  - j3th9n 5y ago
    Ok, cool, nice to know.
Archelaos 5y ago
A very mysterious story: both seem to have knowledge about the bubonic plague two centuries before the event.
alexandrerond 5y ago
12th century person talking about Syphilis in a tavern? Very hard to picture that scene indeed...
- dbuder 5y ago
  Impossible since it came from the new world.
  - Archelaos 5y ago
    According to Wikipedia, the first known use of the term "syphilis" is from 1530. In this respect the story is off by four centuries. The origin of the disease, however, is still debated. See https://en.wikipedia.org/wiki/History_of_syphilis https://en.wikipedia.org/wiki/History_of_syphilis
kordlessagain 5y ago
Bitcoin, and other blockchain like devices, are simply a means of locking human consensus into a virtual object that can be manipulated under certain conditions, which are agreed upon by the same consensus. It is a type of stored human causality, similar to fiat. Bitcoin is a special type of Ponzi scheme that uses energy input from miners to create the illusion there is a return in value over time. Like Rai stones, immutability comes from the work and risk, but the value of the object is itself held in the population's mind. This only "works" if everyone agrees it works. If everyone agrees it doesn't work then it doesn't work and isn't worth anything and the risk taken to "make" it is lost. This is why an allegory can be told that indicates it is the faith in such an object that brings it value. Without enough people using said blockchain, it is both worthless and empty of meaning - no different than a scrape in the mud. A killer use case for crypto will make its utility valuable and inventible. A road is formed from wear of people agreeing the road goes somewhere. The danger is the requirement for increases in power to the network, which both drives and is affected by the current value to fiat. We may yet wrap our planet with solar to drive our economic desire of "wealth".
- rantwasp 5y ago
  > Like Rai stones, immutability comes from the work and risk, but the value of the object is itself held in the population's mind. This only "works" if everyone agrees it works. If everyone agrees it doesn't work then it doesn't work and isn't worth anything and the risk taken to "make" it is lost. Deep. Very deep. The exact same thing can be said about money. It only works only if people agree it works. When you exchange your work for money, you are taking a risk. When you keep your money in the bank you are taking a risk. What if all of a sudden everyone stops accepting money? I really wish we would stop with the Ponzi scheme non-sense. Nobody believes that there is some sort of economic activity that is sustaining the growth. It’s really no different that buying stocks on an exchange. Risky? yes. Speculative? yes. Ponzi? Nope. This Bitcoin - Ponzi scheme association is used to fear-monger and to stop people from ever learning about it (you don’t want to be the sucker that falls for the scheme, do you?)
  - throwaway34241 5y ago
Geee 5y ago
Money is not as complex idea as he suggests. It's just the most agreed upon way of measuring prices and committing trade between individuals in a society. It allows people to sell, buy and measure prices. Whichever way does this the best, spontaneously becomes "money" through network effects from individual decisions of market participants. It's beneficial for each individual and for the society to use the same way as everyone else, and that's why something becomes "money". Something needs to have certain properties in order to become money, such as scarcity, divisibility, durability, verifiability and transportability. This ensures that the money can be used for trade in different scales, in different places, and in different times. Whichever money does this best, will eventually replace the old money, given a free market.
- foobarian 5y ago
  I think stability is important too. Currencies do fluctuate but not very much, and volatility usually leads to bad consequences. That's the main problem with Bitcoin - it is too unstable. Using it as a currency is much like using shares of some random company as currency. Imagine getting paid in, say, TSLA stock and using it to buy everyday needs!
  - Geee 5y ago
    Value and stability have more to do with adoption phase, i.e. how many people accept it as good money and want to use it. Today, Bitcoin is mostly traded against USD or other currencies, and these traders make up most of the total trading volume. The volatility is the result of this very one-sided activity. If it was used as money, it would be traded against goods and services, real estate, stocks, etc. which would give it lots of uncorrelated trading volume and create stability. Inherently, Bitcoin is very predictable, because we know with certainty how many bitcoins have been issued and how many will be issued in the future. Fiat currencies have an opposite problem. Central banks and governments influence the issuance and value of the currency too much, and this makes the currency inherently unpredictable. It has an effect of destroying confidence in free markets, because everything becomes a bet on monetary policy rather than markets itself. Same problem with TSLA; it is inherently unpredictable (both in issuance and dependency on their business success). In other words, some assets carry an inherent risk in them, and they're not good as money.
valyagolev 5y ago
it's kinda like demanding to be backed by a gold standard, but on a conceptual level. the author is not satisfied by the extensionality (metaphorically, the exchange-value), he need Bitcoin to be conceptually "backed" by some kind essence
nayuki 5y ago
I'm guessing the title is modeled after https://en.wikipedia.org/wiki/I,_Pencil https://en.wikipedia.org/wiki/I,_Pencil
cosmin800 5y ago
TL;DR seems just another random anti-cryptocurrency article. Long story short bitcoin has the same value people give to a nicely printed image of Benjamin Franklin on a piece of paper or a sparkling rock from Sierra Leone. Things have the value the trading partners agree upon.
ethn 5y ago
I’m not a fan of Graeber’s debt model for currency (i.e. the IOU). I prefer Aristotle’s nomisma and Szabo’s work on top of it [1]. [1] https://nakamotoinstitute.org/shelling-out/ https://nakamotoinstitute.org/shelling-out/
- magicsmoke 5y ago
  This was a really enjoyable read and actually helped plugged a few gaps I got from Graeber's work. I personally think his model for where money originated is very solid. Early human tribes work on emotional kinship ties and obligations within the family without a need to precisely account for debts. Money first appeared with city-states as standardized clay tokens used to account for grain taxes owed to the state. Give grain to the city or provide labor and services, get token, give token to tax collector on tax day to keep your city-assigned plot of farmland. But after this point in his book he jumps straight to how gold currency appeared with the rise in warfare in ancient Mesopotamia, but doesn't really give a good explanation why. Based on what I got from this post, humans are evolutionarily wired to like shiny things, and this gives us a competitive advantage. Instead of lazying around to enjoy the sunset after a good harvest, our ancestors would have used the time to make elaborate collectables for its artistic qualities. Despite collectables not being something you can eat or live in, they happen to be a good insurance mechanism during hard times. Other tribes, though untrusting and hostile, also like shiny things and will share their food with you for collectables during emergencies where you need to depend on the kindness of strangers, turning them into a way to store the value of the leisure time used to create them. I wouldn't call this currency because collectables have no standardized value, its value being entirely subjective based on artistic preferences. One hunter might really like the color of your beads and give you two pheasants. Another might only give you half, but will give you three for your ivory comb instead. But this system is enough to sustain basic barter circles between foreign tribes and account for social obligations over time. This evolutionary tendency to like shiny collectables combined with standardized states is what I think creates our first metallic coins. King Croesus of Lydia is facing a major war crisis as the ancient near east enters an age of chaos and decides to hire foreign mercenaries. He can't pay them with standardized tax tokens since they aren't his citizens to tax. He can't negotiate a tribute with their leader in luxury goods and jewelry because they're ragtags gathered from all over the land with no single leader. What he can do is melt down his golden collectable statues, divide them into standard units reminiscent of existing tax tokens, stamp them with his symbol, give each individual soldier a coin for every battle they fight, and appeal to our inherent love for shiny things. And so the first gold coin based on the existing idea of clay tax tokens is born.
