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Until someone has built a crypto product that creates values (for the purpose of this discussion it can be a good or a service would be willing to spend USD on

Until someone has built a crypto product that creates values (for the purpose of this discussion it can be a good or a service would be willing to spend USD on even if it wasn't a crypto) crypto is a negative-sum game. Any USD taken out of the system someone else has to have put in, plus whatever the miners take out. Fortunes aren't created, they are redistributed.

twox2 5y ago
How is it negative sum, and not just zero sum?
- paxys 5y ago
  There are middlemen extracting fees at every step
- FabHK 5y ago
  Miners are paid some $40m/day, through 1) creating more BTC (called "coinbase" here, "Seigniorage" more generally, leading to inflation) and 2) fees. For now, the $100 miners siphon off per transaction are predominantly from 1), so those costs are not very visible. And then of course the exchanges charging 20 to 120 bp (or more) for a roundtrip against money you can actually use. Coinbase (the exchange) alone takes around 0.4% of the entire crypto market cap per annum into its pockets.
  - jklm 5y ago
    If that seems crazy, wait until you hear about these companies called Stripe and Visa.
    - FabHK 5y ago
      Not sure what you are talking about. 1. Stripe has revenue of $bn 8, Visa $bn 25, and Coinbase $bn 8. Are you suggesting that Coinbase provides as much utility as Stripe? 2. The equity market cap is about $tr 100, so Stripe and Visa together take about 0.03% of that per annum. Mind you: That is way too much. Credit cards are an inefficient oligopoly, and they've been fined by regulators for their extravagant fees. That's a whole topic in itself. But: Crypto is 10x worse.
- jshen 5y ago
  Carbon footprint, and convincing people that a JPEG is an asset that will go up.
  - loup-vaillant 5y ago
    The real stuff is the waste of resources. Not just the carbon footprint, the staggering amount of silicon wasted on those. Though that sure makes GPU prices go up…
- dragontamer 5y ago
  A lot of miners have access to free electricity, often through corrupt officials on some unsavory countries... or even US Army folk who are abusing their home's utility bills (Uncle Sam pays for that electricity). Under these conditions, the utility company has to pay for say $100 in electricity to make $80 of cryptocoin. But since the miner has "free electricity" and doesn't see these costs, they only see the $80 of cryptocoin that they sold off.
anonporridge 5y ago
That's like saying the USD is a negative sum game because "any CNY taken out of the system someone else has to have put in, plus whatever the government takes out. Fortunes aren't created, they are redistributed." The transference, redistribution, and storage of wealth is itself the value of monetary networks. The more circular trade that doesn't need to exit the network happens, the more valuable the network becomes. The ultimate point of projects like bitcoin isn't to build a system that makes everyone rich. That would obviously an absurd ponzi like scheme. The point is to build an open monetary system for the whole planet that emerges out of distributed consensus rather than dictated to us by a global superpower, and is therefore not fragile and subject to failure when the superpower declines. Early investors of the network will get rich if it succeeds, just like early investors of any tech giant did. That mechanism of rewarding those who take a risk with their money when the future is uncertain is a huge part of what's driving its continued growth and success. If you didn't have that to bootstrap the network, bitcoin would likely be a forgotten oddity of a cypherpunk project that nobody ever cared about. But now, it's a global money that nation states are adopting. I do agree that most crypto projects will fail and end up looking like nothing more than pump and dumps to scalp investor money, whether from dumb VCs or retail.
- omegaworks 5y ago
  >The point is to build an open monetary system A structurally impossible goal when it is deflationary in nature.
  - anonporridge 5y ago
    Why's that?
    - quickthrowman 5y ago
      A rational actor would never spend a deflationary currency since it would gain value as deflation happens. If everyone was rational, no money would ever change hands. You can’t have a functional monetary system without liquidity or exchanging of currency. Bitcoin is a deflationary currency (for now)
seibelj 5y ago
I find a lot of DeFi projects to be very useful, but you have a logical fallacy - If I buy 1% of Apple stock at $100, and later it's worth $1000 based on the last trading price, money didn't change hands to make me have more USD, it's my paper wealth. If Bitcoin goes from $1 to $50k, and I never sell, I didn't take any money - the wealth simply grew.
- NovemberWhiskey 5y ago
  The point is that holding Apple stock is a claim of ownership of the assets of Apple as well as the future income of Apple, either in the form of dividends or stock buybacks. The activity of Apple is economically meaningful; and the price of Apple stock reflects that.
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  - trophycase 5y ago
    The activity on Ethereum is economically meaningful, whether you believe it is or not. And let's be honest, Netflix or Facebook could disappear off the face of the earth tomorrow and productivity would arguably increase, so is that a negative sum game?
    - NovemberWhiskey 5y ago
      OK but I'm responding to a claim about BTC.
      - deleted 5y ago
        [deleted]
    - librish 5y ago
      The activity on Ethereum has the potential to be economically meaningful (there's a separate discussion on whether or not it's the best way to do it) but I don't think it currently is. What is people extracting from the Ethereum ecosystem that isn't USD?
nightski 5y ago
While partly true, that is true of any asset (dollars in/dollars out). However your statement that fortunes are not created, they are redistributed is incorrect. The value is not a 1 to 1 relationship with inflows. The value is based on supply/demand. If demand outstrips supply, value goes up regardless of how much $ is flowing in or out. You can see large price swings even on days with low volume.
- cuteboy19 5y ago
  No, when I invested 100k₹ in my brother's shop, it was able to turn a profit in a few years and pay me back with interest. The money came from selling products and generating revenue. With Bitcoin there is no revenue. The only way you can turn a profit is if you get some other greater fool to buy it from you. This is how most ponzi schemes work. I find it very scary that the people investing in crypto don't even understand the basics of investment. They genuinely think that all investment follows ponzinomics.
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lhorie 5y ago
I'm curious if this comment is a usual fare of shallow dismissal or if you are aware of current applications of crypto in the wild and consider them to be useless nonetheless. One example that comes to mind is that Docusign offers a product that uses Ethereum for storing evidence of contracts in a decentralized medium. That seems like a fairly legitimate application for the technology. Another example (albeit possibly more dubious) is BitTorrent tokens as a "currency" for "buying" download speed by incentivizing people to keep nodes running within its P2P network. Do you consider these types of applications to be negative sums? If so, why? Not trying to be antagonistic here, I'm actually curious.
- paxys 5y ago
  Every large company (including my own) jumped on the crypto bandwagon when the tech started gaining mainstream popularity, but it was mostly to give their salespeople more content for their pitch decks instead of building features people would actually utilize. For the case you mentioned, is anyone actually using this tech for their contracts? No Docusign (or any other) document I have ever signed was written to any blockchain. Have any real legal disputes ever been resolved by looking up a public ledger?
  - deleted 5y ago
    [deleted]
- librish 5y ago
  Those applications are not negative sum. My impression is that the total revenue for services like that is minuscule, I would be very interested if you have data showing something else.
  - lhorie 5y ago
    My impression has been similar to the comment sibling to yours, that a lot of attempts at crypto-related applications were somewhat hype based. However, despite the huge amount of noise, some do seem - at least in principle - valuable. I certainly share a certain level of cynicism towards many crypto applications, but even the likes of OpenSea currently employ people and presumably pay them actual money that they can spend on stuff, in exchange for their time and effort pushing the platform forward as a digital marketplace. That, to me, looks more like creating traditional business value than hype and pyramid schemes. I'm ambivalent on whether I should consider NFTs "value". On the one hand, the NFT mania has generated quite a bit of commercially-oriented artistic output that likely would not have been created otherwise. But on the other hand, whether "artistic output" is valuable at all in the first place is kinda in the eye of the beholder, I suppose.

