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I've gotten this feeling, ever since about 2008 or so, that the map that is asset prices is slowly, inexorably becoming uncoupled from the territory of the phys
by rland 5y ago
I've gotten this feeling, ever since about 2008 or so, that the map that is asset prices is slowly, inexorably becoming uncoupled from the territory of the physical world.
This economy-scale decoupling is the dual of each and every one of our very own psychological uncoupling from our own physical worlds, which has occurred because of the computerization of work, socialization, and life itself (the shimmering neuralink dream).
Cryptocurrencies are what happens if you completely decouple the asset price from the physical world. To create the "value" of cryptocurrencies, we purposefully do nothing at all. The asset is valuable only because of the flow of entropy. Not the flow of energy (which generally has some physically useful function). But entropy itself -- a thing that exists only in the "map" of information, not the "territory" of the real world.
Typically, moving entropy around is useful to us, because it actually corresponds to changes in an underlying physical process. Like, your job doing excel spreadsheets for warehouse inventory management is just changing the flow of entropy -- to you, it is decoupled from the physical world. But there is a link to the physical world: when you change a cell in a spreadsheet, so too a physical good moves somewhere else in the warehouse.
With cryptocurrencies, not so. All this entropy is moving for the sake of itself. It's all virtual -- none of it can be coupled with the physical world (by design! if it could be, some physical force could go in and take your crypto-coins).
Now, here's the delusion: unfortunately for us, moving entropy around is actually still coupled with moving energy around. It actually has a tremendous physical effect on the world around us.
Something I've noticed about cryptocurrency people is that they are very, very plugged in. The evangelists never have a physical job; always a computer job, and they are always online, and believe in being online to the greatest extent possible. And I think, actually, there is a very obvious reason for that.
- ethbr0 5y agoThe irony is that much of the criticism against the missing physical link / utility of crypto was surely levelled against the idea of money in its earliest days. "Coins? Why would I want those instead of food? I can't eat coins." To which the killer adoption feature was governments saying "Well, you have to pay taxes in coins, so you need some" to bootstrap & put a floor in under the system's value. Crypto doesn't appear to have had a "tax" moment yet. Is there anything I can only do with Bitcoin, Ethereum, etc? Which is to say, if the value of both absolutely collapse (to some fraction of a cent), who would still be buying, and to do what?
- rland 5y agoNo, there isn't. Money is useful because it is an abstraction of a physical process somewhere. Cryptocurrency can never be an abstraction of some physical process.† Therefore, I would argue, it can never be useful to us. † Well, technically, it actually is an abstraction of a physical process: a heat engine with 0% efficiency.
- ethbr0 5y agoWell, commodity-based currency had non-zero value because it was an abstraction of a physical process somewhere. Proof of work. I have to spend time mining gold, so gold has value, so gold coins have value. But that wasn't sufficient alone to give it utility. And without utility, there is no buyer of last resort, and no floor under value. Hence taxes. Fiat currency removed the proof of work, and replaced it with proof of stake (-ish?), but retained taxes. You could probably make the argument that "buy NFTs" or "run dApps" are the beginning of crypto's tax moment, but both seem a pretty small scale to base value on. IMHO, that's the entire point behind dApps: a crypto-native version of taxes that puts a value floor under the cryptocurrency. If you have a solution that can only be solved by dApps, and you need cryptocurrency to run dApps, then there you go...
- rland 5y agoThe difference, though, is that the proof of work is qualitatively — physically! — a different type of work. The value of money is derived from moving against thermodynamic equilibrium. Cryptocurrency’s value comes from moving towards thermodynamic equilibrium. The conversion of work into heat — not heat into work! I’m not talking about taxation or apps. Those are things built with the axioms of crypto-evangelism. I’m talking about the physical fundamentals underlying those axioms.
- ethbr0 5y agoBurning electrical power is the most globally available version of burning universal value. The thermodynamic direction is less important than the fact that people didn't want to do it. But proof of work was always a transitory, bootstrapping phase. Even among the crypto evangelists, I can't believe anyone saw a long-term future in that.
- dskloet 5y agoBeing able to transfer value across the internet without the permission of a middle man, is valuable in the real world.
- rland 5y agoNo, you can’t. If you follow the axioms of the cryptocurrency evangelists to their logical ends, transferring cryptocurrency to another wallet is something that happens entirely in virtual space. Of course, this virtual space is coupled with physical space, by hugely centralized entities called exchanges. To get your money across the border, you need to deal with them. In that case the physical value you can buy with your cryptocurrency comes about from the exchange, not the currency. Value is a physical thing, not a virtual thing. That’s because we live in the physical, not the virtual world. But we’ll readily delude ourselves into believing that’s not the case.
