5 ms·

If it's illegal to exchange goods or official currency for cryptocurrency in the nation you are in, the usefulness of cryptocurrency is going to be considerably

If it's illegal to exchange goods or official currency for cryptocurrency in the nation you are in, the usefulness of cryptocurrency is going to be considerably constrained. This depends on how thorough or draconian the state is but a lot of people just shy away from illegal activity without enforcement being that strong. After all, if buy a tangible good, I want legal title to it and having engaged in an illegal transaction to get the stuff makes that less certain.

santiagobasulto 5y ago
That is why drugs and other illegal things are so cheap, right?
- joshgrib 5y ago
  I think they're expensive exactly for that reason - people have to factor in the risk that someone would be totally legally justified to come and take all their stuff tomorrow. Those are also actual products with a true value to people - not a currency
- edgyquant 5y ago
  I’m not sure what your point is? You’re kind of proving them right. I guess you’re trying to equate drugs with crypto, saying if it was criminalized it would spike in price, but that’s a false equivalency. Drugs provide a utility all on their own they depend on users speculating about them just to have value. If anything the inverse applies here, but for the same reason, a currency that the government doesn’t want you to use will have less value because you’ll only be able to exchange it with nefarious organizations who can pick and choose the price. Drugs are expensive because the risk of them being illegal is factored in and the suppliers can demand whatever they want.
- BobbyJo 5y ago
  Drugs are actually very expensive relative to production costs because of the added risks. Marijuana, for example, is a very easy crop to grow. There isn't any reason it should cost more than any given spice per gram. However, since it was illegal, street vendors could charge significant markup because 'shoe-leather' cost is very high. Now that it's becoming legal, the gov is extracting the difference as taxes, keeping prices high for revenue.
- frazbin 5y ago
  </sarcasm> <!-- apparently needed --!>
joshgrib 5y ago
This is an important point - I think a lot of us tech people like to think "no it only exists on the internet the govt can't touch it! It's like international waters!", but then you have countries that can completely restrict or shut down the internet. As long as the infrastructure exists in the real world and is controlled by a govt, then the "imaginary online stuff" is still ultimately under their control. Even in "the matrix" someone was still running all those computers and could turn them off if they wanted.
- Zamicol 5y ago
  Eventually efficient systems will implement zero knowledge proofs. Not necessarily because of "privacy", but because of the efficiency gains of such a system. Privacy is just a bi-product of this information theory reality.
  - abduhl 5y ago
    The efficiency gains of these systems are irrelevant. Governments of the world want monetary control, and they cast that desire in the form of laws like "know your customer" or "anti-money laundering." These laws are antithetical to what you're talking about. If the government requires legitimate institutions to implement these forms of laws then to engage in actual society (i.e. - school, groceries, business, rent, banking, and most importantly taxes) then the existence of zero knowledge proofs and their implementation are irrelevant. At some point you come back to the inescapable problem with crypto: the real economy is based on trust and an immutable digital blockchain is, at best, a gloss on this system.
    - Zamicol 5y ago
      Many chains, L1's, defi products, etc., have already expressed their eagerness to comply and implement KYC and other regulatory controls. My warning is that the open-source Pandora's box of zk proofs is necessary, technically feasible, and inevitable. ZK proofs are coming, and there will be systems built on top of them. Our governments and societies need to be ready for this reality.
sMarsIntruder 5y ago
Wrong.
- Levitz 5y ago
  Could you please argue how it is wrong? The logic seems pretty simple to me. A currency has value as long as it is exchanged, if government restricts exchanges, the currency drops in value.
  - sumtechguy 5y ago
    Hmm, I can take a stab at this and probably be wrong myself. Money like everything is a market. There is a supply of money and a demand for money. If the demand remains constant but the supply is curtailed in some way I could see the value of the good exchanged going up. Now if you make the argument that this action would decrease the demand then yes the value should go down?
    - cormacrelf 5y ago
      If you cannot use it for anything, and maybe it's illegal to even own it, why acquire it in the first place? It is demand that decreases. Supply that goes down simply to match lower demand does not necessarily outpace it and produce an overall price increase. The difference between this and something like the 1920s alcohol black market in the US is exactly the point that people are raising when they talk about cryptocurrency lacking fundamental value. Alcohol has fundamental value (it is a drug with some effects that have proven to be valuable to many humans for thousands of years), but a currency does not have any value in isolation. People didn't stop wanting alcohol when it was banned, but they will stop wanting a currency if it is banned. It will not have a similar "constrained supply driving up the prices" effect to black market alcohol, because alcohol's demand never wavered but demand for cryptocurrencies will. It is not irrational to buy black market alcohol that you can drink or sell, but it is irrational to buy black market currency that you can neither drink nor sell. This is all made generally moot if India is the only place to ban it, because they won't make a huge dent in the global market.
    - 5y ago
wyager 5y ago
This isn't true if your objective is just to protect wealth long-term. If bitcoin is "banned" in India (you can't exchange it for INR on an exchange), you can still "use" it in the sense that you can acquire it illegally or overseas and then hold onto it. Your liquidity is limited but this is a small downside long-term.
- joe_the_user 5y ago
  This isn't true if your objective is just to protect wealth long-term. I said illegality constrains the usefulness of cryptocurrency. Long-term gains is one of the remaining hypothetical uses but other uses are limited. So your claim doesn't refute my point. With fewer practical uses, we might see bitcoin's long terms value decline but that's speculation.
  - wyager 5y ago
    Wealth storage is a practical use case. This is a weird thing to grasp, but it's actually perfectly reasonable (I.e. utilitarian and stable) for an asset to be "purely monetized", in the sense that it has no value whatsoever except from its capacity to store value. That said, you're right that ability to actually spend bitcoin probably shows up in any PDE that accurately models its market dynamics. If 90% of countries on earth ban bitcoin, and those bans are well-enforced, bitcoin probably won't be very valuable.
    - joe_the_user 5y ago
      Wealth storage is a practical use case. It's one practical use case. Bitcoin's value rests on multiple use cases and eliminating other uses cases reduces demand for bitcoin. And that effect also reduces bitcoin use for wealth storage (but might not eliminate, sure).
csomar 5y ago
This gets repeated a lot around here but is far from the truth. Drugs are still traded, and so are other "illegal" items. And trading drugs is quite risky comparing to trading crypto (especially fully decentralized). > usefulness of cryptocurrency is going to be considerably constrained Sure, but you are missing why 3rd worlds like China, India and Morocco are trying to restrict crypto. They are worried about capital outflows. It's not a surprise most of these countries already have rigid capital controls. People who have decided they want to "outflow" their capital are not really worried about government restrictions.
- louloulou 5y ago
  Yeah, people making these arguments haven't lived in developing countries with terrible, inconsistent, reactionary, arbitrarily applied laws. Where you have to "break the law" constantly in order to survive.
  - joe_the_user 5y ago
    Sure but bitcoin's value would be a lot less if it was only being used to skirt the abuses of third world regimes - and when those same third world regimes make illegal. Most people who buy bitcoin today in the first world do so because it's made money for people. Sure, in third world countries and elsewhere, people skirt or break the law on a regular basis. But they still don't it for kicks and they don't do it for "right to cryptocurrency", they do it because it will get them something and making crypto illegal will mean it gets people less and people use it less, reducing demand and price (minus the manipulation bitcoin experiences but at some point that manipulation won't be manageable).
- TheProbes 5y ago
  The goal of drugs is to do the drugs. They are consumer goods. You buy them, then consume them. Crypto has no value unless you can sell it on to someone else, and that's it's ONLY value. That is the glaring difference, and it's weakness.