imtringued 5y ago
>4.4. The digital tavern >Recall the story we began with. The man in the 12th century tavern sought to give you an ambiguous ‘token’ whilst taking your ducats. If you gave him your ducats, the net effect would not be an attack on the ducat system. It would be an attack on the tavern owner, who might otherwise have got those ducats from you for board and beer. To use a more recent example, it is the promoters of Gamestop shares that lose out when people start using their disposable income to buy Bitcoin tokens from crypto promoters instead. The decision to buy either of those might be a response to an uncertain environment affected by monetary policy, but neither action is a direct ‘attack’ on the dollar, because the dollar system is the pricing hub for both objects, rather than the thing being traded. I love this paragraph. You have to consider that fiat currencies are "artificially" kept stable i.e. price stability is a political goal. This means that the savings risk has been externalized to government institutions that will take over debts from the failing banking system. If the government is doing this to maintain price stability then where is all the instability coming from? As dollars are created through debt and we want those debts to be repaid (again this is what we want because of our human nature) they must fulfill their function of medium of exchange. Those dollars must keep flowing. They aren't allowed to stagnate in a bank account for all eternity where they actually interrupt the repayment of debts and that interruption is what is causing instability. The ability to save in USD is at odds with the ability to use it as a medium of exchange. This is because savings represent a certain amount of value in the real world that has not been consumed. Because the real world keeps changing that real value is extremely volatile but the dollar isn't. It's extremely stable. How does saving in USD impact real world value? Saved money is money that is not being spent, meaning you delayed someone's paycheck and they were unemployed for the time being. Unemployment doesn't increase real value, therefore saving in USD has a negative impact. If the value of the dollar must stay stable (0%) inflation then the obvious answer is that the number of dollars must decrease to represent the loss in real value. You know, the thing that should have happened in 2008. People who had deposits at those banks should have lost their money. Of course telling people without warning that they lost all their deposits is terrible news. It would make more sense to fix the problem in the short term and clean things up over the long term and give people time to make the right decision. Of course that doesn't change the fact that their money must disappear through negative interest rates. Of course we can also loosen price stability and erode the value of each individual USD via inflation. This introduction got much longer than I intended. Now back to the article. When people buy Bitcoin and start saving in Bitcoin they stop saving in USD. The moral hazard is gone. When you save in BTC there is no entity protecting your investment, you shoulder the savings risk yourself. The volatility of BTC (and gold) isn't actually a bug. No government will ever bail out BTC. If people are unemployed because of you (assuming there was a BTC economy in El Salvador), you take the hit yourself. Thus saving in BTC is not an attack on the USD. You are actually making the USD more stable, you are reducing the need for government interventions to keep the system going. Of course it would be more sensible to invest into bonds and the stock market but simply taking on the savings risk while saving into nothing is better than saving into something with a moral hazard. Edit: I failed to mention that holding onto savings beyond the duration of the debt is what is harmful about saving. Given enough debt saving is ok but as mentioned governments have to create artificial debt when there isn't enough "natural" debt.
docflabby 5y ago
Money is a token than can be readily exchanged for goods and services. The value of money created by governments is based on the ability of then government to tax the population. But there are many counties where USD is more useful form of money than the local government backed currency. Legally enforcable numbers in a bank account means nothing when your account is frozen, the government changes, you have no funds to pursue legal remedies, or be bogged down for years in court. Probably wishing you'd kept it all under the mattress or in Bitcoin at this point
- magicsmoke 5y ago
  If you're in a situation where a state is after you, cash or bitcoin isn't going to help. If they decide you owe them hundreds of millions, they'll claw it from you when you try to spend that cash on oil and find out your tanker was intercepted in the Indian ocean and its contents sold off to pay the state. The article's description of global momentary systems being colliding whirlpools is very apt. The international arena is a game played by giants, where individuals travel and do business with their permission, and we very quickly find ourselves unpersoned if we piss off our home whirlpool and can't find another to jump into. Most of us that stay comfortably in the center of a whirlpool don't even notice it. But criminal groups, political dissidents, international corporations, and even someone dealing with cross border taxes and payments will know how bad the waves on the edges can get.
okareaman 5y ago
If the financial system collapses I'm pretty sure I'll have bigger problems than money, which Bitcoin will not solve. If traditional money becomes overly manipulated then I'm pretty sure Bitcoin will have the same problem. I prefer to live my life as if the financial system is not going to collapse or become worthlessly corrupt. I stock up a few things for barter. That's about it.
- yellow_lead 5y ago
  Being skilled in certain trades is also an investment that can fair well in certain financial / societal collapse scenarios. And not just farming or construction, programming may be useful depending on your favorite doomsday scenario.
  - okareaman 5y ago
    I was an electrician in the Navy and I have rebuilt car engines. My brothers are pretty good carpenters and my sister has a green thumb, plus lots of nieces and nephews to perform labor and teach skills to. I'm not worried. We didn't have much money growing up, so it's not like we haven't had to learn to fend for ourselves.
cryptica 5y ago
Bitcoin's brand and its technology are two completely separate things. The technology isn't as great as people claim but that doesn't really matter. You could substitute the Bitcoin network with an entirely different PoS blockchain and the price would not be negatively affected. In fact, it might go up since PoS would be cheaper to operate. The hard part would be convincing everyone to switch to the technology. The price of Bitcoin is almost entirely in its brand and its social structure. Tech doesn't matter.
- adh636 5y ago
  Decentralization and censorship resistance matter very much to the people who want bitcoin to succeed and become the native currency of the internet and the world, as does a nearly impossible to change monetary policy. Bitcoin has made very deliberate tradeoffs to ensure these properties. PoS is just the same system we currently have, where the central banks and exchanges are the ones who profit off holding all the coins. If you're analyzing the technology by what can most efficiently keep track of 1s and 0s, obviously a blockchain isn't the answer, PoS included. For creating a new money to remove the purse strings from the control of central bankers, of course the Tech matters.
  - cryptica 5y ago
    I'm a blockchain developer who spent years analyzing PoW and then went on to work on DPoS for years. What you're saying about PoS being the same as our current banks is incorrect. When you look at the fundamentals, PoS is superior to PoW. The reason why people don't realize this is because Bitcoin proponents are constantly distorting the facts and they have a lot of people and money behind this agenda. Bitcoin mining is extremely centralized; just a few large pools control the entire network. If a government wanted to start mining Bitcoin, they could print unlimited fiat money to buy as much ASIC hardware as required. The cost of acquiring hardware grows linearly so it's easier to do a 51% attack. With PoS, the cost of acquiring stake grows exponentially as you approach 51% due to supply contraints in the underlying token. There is the electricity argument. PoS uses orders of magnitude less electricity. Also, users of PoS cannot tamper data or make fake transactions even if by some miracle they managed to acquire 51% of tokens. I've had long arguments with PoW developers about DPoS which go into every detail and argument exhaustively - I have not yet once encountered an edge case that was not accounted for.
