51 ms·

Bitcoin is not a store of value

224 points by cowtools 4y ago

cflynnus 4y ago
And yet it stores a lot of value…
fdsffaef334 4y ago
wmf 4y ago
This focuses on the money that "leaks" out of the Bitcoin ecosystem due to mining, which is entirely correct but it's not the reason Bitcoin isn't a good store of value IMO. Bitcoin has little or no guaranteed demand (i.e. things that you can only buy with Bitcoin); what's left is speculative demand which has no floor.
- pjkundert 4y ago
  Money that can’t be stopped by meddling do-gooders has high utility value. Just ask the poor slobs in Russia or Venezuela who can’t sell their software and feed their families, or in Canada who threw $50 to support their trucker buddy and got their bank account frozen. Also - there is easily $7B of “stranded” energy in flare gas and hydro “rotating reserve” available to secure Bitcoin and similar systems. Besides, the limiting factor for a successful 51% attack isn’t the energy — it’s the capacity to actually create the hash capacity to execute the attack. Not even the NSA could do that, let alone some non-state attacker.
  - cowtools 4y ago
    >Also - there is easily $7B of “stranded” energy in flare gas and hydro “rotating reserve” available to secure Bitcoin and similar systems. Besides, the limiting factor for a successful 51% attack isn’t the energy — it’s the capacity to actually create the hash capacity to execute the attack. Not even the NSA could do that, let alone some non-state attacker. The cost of securing bitcoin is not just in electricity, it is also in the depreciation cost of ASIC hardware. I guess it would be easy for the NSA to pull off the 51% attack if they are able to backdoor the handful of ASIC manufacturers.
  - esperent 4y ago
    Curse those meddling governments who want to tax you to pay for roads, hospitals, and schools, and social welfare. At least, speaking as a European, this is where the large majority of my tax euros go. If your government spends your tax on less useful things then maybe the solution is to work towards a better government, rather than trying to hide your savings in untaxable havens. (Actually I have no idea how easy it is to hide money from the tax collectors using crypto, but I assume that's one of the appeals). EDIT: user above me edited their comment to reference Russia and Venezuela. My comment about working towards a better government still stands although I recognize it's not an easy task.
    - tengbretson 4y ago
      Other governments out there spend money on roads, hospitals, schools, and social welfare regardless of the amount of tax dollars they collect. It would be understandable for people under such a system to view their taxes as purely punitive.
    - klabb3 4y ago
      > (Actually I have no idea how easy it is to hide money from the tax collectors using crypto, but I assume that's one of the appeals). Depends on which one but let's take pure bitcoin because that's what the post is about. Governments have 3 main tools, tracing, freezing and recovering. The breakdown is different in crypto vs fiat. In BTC, the blockchain contains all previous transactions, everything is public. If you send your BTC through middlemen it'll be mixed in with their assets but you can still follow the trail perfectly. So tracing is easier with BTC than fiat, because you won't have to convince some Cayman island bank to hand over the cash. Next, there's freezing, which is harder. You can't block transactions to Iran on the chain, but you can block entry and exit points when trading with fiat, on most exchanges. Since freezing is technically equal to censoring, it's a feature. Recovery is almost impossible, to the point of you can even lose your own private key, let alone someone who stole from you. The government can't produce a valid private key any more than your quad-core IOT fridge. TL;DR avoiding tax is hard to do for retail people, simply because the regulators are watching the entry and exit points. So even if you tornado cashed and zcash yadda yadda and your funds are untraceable you eventually need to buy fiat for them, because you'll need the fiat for the Lamborghini. > rather than trying to hide your savings in untaxable havens. Kinda OT, but why suddenly is tax evasion a problem with retail crypto of all things? We have institutionalized tax avoidance for the biggest players (megacorps & ultra rich) to the point where nobody raises an eyebrow anymore. Seems inconsistent to me.
  - HWR_14 4y ago
    > it’s the capacity to actually create the hash capacity to execute the attack. Not even the NSA could do that, I don't see why. The current value of BTC mined in a year is around $6.5 billion. Hardware lasts, let's be generous, 2 years. No one will mine BTC at a loss, so the total cost of mining BTC for 2 years must be less than $13 billion. So for less than $13 billion, the NSA can create a new BTC mining network at 50%. That seems well within their budget. And if they sell their BTC, they can probably be cashflow positive before destroying the network.