twox2 5y ago

How is it negative sum, and not just zero sum?

paxys 5y ago
There are middlemen extracting fees at every step
FabHK 5y ago
Miners are paid some $40m/day, through 1) creating more BTC (called "coinbase" here, "Seigniorage" more generally, leading to inflation) and 2) fees. For now, the $100 miners siphon off per transaction are predominantly from 1), so those costs are not very visible. And then of course the exchanges charging 20 to 120 bp (or more) for a roundtrip against money you can actually use. Coinbase (the exchange) alone takes around 0.4% of the entire crypto market cap per annum into its pockets.
- jklm 5y ago
  If that seems crazy, wait until you hear about these companies called Stripe and Visa.
  - FabHK 5y ago
    Not sure what you are talking about. 1. Stripe has revenue of $bn 8, Visa $bn 25, and Coinbase $bn 8. Are you suggesting that Coinbase provides as much utility as Stripe? 2. The equity market cap is about $tr 100, so Stripe and Visa together take about 0.03% of that per annum. Mind you: That is way too much. Credit cards are an inefficient oligopoly, and they've been fined by regulators for their extravagant fees. That's a whole topic in itself. But: Crypto is 10x worse.
jshen 5y ago
Carbon footprint, and convincing people that a JPEG is an asset that will go up.
- loup-vaillant 5y ago
  The real stuff is the waste of resources. Not just the carbon footprint, the staggering amount of silicon wasted on those. Though that sure makes GPU prices go up…
dragontamer 5y ago
A lot of miners have access to free electricity, often through corrupt officials on some unsavory countries... or even US Army folk who are abusing their home's utility bills (Uncle Sam pays for that electricity). Under these conditions, the utility company has to pay for say $100 in electricity to make $80 of cryptocoin. But since the miner has "free electricity" and doesn't see these costs, they only see the $80 of cryptocoin that they sold off.