jrm4 5y ago
This is a great exploration of what's going on here without being too "pro" or "con." I see a lot of people here trying to quickly summarize "what side he's on" and I don't think that was the point here. I think he's correctly pointing out a very human barrier to adoption. There's, for example, a reasonable argument that bitcoin might be like gold -- really valuable, but perhaps not as moveable as a currency. What the author is pointing out is that gold is different because it's shiny and pretty and you can shape into things -- and like it or not, that MEANS something, even if that something isn't easily captured in a rigorous (nerdy?) economic analysis. I think the author would agree that it's too early to tell if the above "something" is a deal-killer or not, but it is certainly significant.
- dsr_ 5y ago
  The intrinsic value of gold is its usefulness in electronics and jewelry. The same for silver and other natural resources: the cost to dig them out of the ground or grow them, process them and bring them to where you want them to be is exceeded by their economic usefulness. The intrinsic value of a bitcoin is zero, and the cost of production is about 1.7 megawatt-hours.
  - fuzzybear3965 5y ago
    Apparently the fair value of gold when considering the manufacturing value is less than a hundred dollars an ounce. Other demand (store of value) drives the price up.
  - jrm4 5y ago
    Not electronics, historically, obviously. But this is important. Gold became "gold" not because it was "useful" -- but almost precisely because it "wasn't." It was shiny, pretty, and scarce, and also NOT GOOD for tools. Its rise as a symbolic store of value is likely directly attributable to its lack of intrinsic value.
    - dsr_ 5y ago
      Iron pyrite is also shiny and pretty, and if it's not as rare as gold, it's still very pretty. But nobody used iron pyrite for jewelry, much, because it's neither malleable nor ductile -- properties which make gold useful for wire and leaf, and later turn out to be important for electronics, too.
joelbondurant 5y ago
Most USA members think the world's largest supercomputer is in the cloud which is massless zero volume dark matter, and the Federal Reserve is a government agency which processes coffee payments.
headsoup 5y ago
I think the legal issues with Tether could be a bigger risk to Bitcoin's heart going by the volume of trade it supports supposedly fraudulently (https://bitfinexed.medium.com/tether-is-setting-a-new-standard-for-transparency-that-is-untethered-from-facts-deec42c473bb https://bitfinexed.medium.com/tether-is-setting-a-new-standa...)
Nevermark 5y ago
TLDR; Currencies and accounts are just ledgers. Bitcoin is a ledger with some unique advantages, despite some shortcomings. One of those advantages are self-fulfilling, if enough people use it for that: reserve value with a bias toward growth in value (deflation). More people are betting on that case, so it may fulfill that role. Or not. LONG VERSION I think the best way to explain Bitcoin is to point out that all currencies and accounts are ledgers. The Bitcoin ledger has advantages over many pre-existing ledgers and accounts: - No third party oversight or permission required to use it - Users can create as many accounts as they want - Users can manage their accounts directly - Units can be sent by anyone to anyone, from anywhere, at any time - Fast compared to some transaction types (wire or bank transfers, etc.) - Inexpensive compared to some transaction types (wire transfer, etc.) The current weaknesses of the Bitcoin ledger are: - Still slow compared to some transaction types (cash, VISA, etc.) - Expensive compared to some transaction types (cash, VISA, etc.) - Has a leaky privacy model. Other subsequent cryptocurrencies have mitigated those weaknesses, so Bitcoin is not the state of the art. BUT two other advantages seems to have given Bitcoin a valuable role despite its inefficiencies: - Rapidly diminishing unit production, with a hard maximum of units. So its total supply cannot be inflated. This was an innovation, since other currencies and assets can have their supply inflated by their managers or producers. It implies that as the ledger is used by more people, to store more value, the units will maintain and increase in value. I.e. deflate instead of inflate. This makes it suitable as a reserve currency IF enough people accepted it as a standard way to do so. - AND Bitcoin has first mover and the greatest recognition advantages over subsequent cryptocurrencies, giving it unique advantages as a standard So far, the self-fulfilling trend appears to be happening. There are a growing number of people using it as reserve value, or at least own it speculatively based on its future use as reserve value, or at least speculatively based on the idea that people will continue to speculate on its reserve value .... So it has a clear use, that may be coming to pass.
- chii 5y ago
  This is an excellent summary of the properties of bitcoins' potential as a (new?) form of reserve currency. One thing i'd like to add is that countries do not like to lose control of the reserve currency status of their currency, if they already have such a currency. Given the advantages of a digital cryptocurrency, a central bank issued cryptocurrency might actually, by way of fiat, be set as the reserve currency instead of bitcoin.
spir 5y ago
What a great article. I'd love to see this author adapt his work to ethereum and ETH. In my view, ethereum does not share the "hole in Bitcoin's heart". It's because ETH has real utility, as well as the foundations of being money "which reigns supreme as the primary pricing vortex in one geographic area", ie. on the ethereum blockchain and its web of Layer-2 scaling solutions.
brighton36 5y ago
Maybe bitcoin is just the opposite of a carbon credit. Turns out co2 consumption vouchers are more profitable than co2 credits.
Animats 5y ago
Cryptocurrencies and NFTs are the monetization of Fear of Missing Out.
vmception 5y ago
This reminds me of the CPA & Advisory Services firm I had this year that didn't realize Bitcoin could be exchanged for dollars, and that there were active price charts for many exchanges out there. Are you in the ideology game or are you in the money game? This guy is trying to straddle both, and despite their early evangelism of Bitcoin last decade, they are lost in an irrelevant quandary. Am I one of the people in the article annoyed that a deeper question is being asked, no, I can acknowledge its irrelevance depending on what use case you aspire for. It's a deflationary asset. Look, even the beanie baby bubble was actually rational at first, there was a seemingly permanent supply chain issue that made them "deflationary" as well, all while demand was increasing. Did you all know that? The issuer solved the supply chain issue at the surprise to all and that's what cratered the market. Same for Tulips, the bubonic plague killed all the derivatives traders, we don't actually know what would have happened, and all of our current "bubbles" last wayyyy longer than the 3 months that tulip derivatives (and not the spot market) had high values - the demand dried up only because a virus killed everyone. Our best commodities bubbles are the worst examples of irrational exuberance to lean on. Here we are, Bitcoin crashing to $3,000 and then crashing upwards to $30,000, what's going to happen next hmmm
ionwake 5y ago
He backs off, saying, “It’s the first complex cryptographic object of its nature, made by an unknown entity”. You retort with, “I don’t want a random magical object I don't understand”. “What if it had doubled in price in a few days from 1 Ducat to 2 Ducats, just last week? Apparently it's already being used by pirates” he respomds. You give him one final chance, replying with, “This tulip like object you have, granted does sound unique. Maybe it's because Im an engineer. Alright, I'm interested in a couple of ducats worth. I guess it would be oddly ignorant for me not to. ... it's really quite beautiful isn't it?” His final response is, “Ah, it is... and it has a beautiful emblem! I’ll sell it to you for two ducats”. And thats what separated the Bitcoin Barons from the rest of hackernews, 10 years ago.
go_elmo 5y ago
financial system collapse? It hasnt collapsed once, at least in the last 1000 years, so why are some people so afraid? There is no reason to be.
bruce343434 5y ago
Oh my god it just drones on and on dude get to the fucking point, stop trying to explain everything 4 times
MilkyFloor 5y ago
I feel that every market at this time is a bomb that will be about to explode with markets that grow as fast as those that disappear because of the pandemic, bitcoin being like all money a promise of a material good is when the brokers enter flip this over like the https://www.ironfx.com/en/trading/spreads https://www.ironfx.com/en/trading/spreads page to give things a bit of value.