    - sph 4y ago
      > So for less than $13 billion, the NSA can create a new BTC mining network The NSA doesn't go to the NVIDIA store to buy $13 billion of GPUs. Measuring only the monetary value conveniently ignores the bottleneck of underlying resources to build the hardware to do the mining. Where does the NSA find $13 billion worth of top-shelf GPUs or ASICs? Having money is not enough if there is no one to sell you. That hardware takes natural resources, knowledge know-how found only in a few companies and a non-negligible amount of rare earth minerals to build. That's a serious bottleneck and not something you can stealthily enter in in that capacity, NSA or not.
      - tromp 4y ago
        Large amounts of earlier generation ASICs whose efficiencies are no longer competitive are available for cheap. Many even end up on the scrap heap.
      - DennisP 4y ago
        It would not be surprising if the NSA is able to design and source whatever ASICs they need. That's a capability that would be directly applicable to attacking encryption in general.
      - HWR_14 4y ago
        > Where does the NSA find $13 billion worth of top-shelf GPUs or ASICs? Leaving aside the fact that they could have private secret production capability and I would believe it, the market is probably being flooded now as BTC is tanking. GPUs are apparently getting cheap again.
  - Snacklive 4y ago
    Bitcoin literally does nothing special for Venezuela.
  - XorNot 4y ago
    This comes up over and over, where people clearly don't understand how foreign currency exchange works. The name, of course, tells you, but people seem to think that "currency conversion" is some transformative process where rubles just become bitcoin. Which is of course: false. To turn rubles into bitcoin, someone who wants to buy rubles has to be willing to buy them for bitcoin. This means someone local, who can transact in rubles, needs to have a supply of bitcoin. Where are they getting it from? They can't buy it overseas because if you could exchange rubles with foreigners then you could also just buy USD. They could mine it, but that still means they need to be willing to accept rubles for their bitcoin, and yet the scenario presented suggests there's a path to exchange rubles for USD which is more favorable. In fact at every step of the process, you have the problem that the only way to get Bitcoin from your stranded currency, is to buy it from another party locally.
    - lolc 4y ago
      No actually you can sell services (software, as the original comment alluded) and get Bitcoin in return. These Bitcoin can be sold for Rubles, or bread, or whatever. There's no forex involved unless people want the convenience of exchanges. Which is one of the limitations of Bitcoin: it's hard to deal on-net.
      - XorNot 4y ago
        You would have to sell Bitcoin constantly to pay your taxes in your local jurisdiction. And while there's no unrest locally, you're at a negative: no one has any reason to give you a favorable rate, since you need rubles much more then they need Bitcoin. It's just Forex concerns, and you're going to be paying out the nose constantly on a "what if". Of course, while there's no sanctions, you could also just buy USD directly.
        lolc 4y ago
        Before, you said that nobody in the local market has Bitcoin. Now you're arguing the opposite, that nobody in the local market wants Bitcoin. Sure, both can be true, when there's just no market. But that's a different argument.
  - tsol 4y ago
    >Just ask the poor slobs in Russia or Venezuela who can’t sell their software and feed their families Wait why are they slobs?
    - pjkundert 4y ago
      It’s a term of endearment. Anyone who can’t defend themselves from the connected entitled elites are, by definition, “poor slobs”.
      - nly 4y ago
        I think the expression is actually "poor schlub", schlub being Yiddish in origin
  - betwixthewires 4y ago
    The US could if it wanted 51% attack bitcoin with less than 10% of the yearly DoD budget.
- yuan43 4y ago
  Stories like this have been appearing pretty regularly on HN ("Stripe has decided to nuke my entire business"). https://news.ycombinator.com/item?id=32854528 https://news.ycombinator.com/item?id=32854528 Considering that a USD payment company can literally destroy a business without a reason, how confident are you about that "little or no guaranteed demand" part?
  - adventured 4y ago
    Very. The premise you're floating is the size of a mountain and you're attempting to rest it on top of an egg. A $25 trillion economy, a massive payments ecosystem, a large payments company in Stripe, and you're talking about isolated examples. Even if there are ten examples, it's ten in tens of thousands of counter examples where businesses aren't having that problem. The obvious point being: all those other businesses aren't worried because your premise is so rare. And for the small number of businesses that end up in the negative scenario, they're not prominent enough to matter as a warning sign to everybody else. You'd need a very big, very common problem to spur the kind of adoption premise you're suggesting. It doesn't exist at present. A big share of Stripe's customers (along with other processors) would need to be suffering like that example.
