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Cryptocurrencies still have the unique property of being able to function as permissionless digital cash between parties. There is nothing else in broad use th

by nly 4y ago

Cryptocurrencies still have the unique property of being able to function as permissionless digital cash between parties. There is nothing else in broad use that can perform this function (there were viable cryptographic proposals in the 90s but nothing ever took hold). Personally I think that's enough to justify a small market cap and a volatile price, but I agree it is speculation that has driven it to insane heights.

_jal 4y ago
> Personally I think that's enough to justify a small market cap and a volatile price Perhaps for some currency, but why that one? There's no realistic function for an infinite number of them; there probably isn't a realistic function for more than a very small number of them.
gitfan86 4y ago
I don't see the advantage of circumventing government controls via crypto over the alternative of laundering the money. Or is it that crypto helps with the laundering process?
throw8383833jj 4y ago
There's been a huge macro bubble in govt that has been coming whereby the govt spends ever larger and larger percentage of GDP. We're now over 40% in the US and that's just going to continue going up, if you look at the pattern over the last 100 years. They can't increase taxes and they can't cut spending. And yet the spending keeps increasing ever more and more. Who's paying for it all? everyone holding Cash and Bonds. Look at the govt deficit as percentage of GDP, it's been increasing more and more. in the last decade: it was 3-4% in the good years and 10-15% in the bad ones. That's going to continue. GDP is mostly inflation. Which means if the deficit average 6-8% then inflation will need to match that too in the long term, otherwise debt as percentage of GDP keeps increasing. i know this will get downvoted but I'd rather take an occassional 25% loss with the knowledge that I'll regain it in the future, rather than a guaranteed loss of 6%+ per year for the next 20 years that I will never regain. When fiat and the dollar goes down the tubes, people are going to want something else that can't be inflated away. There's something to be said for diversification. Now that cash and bonds are finished, that only leaves equities and gold. for some people that's not enough. and if you want more diversification then you'll need some crypto. Crypto is 1.5 trillion (bitcoin is 600B) and there are 300 trillion dollars in the world worth of assets. if the world invested 10% of assets in crypto, that's 30T. Gold is about 10T. How is 1.5T or even 3T insane? EDIT: when i say crypto, i mean Bitcoin because the supply is limited.
- mulmen 4y ago
  I don't know what will happen in one, three, five, or 10 years. But I do know this: the performance of your crypto investments will be measured in fiat, just like they have always been. Nobody cares about how many Bitcoins they have. They care how many USD those coins are worth.
  - dhzhzjsbevs 4y ago
    Speak for yourself. A lot of maximalists out there value Bitcoin more than dollars.
    - sroussey 4y ago
      In which case there is no volatility — 1BTC is still 1BTC. For that matter, 1 LUNA is still 1 LUNA.
      - darioush 4y ago
        This is not a valid comparison. BTC has a cap and LUNA can be minted. In fact if anything the LUNA collapse is just a demo of what money printing gets you and how people with capital leverage off-market lending to take (steal) assets for a lower price.
      - samatman 4y ago
        Yes, this is correct insofar as this is in fact how maximalists think of it. No genuine maximalist is pressed about yet another dip in the BTC value, and the term 'shitcoin' is broadly applied to LUNAesque creations, the feeling in that community being that the proper value is in fact zero. My take tends to be that the cryptocurrency market is undervalued, and that 99%+ of all blockchains/tokenthings/whatever which exist are properly valued at zero. The difference between that and BTC/ETH maximalism is those camps are convinced they know where the value will land, and I'm agnostic on that question.
- pid-1 4y ago
  If you are so scared of inflation (which is fair, so am I), just buy inflation indexed bonds. As for crypto, there is no fundamental mechanism that guarantees it will appreciate more than inflation on the long run.
maxerickson 4y ago
The problem is that volatility and a small market cap make it a worse unit of exchange. (One of the big reasons is that you need liquidity to be useful, if you can't easily exchange them for something else when and where you need to, the permissionless digital exchange isn't very interesting)
panarky 4y ago
>> there is nothing of worth backing it Every day people say this as if it's a new insight. There are many things that are valuable that don't derive that value from some other asset "backing" it. Money is a social construct that is valuable because people agree it's valuable. When people decide it's no longer valuable, then it's not.
- lottin 4y ago
  Real assets typically have a use value and an exchange value. Even if you can't sell such an asset (meaning it has no exchange value), you can still profit from it by using or consuming it (it does have use value). Fiat money, including crypto-currencies, are pretty special in this regard in that they only have exchange value, and no use value.
- Salgat 4y ago
  Real world currency's value comes from an entire nation requiring it be usable for debt. That's an incredibly value thing to have. Cryptocurrencies have no such backing, and rely entirely on speculation for value.
Nursie 4y ago
> Cryptocurrencies still have the unique property of being able to function as permissionless digital cash between parties. Unless the top few network operators get together and decide otherwise, as happened with Luna this week when the chain was forcibly halted by the validators. It’s not permissionless or really decentralised.
PeterisP 4y ago
Thing is, it can't be it's only function - because in order for something to be able to actually function as permission digital cash it needs to have at least some value to someone who is a net recipient of that cash (i.e. they manage to receive more of it than they intend to send today). That value proposition can be stupid, but it has to be there, people have to agree in a social consensus that it has some value. You can have something whose primary function is cash between parties and a secondary, minority function is being melted down for jewelry - since that provides a backstop ensuring that it stays viable cash, that there is some value for it. You can have something whose primary function is cash between parties and a secondary, minority function is used to pay taxes or tarriffs to some party (starting with quite ancient times) - since that provides a backstop ensuring that it stays viable cash as long as that tax collector stays relevant. That minority use can be relatively small and rare, however, if it does not exist at all, then it's a poor medium for cash. You can have something whose primary function is permissionless digital cash between parties and a secondary, minority function is a speculative investment bubble - which ensures that it stays viable cash as long as that bubble does not pop. But not really after that.
tjader 4y ago
There's one place where I think this may become useful: international trade. Inside a country with an functioning economy people are willing to trust the government and companies to handle their transactions. When you move to the scale of countries trading, sometimes there's no one "above" that can be trusted. Currently this is "solved" by just using the USD and trusting the US to not go crazy with it. The US and their allies are of course very happy with that and won't move away from it willingly, but some other countries are not. Between countries that can't trust each other's economic policies it's harder to find a way to trade other than barter, and that's not very convenient. Look at Iran or Venezuela, for example, or countries that wish to trade with Russia currently but don't want to keep large reserves of Rubles. I could see some of these eventually trying out using Bitcoin to trade. And if it works well for that case, it may start to spread. Maybe countries that aren't too close to the US will start to think that maybe Bitcoin is a better option than being "subject" to another nation's economic policy.