105 points by SirLJ 5y ago

The opening paragraphs are very frustrating for a software developer to read, because it assumes a very technologically ignorant perspective that might beg similar questions like "What IS a website" and having the asker be annoyed by having you describe the features of a website. At the end of the day, it is a series of electrical on and off switches stored in one or several computers. Is the value of websites indistinguishable from a bunch of batteries just because its form can't be meaningfully distinguished from a battery to a drunk 12th century techno illiterate in a tavern? To explain what a bitcoin actually is to people utterly ignorant and skeptical of how information stored on hardware works sounds like an exercise that can be left to the writer, they may have to spend the rest or their lives explaining every bit of tech to every layman. What is a book after all? Dead trees stained with ink? What intrinsic value does that hold? If someone were to ask stubbornly the value of any book, I'd be similarly disinclined to spend the time explaining that as well. Like with TVs and cell phones and plumbing, lay people will stop asking or caring about "What is bitcoin" once you can give a functional answer of "You can buy a house with it". Explaining what it actually is to people that obtuse will not get one any closer to that point anyway, so I'm not sure what the value is. The cycle for the next wave of technology whose final purpose and form baffles the general public will continue on and on, this is just a season we're in, like all the ones before.

nixpulvis 5y ago
> The opening paragraphs are very frustrating for a software developer to read, because it assumes a very technologically ignorant perspective that might beg similar questions ... It's an allegory. I see no problem here.
MathYouF 5y ago
I don't think anyone else was confused by this, but I'll endeavour to clarify for you. The allegory the writer of the article used is meant to reflect the same perspective of people in the modern day world and the rest of my comment pretty effortlessly transitions to discussing the limitations of those modern day peoples abilities to understand technical subjects. The frustration refers to the task given of explaining tech to the willfully tech illiterate. The first few paragraphs I reference clearly move from the allegorical to the concrete modern day person whose perspective I refer to as frustrating. I also do offhandedly refer to the allegory to make a passing reference to the article and show that the allegorical character isn't that different from the modern day target audience of the author. The rest of the article explores explaining crypto a frustratingly tech ignorant modern person. I think that context would be clear to anyone who even skimmed a good part of the article. You should consider reading the thing people are discussing before leaving a short derailing comment about it.