  - _uhtu 4y ago
    And a company like OpenSea can arbitrarily destroy the value of blockhain assets on a whim as well. It turns out that the problem isn't that companies like Stripe are evil and looking to screw people over, the real truth is that money is complicated and dealing with things like fraud cause myriad edge and corner cases which have real financial effects. Blockchain, for all it's promises of decentralization, has rapidly centralized on a few players who's interpretation of the chain are practically law, and thus, is subject to the same problems as any other centrally governed system. The many differences include that stripe (and it's competitors) can handle millions of transactions whereas bitcoin struggles on a few thousand.
    - thr0wawayf00 4y ago
      > the real truth is that money is complicated and dealing with things like fraud cause myriad edge and corner cases which have real financial effects. More specifically, policies like "know your customer" are great in theory but very hard to implement in practice, which is why companies like Stripe tend to be ruthless with their merchants. Crypto tries to sidestep this entirely by arguing that it's trustless from the ground up. The problem with this is that it facilitates the creation of an unstable marketplace full of interconnected players and nobody knows who is legit and who is a complete crook. Projects like Terra show that when the crypto market recedes, entire segments of the blockchain ecosystem are at risk of being wiped out because there is no transparency to their underlying operation. It's all gravy in a boom cycle, but the bust always happens. Crypto and its derivative products can only truly thrive in an environment that is free of market downturns because there's absolutely nobody at the wheel making sure that these companies are actually doing what they claim to be doing.
erulabs 4y ago
> If the network is valued at $568B, but costs $7.125B/year or more to secure, that’s a pretty big leak for something that is supposed to preserve value. > Now some of you are already thinking, hey 7.125/568 is only 1.25% per year. But that’s not exactly how market cap works. This 1.25% system leak doesn’t necessarily translate to a 1.25% price decrease per year. Far from “not exactly how market cap works”, this is more or less “not even close to how market cap works”. Econ 101 time: value is subjective. Human beings merely use value as a description - it does not exist inside of any object or inside of any equation. A “store of value” has always been an ill considered term - but this is not the argument against it. What Bitcoin is good for is being internet dollars that can’t be spent twice. That’s a nontrivial feature.
- cowtools 4y ago
  >Far from “not exactly how market cap works”, this is more or less “not even close to how market cap works”. >Econ 101 time: value is subjective. Human beings merely use value as a description - it does not exist inside of any object or inside of any equation. A “store of value” has always been an ill considered term - but this is not the argument against it. Who cares? The general point here still stands: bitcoin's valuation will have to double every halfening (in terms of some indicator like USD) in order for the cost of security (total block reward) to stay constant in (terms of some indicator like USD). >What Bitcoin is good for is being internet dollars that can’t be spent twice. That’s a nontrivial feature. Any cryptocurrency can do this, and many do not have bitcoin's crippled market cap or development structure. The question is this: "Why bitcoin?". Bitcoin's sole advantage over other cryptocurrencies is its name brand.
  - rabuse 4y ago
    No, it doesn't. Bitcoin's difficulty automatically scales based on how fast the previous blocks were "solved". With that, if miners start dropping off, then the protocol will adjust for the falloff in "hashrate".
    - adgjlsfhk1 4y ago
greyface- 4y ago
> Will investors choose to invest in a system that leaks value, or a system (like Ethereum post-merge) that is designed to accrue value? Ethereum is leaky, too. Since the merge, supply has grown by more than 2500 ETH.
- deleted 4y ago
  [deleted]
- mudrockbestgirl 4y ago
  You realize supply growth was significantly larger with PoW, right? It's like saying "Ethereum uses energy too!" completely ignoring the fact that it uses 99.9% less energy.
  - sph 4y ago
    What has supply growth anything to do with how the network is secured (PoW specifically)? There is no correlation nor relation whatsoever between the two.
    - zeroclip 4y ago
      Security is strongly correlated with issuance i.e. supply growth. If miners must spend X amount of value to compute hashes and secure the network, and the issuance or protocol reward is not sufficient to justify this spending, the security of the network is at risk.
    - mudrockbestgirl 4y ago
      Miners/stakers get paid for securing the network and that's exactly what determines how much ETH is issued.