- _57jb 5y agoI can send money from a cold wallet to any address I want. An exchange is merely a full node with a user interface. To operate as an exchange there are certain KYC/AML rules they must follow. Setting up a node takes about 20 minutes and then letting it sync for a couple hours to a day depending on your internet. You can send crypto with as high or low as a fee as you want...it's just a manipulation of the queueing metric and which transactions miners add to the chain. With exchanges they set that for you.
- dskloet 5y agoI'm not sure what you are saying. A credit card transaction is also virtual, but you can use it to buy real world coffee. It's the same with crypto.
- ethbr0 5y agoOnly to the extent it allows me to do things. Realistically, that currently means fiat->crypto->fiat, which requires a semi-stable conversion rate (on the order of time to complete the roundtrip), but the transitory nature of the crypto holding seems a nebulous link to floor value.
- jack_pp 5y agoBitcoin is tied to the physical world the same way every other currency is tied to the physical world. Right now you can transfer abstract value you have acquired without a 1-2% fee through bitcoin, which is much easier than doing it via a bank. For example a poker player needing to get 1 million dollars to Monaco to play a tournament would have to pay 1% (10,000$) and wait god knows how long if he went through the banks, with bitcoin that process is much smoother.
- SirMonkey 5y agoIn reality that "poker player" would probably just get a line of credit at the casino[1]. Moving/Getting money is "hard" mostly if you are poor. [1] https://en.wikipedia.org/wiki/High_roller https://en.wikipedia.org/wiki/High_roller
- yunohn 5y ago> For example a poker player needing to get 1 million dollars to Monaco to play a tournament would have to pay 1% (10,000$) and wait god knows how long if he went through the banks Do you have a source for this? I find it hard to believe that high stakes gambling is hindered by banking systems.
- jack_pp 5y agohttps://youtu.be/ObF6w8sNyJo?t=1375 https://youtu.be/ObF6w8sNyJo?t=1375
- ryan93 5y agoyou can do six figure bank transfers for zero fee
- grey-area 5y agoI'd have a slightly different take, recent changes in asset prices and the speculative frenzy are due to changes in monetary and fiscal policy since 2008. I'd include the popularity of cryptocurrencies as speculative assets in that (they don't seem to have any other use-value). Asset prices have seen massive inflation in the last decade due to ZIRP, asset purchases by central banks on an unprecedented scale. The risk free rate has been zero for far too long, and this has directly led to people moving into more risk in order to try to get a return, any return at all. So asset prices, particularly risky speculative asset prices, are no longer judged on their fundamentals like cash flow, but are tightly tied to monetary policy instead. This is starting to feed through to prices of food and other commodities as price inflation as well. So now central banks (and the Fed in particular) have an invidious choice - crash the stock market and save the real economy, or crash the real economy via inflation and save the stock market. The Fed just suggested they would take away the punch bowl from assets a little earlier than planned, so the party is over and people are scrambling for the exits - that will continue this year. This impacts tech stocks which are not making money and not likely to make money, and speculative assets like bitcoin which money has piled into due to Fed policies. We've seen this story before, we know how it ends.
- shard 5y agoThat's very interesting, could you answer a few questions, or point me to some resource which explains in more detail? 1. How does this story end? 2. Which Fed announcement are you referring to? That rates will be raised? What do you mean the party's over, that speculation will decrease and prices will drop? 3. "This impacts tech stocks which are not making money and not likely to make money" You mean that this will impact stock of tech companies which are not profitable, since their stock values are speculative, and not that tech stocks won't make money, right? 4. So that means the Fed has chosen to crash the stock market and save the real economy, right? And by that statement, you mean that the Fed will curb speculation in order to stop price increases in food and other commodities? 5. How and why does rises in prices of risky speculative assets trickle down to rises in food and commodities prices? Is this because some part of the market gets out of the high risk assets and start bidding up lower risk assets? Is this true in general, that price increases due to too much speculation in one part of the market will eventually spread to everything else?
- lukebuehler 5y agoSuper insightful! The blog post itself also touches on this, slightly, by asking what the connection between compute and money is. Is compute just a proxy for money? Or, will in the future money become increasingly a proxy for how much compute you have at your disposal. The latter surely seems unlikely, but with what you said here, it is not out of the question, especially if people increasingly associate pleasures with things that require compute.
- yunohn 5y ago> Something I've noticed about cryptocurrency people is that they are very, very plugged in. The evangelists never have a physical job; always a computer job, and they are always online, and believe in being online to the greatest extent possible. And I think, actually, there is a very obvious reason for that. This is a very important point, that I’ve also been saying for a while. Crypto is purely digital, almost every application that goes popular is fully digital, and almost no ideas have any connection to the real world. That’s gonna cause problems one day…