MarkPNeyer 5y ago

This article fits perfectly with something Orwell wrote, about how the use of complex language gives bad ideas an heir of authority. The example of the chair, where the author asserts that “functional definitions are wrong, only ‘structural’ definitions are correct” is a good test here. The author objects to the idea that “anything you sit on can be a chair” and then provides a definition of chair which does not include: - folding chairs - metal chairs - plastic chairs - any chair much bigger or smaller than a person (such as dollhouse furniture or some novelty item). Does that make any sense? The moment you try to fix the problem with the author’s definition , you should come to the conclusion that functional definitions correspond more reliably to what people mean. For example, how would this author define “food”? Look at the extremely convoluted definition of money the author proposes: > what is money?”, I would begin like this: A vast network structure, at the centre of which lies three sets of issuers issuing out three chained layers of legal IOUs – in physical and digital form – which will later return to the issuers to be destroyed, but which in the interim entrench themselves as economic network access tokens that circulate around an interdependent web of people who cannot mobilise each other’s labour without them. These tokens are activated in the context of legal systems set within political systems set within social systems set within ecological systems, and this mesh structure underpins modern capitalism and is etched into the very fabric of our being. If this is the definition of money, then it suggests people never used money at all until computers existed. Absurd. This is someone trying to sell an idea (MMT) and claiming that it’s the result of “more rigorous thinking”.

doomroot 5y ago
This is a well structured comment and much of the reason I still spend time on this site. Thank you.
Retric 5y ago
You’re complaining but not giving a better option. That definition of money applies to a physical Sestertius in 50 BC just fine. The same physical coin may be worth more as a collectors item today, but it’s no longer money. That’s what makes the definition so convoluted, stuff can go from money to not money very easily.
5y ago

mediocregopher 5y ago

The article's premise seems to me to be that real money is valuable because there's more to it than its properties and its form... > But a cash token is not mere paper, and the numbers we see in bank accounts are not mere numbers. They are accounting records of legally-enforceable promises... That sentence strikes me as the crux. But we never find out what is being promised. The word IOU is also used a lot, but we don't find out what we are owed. Is it access to a financial system? If so that's a flimsy argument, who's to say crypto couldn't create its own financial vortex (as the author describes it)?

rantwasp 5y ago
the author strikes me as ignorant TBH. Here is what people want when it comes to money: ability to exchange the money for goods. That’s it. Money is valuable because it can be exchanged and everyone has 1) accepted that you can exchange it 2) is using it for this exchange. What bitcoin is is captured in its name: bit coin == digital money. It’s not complicated. Also, breaking news: most money (like 90%+) today only exist in electronic form (in that sense the dollar is a digital currency with a paper form and so on) People hate bitcoin because they don’t understand what it is and perceive it as being somewhat of a threat. It’s not. The ultimate success or failure of bitcoin will depend on how many people use it and what it’s used for. Also, as a side note, the blockchain idea is revolutionary. Distributed consensus in a zero trust environment? yup. Has this been done before at this scale?
- 4512124672456 5y ago
  > It’s not. The ultimate success or failure of bitcoin will depend on how many people use it and what it’s used for. Bitcoin has already failed as money. Even most coiners admit that nowadays. > Distributed consensus in a zero trust environment? The whole cryptocurrency environment still relies on plenty of trust (exchanges, programmers, apis...). It's just less regulated, and this is why it is full of scams (https://www.rekt.news/ https://www.rekt.news/).
  - rantwasp 5y ago

j3th9n 5y ago

"There are three classes of people: those who see, those who see when they are shown, those who do not see." -Leonardo da Vinci

nixpulvis 5y ago
Yet, you must first see to have been shown. Funny how that works.
- karmakaze 5y ago
  I took that to mean 'to see without first being shown' from the context rather than literally. What is taking arbitrarily parts literally and feigning incomprehension? Noise.
  - deleted 5y ago
    [deleted]
seanhunter 5y ago
That quote is actually from Machiavelli's "The Prince" and is often misattributed to Leonardo. https://suebrewton.com/2016/07/31/no-leonardo-da-vinci-did-not-write-that-either/ https://suebrewton.com/2016/07/31/no-leonardo-da-vinci-did-n...
- j3th9n 5y ago
  Ok, cool, nice to know.

Archelaos 5y ago

A very mysterious story: both seem to have knowledge about the bubonic plague two centuries before the event.

alexandrerond 5y ago

12th century person talking about Syphilis in a tavern? Very hard to picture that scene indeed...

dbuder 5y ago
Impossible since it came from the new world.
- Archelaos 5y ago
  According to Wikipedia, the first known use of the term "syphilis" is from 1530. In this respect the story is off by four centuries. The origin of the disease, however, is still debated. See https://en.wikipedia.org/wiki/History_of_syphilis https://en.wikipedia.org/wiki/History_of_syphilis

kordlessagain 5y ago

Bitcoin, and other blockchain like devices, are simply a means of locking human consensus into a virtual object that can be manipulated under certain conditions, which are agreed upon by the same consensus. It is a type of stored human causality, similar to fiat. Bitcoin is a special type of Ponzi scheme that uses energy input from miners to create the illusion there is a return in value over time. Like Rai stones, immutability comes from the work and risk, but the value of the object is itself held in the population's mind. This only "works" if everyone agrees it works. If everyone agrees it doesn't work then it doesn't work and isn't worth anything and the risk taken to "make" it is lost. This is why an allegory can be told that indicates it is the faith in such an object that brings it value. Without enough people using said blockchain, it is both worthless and empty of meaning - no different than a scrape in the mud. A killer use case for crypto will make its utility valuable and inventible. A road is formed from wear of people agreeing the road goes somewhere. The danger is the requirement for increases in power to the network, which both drives and is affected by the current value to fiat. We may yet wrap our planet with solar to drive our economic desire of "wealth".

rantwasp 5y ago
> Like Rai stones, immutability comes from the work and risk, but the value of the object is itself held in the population's mind. This only "works" if everyone agrees it works. If everyone agrees it doesn't work then it doesn't work and isn't worth anything and the risk taken to "make" it is lost. Deep. Very deep. The exact same thing can be said about money. It only works only if people agree it works. When you exchange your work for money, you are taking a risk. When you keep your money in the bank you are taking a risk. What if all of a sudden everyone stops accepting money? I really wish we would stop with the Ponzi scheme non-sense. Nobody believes that there is some sort of economic activity that is sustaining the growth. It’s really no different that buying stocks on an exchange. Risky? yes. Speculative? yes. Ponzi? Nope. This Bitcoin - Ponzi scheme association is used to fear-monger and to stop people from ever learning about it (you don’t want to be the sucker that falls for the scheme, do you?)
- throwaway34241 5y ago

Geee 5y ago

Money is not as complex idea as he suggests. It's just the most agreed upon way of measuring prices and committing trade between individuals in a society. It allows people to sell, buy and measure prices. Whichever way does this the best, spontaneously becomes "money" through network effects from individual decisions of market participants. It's beneficial for each individual and for the society to use the same way as everyone else, and that's why something becomes "money". Something needs to have certain properties in order to become money, such as scarcity, divisibility, durability, verifiability and transportability. This ensures that the money can be used for trade in different scales, in different places, and in different times. Whichever money does this best, will eventually replace the old money, given a free market.