    - DennisP 4y ago
      Ethereum lowered the issuance rate dramatically when it changed to PoS. The reason it was able to do this without lowering the cost of a 51% attack is that it no longer has to rely on rewards alone. It can also apply penalties. Certain provable attacks result in automatic destruction of stake. In PoW terms, it's as if a 51% attack caused the attacker's mining rig to burn down.
yuan43 4y ago
> Any token system can be thought of as a pot of money. Every cryptocurrency is its own pot of money. When people sell, they are taking money out of the pot. When people buy, they are putting money into the pot. I'm not sure where the author gets this from, but it doesn't make sense. Buying and selling bitcoin does not change the size of the pot of bitcoin. Look on the block chain and you'll find no mention of USD, alpaca socks, or Lambos purchased. What you'll find are state transitions with value being unlocked and simultaneously re-locked. The one exception is a block reward, which requires no unlock (input). The block reward can be viewed from one of two perspectives: 1. value being created 2. value being unlocked Either way, the block reward comes into existence on a fixed schedule known to all participants. The author tries to once again bring in the US dollar as follows: > In this more accurate representation, we have miners pulling money out of the pot in two ways: transaction fees, and the selling of their Bitcoin mining rewards. The latter is harmful to BTC’s value in two ways. It dilutes the circulating supply of BTC which decreases its value, and it pulls money from the pot to cover energy costs. A majority portion of the money miners are pulling from the system is being burned forever in the form of energy costs, meaning it has no way of ever re-entering the system. Again, bitcoin transactions merely unlock and re-lock value as an atomic operation. What the author characterizes as "value" is an off-chain phenomenon. That last part about "being burned forever" is debatable. The residual value of the energy expenditure is proof-of-work that the author conveniently ignores. That proof-of-work is what stands between the Bitcoin network and an attack that rewrites history. So to characterize mining as "burning forever" value misleads the reader into thinking nothing of value remains. This is demonstrably false.
- SV_BubbleTime 4y ago
  I had a sidetake on that quoted bit. It’s been curious to me just how related all these coins are, even as speculation devices. When Bitcoin falls, they all fall, when it rises for the most part they all rise. The correlation to completely separate pots is something I don’t think anyone can fully explain.
  - drc500free 4y ago
    Isn't it fully explained by most of the money being from speculators whose thesis is "if crypto goes big these will be worth more!"? If you add up the net worth of all the people who deeply understand how each coin works, you don't get anywhere near $500 billion.
plebianRube 4y ago
You the laborer have the capacity to decide where the value of your labor should be kept. Whether some think it's leaky, or that it is a melting ice cube or ultrasound money is irrelevant. Despite or with support from opinions of others, it is ultimately you who makes the decision where to store your value. Only time can say if you've made a good decision, as not one person can predict the future, and likewise you must suffer or enjoy the consequences of your decision.
- lottin 4y ago
  While we can't predict the future precisely the future isn't completely unknown either. This allows us to say beforehand that some investments are better than others, regardless of what the actual outcome of such investments will be.
- LanternLight83 4y ago
  I find this meaningful and empowering, thanks c:
- anm89 4y ago
  It's funny to me that this is such an offensive idea that it needs to be downvoted. It seems pretty straighforward and self evidently true. The irony is that the whole message is that it doesn't matter if you disagree or disagree, only the quality of the decisions you apply your framework towards. Time will reward those who take time to understand this stuff and punish those who don't. Liking the message is entirely besides the point.
- pessimizer 4y ago
  > You the laborer have the capacity to decide where the value of your labor should be kept. Depends on the laborer. There's no law of nature that grants me the ability to make good financial decisions as an award for my labor. The ability to manage risk is not an ability that gets unlocked once you accumulate enough money to invest. Now, I have to both work hard to make money, and gamble to protect my future.
  - gjs278 4y ago
latchkey 4y ago
> According to the University of Cambridge, about 118.75 tWh (terrawatt hours). I stopped reading as soon as they quoted that silly inaccurate UoC website that gets quoted over and over again. Why? Because they even admit, in their own methodology (https://ccaf.io/cbeci/mining_map/methodology https://ccaf.io/cbeci/mining_map/methodology), that it is an extrapolation from less than 50% of the total hash. Even worse, is the pools they extrapolate from have been Chinese based. Although, that's changed over time, which invalidates their numbers even more. Even still, there is no way to know how that power is generated, how much it offsets other power generation, etc... there are just too many variables to simply quote UoC. At the end of the day, read this: https://www.lynalden.com/bitcoin-energy/ https://www.lynalden.com/bitcoin-energy/
- ajross 4y ago
  > Even still, there is no way to know That seems unconvincing. In fact how much energy is required per hash is something that's really quite easy to measure accurately. At any given time there are no more than a few dozen hardware platforms in use (they get priced out rapidly, everyone is running the newest stuff in the BTC world). Just plug them in and measure them. All that's left from there is to come up with second order corrections about stuff like grid efficiency. But we absolutely know to quite high precision how many joules were spent to produce the coins we observe to have been created.