santiagobasulto 5y ago

That is why drugs and other illegal things are so cheap, right?

joshgrib 5y ago
I think they're expensive exactly for that reason - people have to factor in the risk that someone would be totally legally justified to come and take all their stuff tomorrow. Those are also actual products with a true value to people - not a currency
edgyquant 5y ago
I’m not sure what your point is? You’re kind of proving them right. I guess you’re trying to equate drugs with crypto, saying if it was criminalized it would spike in price, but that’s a false equivalency. Drugs provide a utility all on their own they depend on users speculating about them just to have value. If anything the inverse applies here, but for the same reason, a currency that the government doesn’t want you to use will have less value because you’ll only be able to exchange it with nefarious organizations who can pick and choose the price. Drugs are expensive because the risk of them being illegal is factored in and the suppliers can demand whatever they want.
BobbyJo 5y ago
Drugs are actually very expensive relative to production costs because of the added risks. Marijuana, for example, is a very easy crop to grow. There isn't any reason it should cost more than any given spice per gram. However, since it was illegal, street vendors could charge significant markup because 'shoe-leather' cost is very high. Now that it's becoming legal, the gov is extracting the difference as taxes, keeping prices high for revenue.
frazbin 5y ago
</sarcasm> <!-- apparently needed --!>

joshgrib 5y ago

This is an important point - I think a lot of us tech people like to think "no it only exists on the internet the govt can't touch it! It's like international waters!", but then you have countries that can completely restrict or shut down the internet. As long as the infrastructure exists in the real world and is controlled by a govt, then the "imaginary online stuff" is still ultimately under their control. Even in "the matrix" someone was still running all those computers and could turn them off if they wanted.