foobarian 5y ago
I think stability is important too. Currencies do fluctuate but not very much, and volatility usually leads to bad consequences. That's the main problem with Bitcoin - it is too unstable. Using it as a currency is much like using shares of some random company as currency. Imagine getting paid in, say, TSLA stock and using it to buy everyday needs!
- Geee 5y ago
  Value and stability have more to do with adoption phase, i.e. how many people accept it as good money and want to use it. Today, Bitcoin is mostly traded against USD or other currencies, and these traders make up most of the total trading volume. The volatility is the result of this very one-sided activity. If it was used as money, it would be traded against goods and services, real estate, stocks, etc. which would give it lots of uncorrelated trading volume and create stability. Inherently, Bitcoin is very predictable, because we know with certainty how many bitcoins have been issued and how many will be issued in the future. Fiat currencies have an opposite problem. Central banks and governments influence the issuance and value of the currency too much, and this makes the currency inherently unpredictable. It has an effect of destroying confidence in free markets, because everything becomes a bet on monetary policy rather than markets itself. Same problem with TSLA; it is inherently unpredictable (both in issuance and dependency on their business success). In other words, some assets carry an inherent risk in them, and they're not good as money.

valyagolev 5y ago

it's kinda like demanding to be backed by a gold standard, but on a conceptual level. the author is not satisfied by the extensionality (metaphorically, the exchange-value), he need Bitcoin to be conceptually "backed" by some kind essence

nayuki 5y ago

I'm guessing the title is modeled after https://en.wikipedia.org/wiki/I,_Pencil https://en.wikipedia.org/wiki/I,_Pencil

cosmin800 5y ago

TL;DR seems just another random anti-cryptocurrency article. Long story short bitcoin has the same value people give to a nicely printed image of Benjamin Franklin on a piece of paper or a sparkling rock from Sierra Leone. Things have the value the trading partners agree upon.

ethn 5y ago

I’m not a fan of Graeber’s debt model for currency (i.e. the IOU). I prefer Aristotle’s nomisma and Szabo’s work on top of it [1]. [1] https://nakamotoinstitute.org/shelling-out/ https://nakamotoinstitute.org/shelling-out/

magicsmoke 5y ago
This was a really enjoyable read and actually helped plugged a few gaps I got from Graeber's work. I personally think his model for where money originated is very solid. Early human tribes work on emotional kinship ties and obligations within the family without a need to precisely account for debts. Money first appeared with city-states as standardized clay tokens used to account for grain taxes owed to the state. Give grain to the city or provide labor and services, get token, give token to tax collector on tax day to keep your city-assigned plot of farmland. But after this point in his book he jumps straight to how gold currency appeared with the rise in warfare in ancient Mesopotamia, but doesn't really give a good explanation why. Based on what I got from this post, humans are evolutionarily wired to like shiny things, and this gives us a competitive advantage. Instead of lazying around to enjoy the sunset after a good harvest, our ancestors would have used the time to make elaborate collectables for its artistic qualities. Despite collectables not being something you can eat or live in, they happen to be a good insurance mechanism during hard times. Other tribes, though untrusting and hostile, also like shiny things and will share their food with you for collectables during emergencies where you need to depend on the kindness of strangers, turning them into a way to store the value of the leisure time used to create them. I wouldn't call this currency because collectables have no standardized value, its value being entirely subjective based on artistic preferences. One hunter might really like the color of your beads and give you two pheasants. Another might only give you half, but will give you three for your ivory comb instead. But this system is enough to sustain basic barter circles between foreign tribes and account for social obligations over time. This evolutionary tendency to like shiny collectables combined with standardized states is what I think creates our first metallic coins. King Croesus of Lydia is facing a major war crisis as the ancient near east enters an age of chaos and decides to hire foreign mercenaries. He can't pay them with standardized tax tokens since they aren't his citizens to tax. He can't negotiate a tribute with their leader in luxury goods and jewelry because they're ragtags gathered from all over the land with no single leader. What he can do is melt down his golden collectable statues, divide them into standard units reminiscent of existing tax tokens, stamp them with his symbol, give each individual soldier a coin for every battle they fight, and appeal to our inherent love for shiny things. And so the first gold coin based on the existing idea of clay tax tokens is born.

imtringued 5y ago

>4.4. The digital tavern >Recall the story we began with. The man in the 12th century tavern sought to give you an ambiguous ‘token’ whilst taking your ducats. If you gave him your ducats, the net effect would not be an attack on the ducat system. It would be an attack on the tavern owner, who might otherwise have got those ducats from you for board and beer. To use a more recent example, it is the promoters of Gamestop shares that lose out when people start using their disposable income to buy Bitcoin tokens from crypto promoters instead. The decision to buy either of those might be a response to an uncertain environment affected by monetary policy, but neither action is a direct ‘attack’ on the dollar, because the dollar system is the pricing hub for both objects, rather than the thing being traded. I love this paragraph. You have to consider that fiat currencies are "artificially" kept stable i.e. price stability is a political goal. This means that the savings risk has been externalized to government institutions that will take over debts from the failing banking system. If the government is doing this to maintain price stability then where is all the instability coming from? As dollars are created through debt and we want those debts to be repaid (again this is what we want because of our human nature) they must fulfill their function of medium of exchange. Those dollars must keep flowing. They aren't allowed to stagnate in a bank account for all eternity where they actually interrupt the repayment of debts and that interruption is what is causing instability. The ability to save in USD is at odds with the ability to use it as a medium of exchange. This is because savings represent a certain amount of value in the real world that has not been consumed. Because the real world keeps changing that real value is extremely volatile but the dollar isn't. It's extremely stable. How does saving in USD impact real world value? Saved money is money that is not being spent, meaning you delayed someone's paycheck and they were unemployed for the time being. Unemployment doesn't increase real value, therefore saving in USD has a negative impact. If the value of the dollar must stay stable (0%) inflation then the obvious answer is that the number of dollars must decrease to represent the loss in real value. You know, the thing that should have happened in 2008. People who had deposits at those banks should have lost their money. Of course telling people without warning that they lost all their deposits is terrible news. It would make more sense to fix the problem in the short term and clean things up over the long term and give people time to make the right decision. Of course that doesn't change the fact that their money must disappear through negative interest rates. Of course we can also loosen price stability and erode the value of each individual USD via inflation. This introduction got much longer than I intended. Now back to the article. When people buy Bitcoin and start saving in Bitcoin they stop saving in USD. The moral hazard is gone. When you save in BTC there is no entity protecting your investment, you shoulder the savings risk yourself. The volatility of BTC (and gold) isn't actually a bug. No government will ever bail out BTC. If people are unemployed because of you (assuming there was a BTC economy in El Salvador), you take the hit yourself. Thus saving in BTC is not an attack on the USD. You are actually making the USD more stable, you are reducing the need for government interventions to keep the system going. Of course it would be more sensible to invest into bonds and the stock market but simply taking on the savings risk while saving into nothing is better than saving into something with a moral hazard. Edit: I failed to mention that holding onto savings beyond the duration of the debt is what is harmful about saving. Given enough debt saving is ok but as mentioned governments have to create artificial debt when there isn't enough "natural" debt.