  - bombcar 4y ago
    And the only way to hypothesize something different is if there's a ASIC or something that can mine much better than existing equipment (in which case the group that had it would suddenly shoot up in the blocks mined lists) or there's a weakness in the cryptographic protocol somewhere that we don't know about.
    - sanxiyn 4y ago
      I must note that this in fact happened in the past (AsicBoost). Currently, I don't think there is AsicBoost-like secret information, but you can't be sure. https://arxiv.org/abs/1604.00575 https://arxiv.org/abs/1604.00575
anonymousiam 4y ago
"In this system, if supply outweighs demand, price will go up." I'm pretty sure he's got that backwards.
- tantalor 4y ago
  Yeah really gives me confidence to read the rest of the article.
Waterluvian 4y ago
Bitcoin eventually stops awarding new coins and becomes a fixed number of coins indefinitely, right? Or no? But then wallets inevitably get lost and become impossible to recover. Is this a planned feature? What’s the economic effect of a currency that can only decrease in quantity of issued notes?
- foobarbecue 4y ago
  It never stops, it just starts awarding them slower and slower as mining difficulty increases. So, the total approaches an asymptote.
  - etchalon 4y ago
    It stops. We can predict when it will stop.
    - foobarbecue 4y ago
      Upon reading more I see you're right. I might have been getting blockchains mixed up.
  - tromp 4y ago
    > slower and slower as mining difficulty increases That makes no sense. The entire point of difficulty adjustments is to keep a constant average blocktime.
- hackernudes 4y ago
  You are right. That would make... Number go up! But really, I don't think anyone knows what a deflationary currency would be like. It's not like fiat currency will go away. There will probably be some people who want to fork Bitcoin to increase the supply.
naet 4y ago
Crypto currencies are IMO all speculative assets. They may go up or down. People try to anticipate which way they will go based on various different criteria, but it's mostly a crap shoot. The same crypto currency is likely to fluctuate significantly up and down in value over time.
- BurningFrog 4y ago
  Aren't all assets speculative, and may go up or down?
  - Consultant32452 4y ago
    My dollars are going down like a ton of bricks.
    - Proven 4y ago
  - Quindecillion 4y ago
    Yes, and just because early adopters are disproportionately rewarded to laggards doesn't make it a "pyramid scheme" either. If it was that would mean all stock investments are "pyramid schemes" too. Did early investors in companies like Apple, Amazon, Google, or Tesla benefit from a "pyramid scheme"? They saw value before others did, got in early, and reaped the rewards once the majority cottoned on to their value proposition. It's no different with Bitcoin. People see value in it before others have and may reap the benefits if demand continues to rise from society seeing value in its properties. You can argue about whether that perceived value is justified or not, but ultimately only time (and the market) will tell.
    - jboy55 4y ago
      I'm not sure where you are getting "Pyramid scheme", most criticisms of crypto are that they are Ponzi schemes. The difference is that rather than money funneling up to the top of the pyramid, in a Ponzi scheme an illusion of returns is created by redistributing newer investors money to existing investors, rather than from the underlying investments gaining value. See Madoff's great scheme. There was a great article, probably lost in time, which explained how the dot-com crash of the 00s was basically the collapse of an internet advertising Pyramid, and a smaller collapse of a dark-fiber pyramid.
spir 4y ago
If you are interested in this topic, you may like my recent essay in Bankless: https://newsletter.banklesshq.com/p/why-the-flippening-is-good-for-crypto https://newsletter.banklesshq.com/p/why-the-flippening-is-go...
Cypher 4y ago
What about pokemon cards?
- kfarr 4y ago
  You gotta catch em all before they leak too much value
yashg 4y ago
Bitcoin is neither a currency nor a store of value. It's just a speculative magic token for punters to bet on and for scammers to scam starry eyed suckers by promising eternal wealth.