Zamicol 5y ago
Eventually efficient systems will implement zero knowledge proofs. Not necessarily because of "privacy", but because of the efficiency gains of such a system. Privacy is just a bi-product of this information theory reality.
- abduhl 5y ago
  The efficiency gains of these systems are irrelevant. Governments of the world want monetary control, and they cast that desire in the form of laws like "know your customer" or "anti-money laundering." These laws are antithetical to what you're talking about. If the government requires legitimate institutions to implement these forms of laws then to engage in actual society (i.e. - school, groceries, business, rent, banking, and most importantly taxes) then the existence of zero knowledge proofs and their implementation are irrelevant. At some point you come back to the inescapable problem with crypto: the real economy is based on trust and an immutable digital blockchain is, at best, a gloss on this system.
  - Zamicol 5y ago
    Many chains, L1's, defi products, etc., have already expressed their eagerness to comply and implement KYC and other regulatory controls. My warning is that the open-source Pandora's box of zk proofs is necessary, technically feasible, and inevitable. ZK proofs are coming, and there will be systems built on top of them. Our governments and societies need to be ready for this reality.

sMarsIntruder 5y ago

Wrong.

Levitz 5y ago
Could you please argue how it is wrong? The logic seems pretty simple to me. A currency has value as long as it is exchanged, if government restricts exchanges, the currency drops in value.
- sumtechguy 5y ago
  Hmm, I can take a stab at this and probably be wrong myself. Money like everything is a market. There is a supply of money and a demand for money. If the demand remains constant but the supply is curtailed in some way I could see the value of the good exchanged going up. Now if you make the argument that this action would decrease the demand then yes the value should go down?
  - cormacrelf 5y ago
    If you cannot use it for anything, and maybe it's illegal to even own it, why acquire it in the first place? It is demand that decreases. Supply that goes down simply to match lower demand does not necessarily outpace it and produce an overall price increase. The difference between this and something like the 1920s alcohol black market in the US is exactly the point that people are raising when they talk about cryptocurrency lacking fundamental value. Alcohol has fundamental value (it is a drug with some effects that have proven to be valuable to many humans for thousands of years), but a currency does not have any value in isolation. People didn't stop wanting alcohol when it was banned, but they will stop wanting a currency if it is banned. It will not have a similar "constrained supply driving up the prices" effect to black market alcohol, because alcohol's demand never wavered but demand for cryptocurrencies will. It is not irrational to buy black market alcohol that you can drink or sell, but it is irrational to buy black market currency that you can neither drink nor sell. This is all made generally moot if India is the only place to ban it, because they won't make a huge dent in the global market.
  - 5y ago

wyager 5y ago

This isn't true if your objective is just to protect wealth long-term. If bitcoin is "banned" in India (you can't exchange it for INR on an exchange), you can still "use" it in the sense that you can acquire it illegally or overseas and then hold onto it. Your liquidity is limited but this is a small downside long-term.

joe_the_user 5y ago
This isn't true if your objective is just to protect wealth long-term. I said illegality constrains the usefulness of cryptocurrency. Long-term gains is one of the remaining hypothetical uses but other uses are limited. So your claim doesn't refute my point. With fewer practical uses, we might see bitcoin's long terms value decline but that's speculation.
- wyager 5y ago
  Wealth storage is a practical use case. This is a weird thing to grasp, but it's actually perfectly reasonable (I.e. utilitarian and stable) for an asset to be "purely monetized", in the sense that it has no value whatsoever except from its capacity to store value. That said, you're right that ability to actually spend bitcoin probably shows up in any PDE that accurately models its market dynamics. If 90% of countries on earth ban bitcoin, and those bans are well-enforced, bitcoin probably won't be very valuable.
  - joe_the_user 5y ago
    Wealth storage is a practical use case. It's one practical use case. Bitcoin's value rests on multiple use cases and eliminating other uses cases reduces demand for bitcoin. And that effect also reduces bitcoin use for wealth storage (but might not eliminate, sure).

csomar 5y ago

This gets repeated a lot around here but is far from the truth. Drugs are still traded, and so are other "illegal" items. And trading drugs is quite risky comparing to trading crypto (especially fully decentralized). > usefulness of cryptocurrency is going to be considerably constrained Sure, but you are missing why 3rd worlds like China, India and Morocco are trying to restrict crypto. They are worried about capital outflows. It's not a surprise most of these countries already have rigid capital controls. People who have decided they want to "outflow" their capital are not really worried about government restrictions.

louloulou 5y ago
Yeah, people making these arguments haven't lived in developing countries with terrible, inconsistent, reactionary, arbitrarily applied laws. Where you have to "break the law" constantly in order to survive.
- joe_the_user 5y ago
  Sure but bitcoin's value would be a lot less if it was only being used to skirt the abuses of third world regimes - and when those same third world regimes make illegal. Most people who buy bitcoin today in the first world do so because it's made money for people. Sure, in third world countries and elsewhere, people skirt or break the law on a regular basis. But they still don't it for kicks and they don't do it for "right to cryptocurrency", they do it because it will get them something and making crypto illegal will mean it gets people less and people use it less, reducing demand and price (minus the manipulation bitcoin experiences but at some point that manipulation won't be manageable).
TheProbes 5y ago
The goal of drugs is to do the drugs. They are consumer goods. You buy them, then consume them. Crypto has no value unless you can sell it on to someone else, and that's it's ONLY value. That is the glaring difference, and it's weakness.