docflabby 5y ago

Money is a token than can be readily exchanged for goods and services. The value of money created by governments is based on the ability of then government to tax the population. But there are many counties where USD is more useful form of money than the local government backed currency. Legally enforcable numbers in a bank account means nothing when your account is frozen, the government changes, you have no funds to pursue legal remedies, or be bogged down for years in court. Probably wishing you'd kept it all under the mattress or in Bitcoin at this point

magicsmoke 5y ago
If you're in a situation where a state is after you, cash or bitcoin isn't going to help. If they decide you owe them hundreds of millions, they'll claw it from you when you try to spend that cash on oil and find out your tanker was intercepted in the Indian ocean and its contents sold off to pay the state. The article's description of global momentary systems being colliding whirlpools is very apt. The international arena is a game played by giants, where individuals travel and do business with their permission, and we very quickly find ourselves unpersoned if we piss off our home whirlpool and can't find another to jump into. Most of us that stay comfortably in the center of a whirlpool don't even notice it. But criminal groups, political dissidents, international corporations, and even someone dealing with cross border taxes and payments will know how bad the waves on the edges can get.

okareaman 5y ago

If the financial system collapses I'm pretty sure I'll have bigger problems than money, which Bitcoin will not solve. If traditional money becomes overly manipulated then I'm pretty sure Bitcoin will have the same problem. I prefer to live my life as if the financial system is not going to collapse or become worthlessly corrupt. I stock up a few things for barter. That's about it.

yellow_lead 5y ago
Being skilled in certain trades is also an investment that can fair well in certain financial / societal collapse scenarios. And not just farming or construction, programming may be useful depending on your favorite doomsday scenario.
- okareaman 5y ago
  I was an electrician in the Navy and I have rebuilt car engines. My brothers are pretty good carpenters and my sister has a green thumb, plus lots of nieces and nephews to perform labor and teach skills to. I'm not worried. We didn't have much money growing up, so it's not like we haven't had to learn to fend for ourselves.

cryptica 5y ago

Bitcoin's brand and its technology are two completely separate things. The technology isn't as great as people claim but that doesn't really matter. You could substitute the Bitcoin network with an entirely different PoS blockchain and the price would not be negatively affected. In fact, it might go up since PoS would be cheaper to operate. The hard part would be convincing everyone to switch to the technology. The price of Bitcoin is almost entirely in its brand and its social structure. Tech doesn't matter.

adh636 5y ago
Decentralization and censorship resistance matter very much to the people who want bitcoin to succeed and become the native currency of the internet and the world, as does a nearly impossible to change monetary policy. Bitcoin has made very deliberate tradeoffs to ensure these properties. PoS is just the same system we currently have, where the central banks and exchanges are the ones who profit off holding all the coins. If you're analyzing the technology by what can most efficiently keep track of 1s and 0s, obviously a blockchain isn't the answer, PoS included. For creating a new money to remove the purse strings from the control of central bankers, of course the Tech matters.
- cryptica 5y ago
  I'm a blockchain developer who spent years analyzing PoW and then went on to work on DPoS for years. What you're saying about PoS being the same as our current banks is incorrect. When you look at the fundamentals, PoS is superior to PoW. The reason why people don't realize this is because Bitcoin proponents are constantly distorting the facts and they have a lot of people and money behind this agenda. Bitcoin mining is extremely centralized; just a few large pools control the entire network. If a government wanted to start mining Bitcoin, they could print unlimited fiat money to buy as much ASIC hardware as required. The cost of acquiring hardware grows linearly so it's easier to do a 51% attack. With PoS, the cost of acquiring stake grows exponentially as you approach 51% due to supply contraints in the underlying token. There is the electricity argument. PoS uses orders of magnitude less electricity. Also, users of PoS cannot tamper data or make fake transactions even if by some miracle they managed to acquire 51% of tokens. I've had long arguments with PoW developers about DPoS which go into every detail and argument exhaustively - I have not yet once encountered an edge case that was not accounted for.

jrm4 5y ago

This is a great exploration of what's going on here without being too "pro" or "con." I see a lot of people here trying to quickly summarize "what side he's on" and I don't think that was the point here. I think he's correctly pointing out a very human barrier to adoption. There's, for example, a reasonable argument that bitcoin might be like gold -- really valuable, but perhaps not as moveable as a currency. What the author is pointing out is that gold is different because it's shiny and pretty and you can shape into things -- and like it or not, that MEANS something, even if that something isn't easily captured in a rigorous (nerdy?) economic analysis. I think the author would agree that it's too early to tell if the above "something" is a deal-killer or not, but it is certainly significant.

dsr_ 5y ago
The intrinsic value of gold is its usefulness in electronics and jewelry. The same for silver and other natural resources: the cost to dig them out of the ground or grow them, process them and bring them to where you want them to be is exceeded by their economic usefulness. The intrinsic value of a bitcoin is zero, and the cost of production is about 1.7 megawatt-hours.
- fuzzybear3965 5y ago
  Apparently the fair value of gold when considering the manufacturing value is less than a hundred dollars an ounce. Other demand (store of value) drives the price up.
- jrm4 5y ago
  Not electronics, historically, obviously. But this is important. Gold became "gold" not because it was "useful" -- but almost precisely because it "wasn't." It was shiny, pretty, and scarce, and also NOT GOOD for tools. Its rise as a symbolic store of value is likely directly attributable to its lack of intrinsic value.
  - dsr_ 5y ago
    Iron pyrite is also shiny and pretty, and if it's not as rare as gold, it's still very pretty. But nobody used iron pyrite for jewelry, much, because it's neither malleable nor ductile -- properties which make gold useful for wire and leaf, and later turn out to be important for electronics, too.

joelbondurant 5y ago

Most USA members think the world's largest supercomputer is in the cloud which is massless zero volume dark matter, and the Federal Reserve is a government agency which processes coffee payments.

headsoup 5y ago

I think the legal issues with Tether could be a bigger risk to Bitcoin's heart going by the volume of trade it supports supposedly fraudulently (https://bitfinexed.medium.com/tether-is-setting-a-new-standard-for-transparency-that-is-untethered-from-facts-deec42c473bb https://bitfinexed.medium.com/tether-is-setting-a-new-standa...)