no1groyp 4y ago
Quindecillion 4y ago
I've seen similar arguments like this before, which of course have their own set of counter-points from the other side of the debate. Both sides are unverifiable because they're trying to predict the behaviour of complex interacting systems. We're in the middle of a big experiment and the only way to know for sure who is right is to wait and observe. I won't bother to respond to his core argument because it has been countered plenty of times before and as I said above it's ultimately a pointless endeavour to debate, but I did want to pick out what I found to be the most egregious part. > Bitcoin was a phenomenal first attempt, just like Blockbuster was amazing while it lasted. But to think that we nailed it on the first try is crazy. I cannot think of a single piece of technology that hasn’t been improved for the better over time. Would you prefer to use a computer from 1988? A tablet from 2014? A car from 1932? Would you attempt to fly across the Atlantic ocean in the first airplane ever made? Of course not. Technology gets better with time. Period. This is an outstandingly poor take from someone who clearly doesn't know the history of "e-money" or understand the core promise of Bitcoin, and is a common argument by "crypto defi bros". The first, but lesser problem is that... no, Bitcoin isn't the first attempt at "digital money". The whitepaper specifically references previous attempts, why they failed, and how Bitcoin addresses those shortcomings. Bitcoin was just the first, arguably, successful attempt. The second, but more significant problem is that the author thinks "crypto" is the new technology that's just starting out and being evolved here. Perhaps it is in a way, but that's missing the point. The technology been evolved here is almost as old as civilization itself. Money. Money has an incredibly long history of evolution through various technologies from stones on the island of Yap, shells, cloth, glass beads, ledgers, and yes, gold and other metals. In the modern age we saw paper certificates appear as IOUs for gold, then this link was severed in 1971 by Nixon, we saw the emergence of credit cards and e-commerce which all come with their various advantages and disadvantages. So framing Bitcoin as the "first" of a new technology is recently and historically... wrong. There's also the argument that the design space of money is limited. Bitcoin arguably fills in the final properties of money that needed to be improved on from gold (salability across space and divisibility) and fiat (scarcity i.e. salability across time). Vijay covers the properties of good money in his well-known article [1] (now book) better than I could. If you buy this argument the logic goes that there's not much more room for improvement when it comes to money. But who knows what someone might think up next... [1] https://vijayboyapati.medium.com/the-bullish-case-for-bitcoin-6ecc8bdecc1 https://vijayboyapati.medium.com/the-bullish-case-for-bitcoi...
michaelwww 4y ago
Saying "Bitcoin is not a Store of Value" is not the same as saying "Bitcoin has no value," because of course it does as long as people think it does. I translate the original title to "Bitcoin is a terrible store of value", which I already knew, especially since the 75% drop in value. Yes I know, it's gone up a bazillion percent since 2012, but trees don't grow to the sky and saying otherwise is the kind of thing they tell suckers at casinos along with "There's only 21 million that can ever be mined so they are guaranteed to go up due to scarcity that can't fulfill demand." The demand part of the equation is unknowable and could go to zero.
- betwixthewires 4y ago
  Read the article. It's talking about something entirely different.
  - michaelwww 4y ago
    I did read the article. Your dismissive comment is typically what I get in these threads > Some people actually believe that Bitcoin is “thermodynamically backed”. This is utter nonsense. There's no such thing. BTC is backed by demand just like everything else in the world. Remove the demand and price falls. How am I so far off? Author is talking about value measured by price and the effect on that value by demand.
    - betwixthewires 4y ago
      Itst talking about how capital inflows must continue to match capital outflows that exist in the form of energy expenditure.
      - deleted 4y ago
        [deleted]
      - michaelwww 4y ago
        Yes, I got that, but I don't think it has much to do with Bitcoin being a good store of value. The price of Bitcoin isn't set by the price of electricity.
deleted 4y ago
[deleted]
betwixthewires 4y ago
Wow, that's actually a pretty compelling case. A summary for those of you not quite grasping it is, mining means bitcoin has capital outflows, and to maintain a stable price needs equal capital inflows in the form of new demand. It's security is proportional to this inflow/outflow value, so if you lower the capital outflow you require less capital inflow but reduce it's security. A network with no capital outflow is a network with no mining happening at all, a network with high security means a network with either high capital inflows or a steady drop in price for each coin. The more spent on mining, the quicker the price will drop if new money doesn't enter the market. Compound this with the relationship between market cap and liquidity and it paints a very bad picture. Add the business about halvenings and it's worse. An asset that requires capital inflows cannot store value, an asset that has no security cannot store value, and those are your only options with bitcoin, so it isn't a store of value. I'd love if someone could refute it, I couldn't find a comment in this thread that did, the only refutation I can come up with is if bitcoin were actually used as money by everyone that would be the same as capital inflows equaling capital outflows and you'd have no change in value, although you'd have a change in value for an entire economy as you burn resources to secure it which would be price inflationary which amounts to the same thing.
- eaurouge 4y ago
  I'll try to simplify it. The network pays miners to secure the network. The network earns transaction fees. It also mints new money through inflation. In its bootstrap phase, while the network isn't earning enough in transaction fees, the network relies on inflation to supplement its earnings in transaction fees. It pays its miners with a combination of the two. This is not too different from a startup relying on stock options to incentivize employees, contractors, painters of art pieces etc, while still in its growth phase. The rest of the article conflates the market for BTC, buyers, sellers, holders etc, with the above. To be clear, I'm not making a declaration on what is or is not a store of value.
