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I appreciate the author sharing his views, especially because he does a good job of distilling them. If cryptocurrencies are truly novel, however, it's not clea
by wallacoloo 5y ago
I appreciate the author sharing his views, especially because he does a good job of distilling them. If cryptocurrencies are truly novel, however, it's not clear that one should be able to draw a direct analogy to an existing product. That they don't 100% resemble money, or commodities, or stock, or art, isn't necessarily a problem.
My argument for owning Eth is that it's like buying real estate (yes, I'm making another loose analogy). Why does a person invest in land? Because they expect something to flourish in the vicinity of their land, and they'll be able to capture some of that increased productivity in the form of rent (or appreciation).
Ethereum is a programmable ledger, and Eth is its unit of capital. A programmable ledger is a tool that can be used to create things like a money supply the author describes. The next question here is "why would someone prefer to use an analogous system created on Ethereum over whatever exists today" and that answer can be some combination of transparency, usability, and legitimacy. If we want something like the elastic-supply currency the author describes, we can create one for ourselves. We can do so without providing limitless power to a centralized authority (i.e. the Fed). To some, the resulting currency will be more legitimate as a result. (checkout Rai or Liquity for examples of elastic/"algorithmic" stablecoins on Ethereum).
In this view, today's value of Eth is largely speculative. On the other hand, this gives a way to fund development. New protocols like the ones I mentioned are able to capture the value they create only because there's already so much $ in this ecosystem, and that money's eager to pay a 0.1% fee for the benefit of this new product.
There's a lot of circular activity going on, sure. Deflationary rewards, leverage, etc. If you haven't seen an 80% drop in crypto yet, be ready for it (seriously). But as long as the influx in capital facilitates some level of actual new products -- as it does appear to me to be doing -- then what really is the issue here? Maybe we can be satisfied in viewing it as a rather complicated machine for capital allocation? My biggest worry is that impending 80% drop: crypto is notorious for its volatility, but still each bull run draws in newcomers who think we're past all the drops and find themselves surprised when they lose 80%.
- lupire 5y agoSpeculation and Investment are similar but different.
- alphabettsy 5y ago> Why does a person invest in land? Because they expect something to flourish in the vicinity of their land, and they'll be able to capture some of that increased productivity in the form of rent (or appreciation). Most people buying land are not doing it as a speculative investment. There are many who buy real estate as an investment, but most people buy real estate for personal use. Even those who buy real estate as an investment they typically make money from improvements whether that’s farming or residential.
- tata71 5y agoDisagree. Most people wouldn't pay the exorbitant interest, taxes, mortgage paper fees if they didn't think they'd get appreciation on the property — "like always!".
- rsj_hn 5y agoThey don't need to get appreciation, they just need to have the home be less costly than renting. Once you throw in the mortgage interest deduction that's a pretty low bar.
- thebean11 5y agoMaybe they wouldn’t articulate it as speculation but that’s still what they are doing (even if they are living in the property). They are speculating that the value will not decrease, or that rents will increase. Otherwise they’d rent. ETH does have a return currently of ~5% through staking.
- alphabettsy 5y agoPeople living in the property are almost always buying it as both a place to live and as an investment. Investment is not the same as speculation. Even without guaranteed appreciation in value people will buy homes because they have an asset compared to alternatives like renting. When renting you’re guaranteed a loss on rent paid.
- 5y ago
- jfengel 5y agoThe old joke is that you invest in land because they're not making it any more. That's not the case with cryptocurrencies. Not just that they're still mining them, but that new cryptocurrencies are invented every day. You can hold a unique hold on a land, because there's only so much of it, but you can clone Etherium in a heartbeat. Or design your own that works better for something. The hope is that one of these blockchains will get so many people behind it that it becomes the natural monopoly of whatever blockchain is good for, and then the money you spent mining/investing won't be wasted. You'll get network effects, a la Facebook -- everybody wants to be in the same place. But I don't see anybody really wanting to get behind giving money to those who got there first, not when they can make up their own.