anonporridge 5y ago

That's like saying the USD is a negative sum game because "any CNY taken out of the system someone else has to have put in, plus whatever the government takes out. Fortunes aren't created, they are redistributed." The transference, redistribution, and storage of wealth is itself the value of monetary networks. The more circular trade that doesn't need to exit the network happens, the more valuable the network becomes. The ultimate point of projects like bitcoin isn't to build a system that makes everyone rich. That would obviously an absurd ponzi like scheme. The point is to build an open monetary system for the whole planet that emerges out of distributed consensus rather than dictated to us by a global superpower, and is therefore not fragile and subject to failure when the superpower declines. Early investors of the network will get rich if it succeeds, just like early investors of any tech giant did. That mechanism of rewarding those who take a risk with their money when the future is uncertain is a huge part of what's driving its continued growth and success. If you didn't have that to bootstrap the network, bitcoin would likely be a forgotten oddity of a cypherpunk project that nobody ever cared about. But now, it's a global money that nation states are adopting. I do agree that most crypto projects will fail and end up looking like nothing more than pump and dumps to scalp investor money, whether from dumb VCs or retail.

omegaworks 5y ago
>The point is to build an open monetary system A structurally impossible goal when it is deflationary in nature.
- anonporridge 5y ago
  Why's that?
  - quickthrowman 5y ago
    A rational actor would never spend a deflationary currency since it would gain value as deflation happens. If everyone was rational, no money would ever change hands. You can’t have a functional monetary system without liquidity or exchanging of currency. Bitcoin is a deflationary currency (for now)

seibelj 5y ago

I find a lot of DeFi projects to be very useful, but you have a logical fallacy - If I buy 1% of Apple stock at $100, and later it's worth $1000 based on the last trading price, money didn't change hands to make me have more USD, it's my paper wealth. If Bitcoin goes from $1 to $50k, and I never sell, I didn't take any money - the wealth simply grew.

NovemberWhiskey 5y ago
The point is that holding Apple stock is a claim of ownership of the assets of Apple as well as the future income of Apple, either in the form of dividends or stock buybacks. The activity of Apple is economically meaningful; and the price of Apple stock reflects that.
- deleted 5y ago
  [deleted]
- deleted 5y ago
  [deleted]
- trophycase 5y ago
  The activity on Ethereum is economically meaningful, whether you believe it is or not. And let's be honest, Netflix or Facebook could disappear off the face of the earth tomorrow and productivity would arguably increase, so is that a negative sum game?
  - NovemberWhiskey 5y ago
    OK but I'm responding to a claim about BTC.
    - deleted 5y ago
      [deleted]
  - librish 5y ago
    The activity on Ethereum has the potential to be economically meaningful (there's a separate discussion on whether or not it's the best way to do it) but I don't think it currently is. What is people extracting from the Ethereum ecosystem that isn't USD?

nightski 5y ago

While partly true, that is true of any asset (dollars in/dollars out). However your statement that fortunes are not created, they are redistributed is incorrect. The value is not a 1 to 1 relationship with inflows. The value is based on supply/demand. If demand outstrips supply, value goes up regardless of how much $ is flowing in or out. You can see large price swings even on days with low volume.

cuteboy19 5y ago
No, when I invested 100k₹ in my brother's shop, it was able to turn a profit in a few years and pay me back with interest. The money came from selling products and generating revenue. With Bitcoin there is no revenue. The only way you can turn a profit is if you get some other greater fool to buy it from you. This is how most ponzi schemes work. I find it very scary that the people investing in crypto don't even understand the basics of investment. They genuinely think that all investment follows ponzinomics.
- deleted 5y ago
  [deleted]

deleted 5y ago

[deleted]

lhorie 5y ago

I'm curious if this comment is a usual fare of shallow dismissal or if you are aware of current applications of crypto in the wild and consider them to be useless nonetheless. One example that comes to mind is that Docusign offers a product that uses Ethereum for storing evidence of contracts in a decentralized medium. That seems like a fairly legitimate application for the technology. Another example (albeit possibly more dubious) is BitTorrent tokens as a "currency" for "buying" download speed by incentivizing people to keep nodes running within its P2P network. Do you consider these types of applications to be negative sums? If so, why? Not trying to be antagonistic here, I'm actually curious.

paxys 5y ago
Every large company (including my own) jumped on the crypto bandwagon when the tech started gaining mainstream popularity, but it was mostly to give their salespeople more content for their pitch decks instead of building features people would actually utilize. For the case you mentioned, is anyone actually using this tech for their contracts? No Docusign (or any other) document I have ever signed was written to any blockchain. Have any real legal disputes ever been resolved by looking up a public ledger?
- deleted 5y ago
  [deleted]
librish 5y ago
Those applications are not negative sum. My impression is that the total revenue for services like that is minuscule, I would be very interested if you have data showing something else.
- lhorie 5y ago
  My impression has been similar to the comment sibling to yours, that a lot of attempts at crypto-related applications were somewhat hype based. However, despite the huge amount of noise, some do seem - at least in principle - valuable. I certainly share a certain level of cynicism towards many crypto applications, but even the likes of OpenSea currently employ people and presumably pay them actual money that they can spend on stuff, in exchange for their time and effort pushing the platform forward as a digital marketplace. That, to me, looks more like creating traditional business value than hype and pyramid schemes. I'm ambivalent on whether I should consider NFTs "value". On the one hand, the NFT mania has generated quite a bit of commercially-oriented artistic output that likely would not have been created otherwise. But on the other hand, whether "artistic output" is valuable at all in the first place is kinda in the eye of the beholder, I suppose.