  - imafish 4y ago
    As I understand the article, it argues that relying on transaction fees to reward miners is not viable, as there are too few transactions happening thus making the transaction fees extremely high. > "$7.125B / 91,250,000 tx = $78 per transaction." > "But we just proved the store-of-value narrative breaks down because of the $7.125B/year leak and the fact that mining is unsustainable long-term unless it is subsidized by transaction fees, which will not exist because transacting on Bitcoin is slow and expensive."
rufusroflpunch 4y ago
This is a rambling article, but the core premise that Bitcoin is leaky because it has an energy INPUT is a weird one. The argument that other tokens being fully closed loops that don’t leak value is certainly a take… Proof of work plays many roles in the Bitcoin. One role it plays is that it ties a digital token to a real world, scarce, valuable resource. The only thing a digital token can be tied to: computation, or energy. Closed loop staking tokens have no tie. It is a formless, virtual, free floating concept. Not to mention that they are all highly centralized, so they don’t even have confidence in their monetary policy to fall back on. With Ethereum, Cardano, Solana, etc, your value is in the hands of where the developers choose to take the protocols. They can and have changed their monetary policies, and they will again. This person’s real concern appears to be “number go up”. It seems to have infected their thinking. They see a system that decided to engineer for NGU instead of stability and confidence, and thinks that’s “not leaky”. It is extremely short sighted. In the stormy world of crypto, Bitcoin is the port.
- anonymoushn 4y ago
  The article also discusses stability, and Bitcoin does not really have a credible stability story if miners are paid only from L1 transaction fees.
  - someguydave 4y ago
    why not? Fees will go up to cover mining costs in the distant future.
    - cowtools 4y ago
      By what mechanism will fees increase?
      - TakeBlaster16 4y ago
        Competition for limited block space. https://jochen-hoenicke.de/queue/#BTC,30d,weight https://jochen-hoenicke.de/queue/#BTC,30d,weight Constant supply and fluctuating demand will lead to times where you must choose between paying low fees and waiting a long time for confirmation, or paying high fees for faster confirmation. If you zoom out all the way, you can see this has played out with every halving so far.
anm89 4y ago
- ravenstine 4y ago
  Substack seems to be quickly devolving into the new Medium.
varajelle 4y ago
The article takes the hashrate and cost of electricity as a proxy of the cost of maintaining the bitcoin network, but there is no need for a proxy because the cost of maintaining the network is, by definition the block reward and the transaction fees. No wonder that the two estimates are about the same, because the hashrate directly depends on the rewards and the price of bitcoin and electricity.
- cowtools 4y ago
  Okay, but consider that bitcoin's comparative hashrate must be greater than that of an attacker in order for it to resist an attack.
  - tromp 4y ago
    Again that can be phrased without a hashrate reference. If the daily block rewards (subsidy + fees) becomes a small enough fraction of market cap, then 51% attacks become likely.
highwaylights 4y ago
I don’t think this is at all the reason that it’s not a store of value. It’s not a store of value as the supply is infinite. You’ll read in many places that only 21 million tokens will be produced. This is false. You can freely create as many new ones as you want by copying and pasting the source code any time you like. That one is on the “real” chain and another is not, hasn’t actually mattered at all - as long as another chain can be perceived to have any value, the original is undermined. Satoshi wrote about this at the very start - the notion that if it ever came to have any perceived value, even a minuscule value, then it’s achieved its goal of being transferable. That’s true of any and all others too, though. This has been seen many times over the decade since: any time the perceived value climbs steeply it’s seen as being “overpriced” and money starts flowing into smaller “underpriced” tokens, nullifying it’s use case as a store of value. Slowly and eventually I think the passive speculators will come to learn this, it’ll stagflate, then it’ll decline back close to nothing when it’s not producing the 300% CAGR it’s holders demand.
01100011 4y ago
No interest in reading the article, but I'm curious who still thinks an asset that can experience a 27% drawdown in 3 days is usable as either a store of value or as a currency?
- cowtools 4y ago
  Historically many fiat currencies have been dramatically debased, for example the german papiermark or the zimbabwean dollar. Currencies fluctuate. Currencies that are not backed by sound business relationships fluctuate more. But if it facilitates trade, it's a currency. As for a store-of-value? I don't know. I think it's clear that the cryptocurrency market is chiefly driven by speculation in its current state, and this strongly perturbs the nature of cryptocurrency in a strange way. But I think it is more interesting to discuss what happens at some equilibrium state as t -> inf.