by nly 4y ago

_jal 4y ago

> Personally I think that's enough to justify a small market cap and a volatile price Perhaps for some currency, but why that one? There's no realistic function for an infinite number of them; there probably isn't a realistic function for more than a very small number of them.

gitfan86 4y ago

I don't see the advantage of circumventing government controls via crypto over the alternative of laundering the money. Or is it that crypto helps with the laundering process?

throw8383833jj 4y ago

There's been a huge macro bubble in govt that has been coming whereby the govt spends ever larger and larger percentage of GDP. We're now over 40% in the US and that's just going to continue going up, if you look at the pattern over the last 100 years. They can't increase taxes and they can't cut spending. And yet the spending keeps increasing ever more and more. Who's paying for it all? everyone holding Cash and Bonds. Look at the govt deficit as percentage of GDP, it's been increasing more and more. in the last decade: it was 3-4% in the good years and 10-15% in the bad ones. That's going to continue. GDP is mostly inflation. Which means if the deficit average 6-8% then inflation will need to match that too in the long term, otherwise debt as percentage of GDP keeps increasing. i know this will get downvoted but I'd rather take an occassional 25% loss with the knowledge that I'll regain it in the future, rather than a guaranteed loss of 6%+ per year for the next 20 years that I will never regain. When fiat and the dollar goes down the tubes, people are going to want something else that can't be inflated away. There's something to be said for diversification. Now that cash and bonds are finished, that only leaves equities and gold. for some people that's not enough. and if you want more diversification then you'll need some crypto. Crypto is 1.5 trillion (bitcoin is 600B) and there are 300 trillion dollars in the world worth of assets. if the world invested 10% of assets in crypto, that's 30T. Gold is about 10T. How is 1.5T or even 3T insane? EDIT: when i say crypto, i mean Bitcoin because the supply is limited.