Nevermark 5y ago

TLDR; Currencies and accounts are just ledgers. Bitcoin is a ledger with some unique advantages, despite some shortcomings. One of those advantages are self-fulfilling, if enough people use it for that: reserve value with a bias toward growth in value (deflation). More people are betting on that case, so it may fulfill that role. Or not. LONG VERSION I think the best way to explain Bitcoin is to point out that all currencies and accounts are ledgers. The Bitcoin ledger has advantages over many pre-existing ledgers and accounts: - No third party oversight or permission required to use it - Users can create as many accounts as they want - Users can manage their accounts directly - Units can be sent by anyone to anyone, from anywhere, at any time - Fast compared to some transaction types (wire or bank transfers, etc.) - Inexpensive compared to some transaction types (wire transfer, etc.) The current weaknesses of the Bitcoin ledger are: - Still slow compared to some transaction types (cash, VISA, etc.) - Expensive compared to some transaction types (cash, VISA, etc.) - Has a leaky privacy model. Other subsequent cryptocurrencies have mitigated those weaknesses, so Bitcoin is not the state of the art. BUT two other advantages seems to have given Bitcoin a valuable role despite its inefficiencies: - Rapidly diminishing unit production, with a hard maximum of units. So its total supply cannot be inflated. This was an innovation, since other currencies and assets can have their supply inflated by their managers or producers. It implies that as the ledger is used by more people, to store more value, the units will maintain and increase in value. I.e. deflate instead of inflate. This makes it suitable as a reserve currency IF enough people accepted it as a standard way to do so. - AND Bitcoin has first mover and the greatest recognition advantages over subsequent cryptocurrencies, giving it unique advantages as a standard So far, the self-fulfilling trend appears to be happening. There are a growing number of people using it as reserve value, or at least own it speculatively based on its future use as reserve value, or at least speculatively based on the idea that people will continue to speculate on its reserve value .... So it has a clear use, that may be coming to pass.

chii 5y ago
This is an excellent summary of the properties of bitcoins' potential as a (new?) form of reserve currency. One thing i'd like to add is that countries do not like to lose control of the reserve currency status of their currency, if they already have such a currency. Given the advantages of a digital cryptocurrency, a central bank issued cryptocurrency might actually, by way of fiat, be set as the reserve currency instead of bitcoin.

spir 5y ago

What a great article. I'd love to see this author adapt his work to ethereum and ETH. In my view, ethereum does not share the "hole in Bitcoin's heart". It's because ETH has real utility, as well as the foundations of being money "which reigns supreme as the primary pricing vortex in one geographic area", ie. on the ethereum blockchain and its web of Layer-2 scaling solutions.

brighton36 5y ago

Maybe bitcoin is just the opposite of a carbon credit. Turns out co2 consumption vouchers are more profitable than co2 credits.

Animats 5y ago

Cryptocurrencies and NFTs are the monetization of Fear of Missing Out.

vmception 5y ago

This reminds me of the CPA & Advisory Services firm I had this year that didn't realize Bitcoin could be exchanged for dollars, and that there were active price charts for many exchanges out there. Are you in the ideology game or are you in the money game? This guy is trying to straddle both, and despite their early evangelism of Bitcoin last decade, they are lost in an irrelevant quandary. Am I one of the people in the article annoyed that a deeper question is being asked, no, I can acknowledge its irrelevance depending on what use case you aspire for. It's a deflationary asset. Look, even the beanie baby bubble was actually rational at first, there was a seemingly permanent supply chain issue that made them "deflationary" as well, all while demand was increasing. Did you all know that? The issuer solved the supply chain issue at the surprise to all and that's what cratered the market. Same for Tulips, the bubonic plague killed all the derivatives traders, we don't actually know what would have happened, and all of our current "bubbles" last wayyyy longer than the 3 months that tulip derivatives (and not the spot market) had high values - the demand dried up only because a virus killed everyone. Our best commodities bubbles are the worst examples of irrational exuberance to lean on. Here we are, Bitcoin crashing to $3,000 and then crashing upwards to $30,000, what's going to happen next hmmm

ionwake 5y ago

He backs off, saying, “It’s the first complex cryptographic object of its nature, made by an unknown entity”. You retort with, “I don’t want a random magical object I don't understand”. “What if it had doubled in price in a few days from 1 Ducat to 2 Ducats, just last week? Apparently it's already being used by pirates” he respomds. You give him one final chance, replying with, “This tulip like object you have, granted does sound unique. Maybe it's because Im an engineer. Alright, I'm interested in a couple of ducats worth. I guess it would be oddly ignorant for me not to. ... it's really quite beautiful isn't it?” His final response is, “Ah, it is... and it has a beautiful emblem! I’ll sell it to you for two ducats”. And thats what separated the Bitcoin Barons from the rest of hackernews, 10 years ago.

go_elmo 5y ago

financial system collapse? It hasnt collapsed once, at least in the last 1000 years, so why are some people so afraid? There is no reason to be.

bruce343434 5y ago

Oh my god it just drones on and on dude get to the fucking point, stop trying to explain everything 4 times

MilkyFloor 5y ago

I feel that every market at this time is a bomb that will be about to explode with markets that grow as fast as those that disappear because of the pandemic, bitcoin being like all money a promise of a material good is when the brokers enter flip this over like the https://www.ironfx.com/en/trading/spreads https://www.ironfx.com/en/trading/spreads page to give things a bit of value.