mulmen 4y ago
I don't know what will happen in one, three, five, or 10 years. But I do know this: the performance of your crypto investments will be measured in fiat, just like they have always been. Nobody cares about how many Bitcoins they have. They care how many USD those coins are worth.
- dhzhzjsbevs 4y ago
  Speak for yourself. A lot of maximalists out there value Bitcoin more than dollars.
  - sroussey 4y ago
    In which case there is no volatility — 1BTC is still 1BTC. For that matter, 1 LUNA is still 1 LUNA.
    - darioush 4y ago
      This is not a valid comparison. BTC has a cap and LUNA can be minted. In fact if anything the LUNA collapse is just a demo of what money printing gets you and how people with capital leverage off-market lending to take (steal) assets for a lower price.
    - samatman 4y ago
      Yes, this is correct insofar as this is in fact how maximalists think of it. No genuine maximalist is pressed about yet another dip in the BTC value, and the term 'shitcoin' is broadly applied to LUNAesque creations, the feeling in that community being that the proper value is in fact zero. My take tends to be that the cryptocurrency market is undervalued, and that 99%+ of all blockchains/tokenthings/whatever which exist are properly valued at zero. The difference between that and BTC/ETH maximalism is those camps are convinced they know where the value will land, and I'm agnostic on that question.
pid-1 4y ago
If you are so scared of inflation (which is fair, so am I), just buy inflation indexed bonds. As for crypto, there is no fundamental mechanism that guarantees it will appreciate more than inflation on the long run.

maxerickson 4y ago

The problem is that volatility and a small market cap make it a worse unit of exchange. (One of the big reasons is that you need liquidity to be useful, if you can't easily exchange them for something else when and where you need to, the permissionless digital exchange isn't very interesting)

panarky 4y ago

>> there is nothing of worth backing it Every day people say this as if it's a new insight. There are many things that are valuable that don't derive that value from some other asset "backing" it. Money is a social construct that is valuable because people agree it's valuable. When people decide it's no longer valuable, then it's not.

lottin 4y ago
Real assets typically have a use value and an exchange value. Even if you can't sell such an asset (meaning it has no exchange value), you can still profit from it by using or consuming it (it does have use value). Fiat money, including crypto-currencies, are pretty special in this regard in that they only have exchange value, and no use value.
Salgat 4y ago
Real world currency's value comes from an entire nation requiring it be usable for debt. That's an incredibly value thing to have. Cryptocurrencies have no such backing, and rely entirely on speculation for value.

Nursie 4y ago

> Cryptocurrencies still have the unique property of being able to function as permissionless digital cash between parties. Unless the top few network operators get together and decide otherwise, as happened with Luna this week when the chain was forcibly halted by the validators. It’s not permissionless or really decentralised.

PeterisP 4y ago

Thing is, it can't be it's only function - because in order for something to be able to actually function as permission digital cash it needs to have at least some value to someone who is a net recipient of that cash (i.e. they manage to receive more of it than they intend to send today). That value proposition can be stupid, but it has to be there, people have to agree in a social consensus that it has some value. You can have something whose primary function is cash between parties and a secondary, minority function is being melted down for jewelry - since that provides a backstop ensuring that it stays viable cash, that there is some value for it. You can have something whose primary function is cash between parties and a secondary, minority function is used to pay taxes or tarriffs to some party (starting with quite ancient times) - since that provides a backstop ensuring that it stays viable cash as long as that tax collector stays relevant. That minority use can be relatively small and rare, however, if it does not exist at all, then it's a poor medium for cash. You can have something whose primary function is permissionless digital cash between parties and a secondary, minority function is a speculative investment bubble - which ensures that it stays viable cash as long as that bubble does not pop. But not really after that.

tjader 4y ago

There's one place where I think this may become useful: international trade. Inside a country with an functioning economy people are willing to trust the government and companies to handle their transactions. When you move to the scale of countries trading, sometimes there's no one "above" that can be trusted. Currently this is "solved" by just using the USD and trusting the US to not go crazy with it. The US and their allies are of course very happy with that and won't move away from it willingly, but some other countries are not. Between countries that can't trust each other's economic policies it's harder to find a way to trade other than barter, and that's not very convenient. Look at Iran or Venezuela, for example, or countries that wish to trade with Russia currently but don't want to keep large reserves of Rubles. I could see some of these eventually trying out using Bitcoin to trade. And if it works well for that case, it may start to spread. Maybe countries that aren't too close to the US will start to think that maybe Bitcoin is a better option than being "subject" to another nation's economic policy.