- tim333 4y ago
  I plan to buy some if it drops below $15k or so as I think it will be basically up from there, maybe hitting 200k in 2025. It can hold value if you do it right.
bayesian_horse 4y ago
It's an investment. You buy bitcoin because you believe you'll get a certain amount of value back when you sell or exchange it. There is no "pure" store of value. All investments, including gold, all currencies, art, baseball collectibles, even food change their value over time. When people mean "store of value" they mean something that appreciates more than the commodity they exchange it for.
- jevgeni 4y ago
  Oh, so just like CDOs and MBSs in 2007?
  - deleted 4y ago
    [deleted]
  - eldenwrong 4y ago
    You are smart. Yes, literally the same. Good boy
    - jevgeni 4y ago
      The hurt tone really counters my argument. /s
      - eldenwrong 4y ago
        You have no argument.
        jevgeni 4y ago
        Yet you are still hurt for some reason.
nazgulnarsil 4y ago
yet another case of not reading and understanding the original paper or econ more generally. Energy, labor, ingenuity, and resources are used to pull gold from the ground. After which it serves as a reusable proof of work. Is gold leaky?
- cowtools 4y ago
  I think you are misunderstanding the article. Perhaps re-read it. The point is that bitcoin does not spend enough energy to protect the network. Bitcoin mining is not comparable to gold mining because the purpose of bitcoin mining is to secure the network's transactions, the fact that bitcoin mining produces bitcoin is merely a side-effect of this. If gold mining ceases to exist, or if a single company dominates the world's gold mines, that doesn't prevent people from moving gold ingots around. It doesn't allow the gold mining monopoly to double spend. But this is true of bitcoin. So it's unwise to make such a comparison.
- jevgeni 4y ago
  That's not even remotely coherent. Value of gold is not in the fact that it was pulled out of the ground.
  - nazgulnarsil 4y ago
    you don't understand reusable proof of work. If it didn't take energy to get more gold what do you imagine would happen to the price?
    - jevgeni 4y ago
      So the value of gold should be exactly the same as the value of silver or coal then?
      - voat 4y ago
        I'm not sure how that follows?
k__ 4y ago
My PoW theory after talking to a bunch of people at Berlin Blockchain Week: PoW is easy mode and PoS is the logical consequence of it. First, letting people calculate random hashes is easy to implement, because you don't have to check useful stuff, just a hash. PoS then is just giving people that did these calculatios, who now value their tokens because of the work they put in their creation, an incentive to validate txs, or they will lose that work. Chains like Filecoin, Sia and Arweave go a harder route. Their PoW is storing real data of real users, so the "miners" get rewarded to do actual work. It's a decentralized version of S3, and S3 also was one of the first services AWS started with. I think, in the next years, we will see more and more of these useful proofs cropping up. And people will understand the value they're "storing", no pun intended.
- josu 4y ago
  >I think, in the next years, we will see more and more of these useful proofs cropping up. And people will understand the value they're "storing", no pun intended. You could be right, but the first time something like this was discussed was around 2011 [1], and here we are 12 years later, still waiting for a widespread implementation of a "useful" proof of work. [1] https://primecoin.io/ https://primecoin.io/ was the first result of that.
  - k__ 4y ago
    My assumption is, Primecoin was too theoretical. People easily understand when you take money to store their data. That might not be the case for prime calculations.
spreeker 4y ago
A big feature of BTC that there is no upgrade path and it will running for a long time. No BUG can be introduced that way. Thus is very safe compared to other chains. What if there is a BUG in a future ETH / X Y Z chain upgrade? BTC miners er being build on places with excess energy or wasted energy places and on renewable energy which have lower costs and mining chips are becoming more and more efficient. So the 'leak' to miners probably goes down. NOBODY is in control of BTC anymore which is big plus IMHO. BTC is the coin that created and made the crypto space possible. So If you force me to buy something that has to be around in 20 years. I would buy BTC.
- BSVogler 4y ago
  There is no such thing as "excess energy".
  - spreeker 4y ago
    Currently it is possible to be paid to use energy since too much of it is dumped on the main energy network because of sun / wind. Countless other examples.
- quickthrower2 4y ago
  If you think BTC is a codebase that isn't evolving and nobody is in control, I have some Bitcoin Cash to sell you!
- psd1 4y ago
  Excuse me, but mining cartels are in control of bitcoin.
- DennisP 4y ago
  Contrary to popular belief, there are people developing Bitcoin. Here's who they are: https://coinmarketcap.com/alexandria/article/who-are-bitcoin-cores-developers https://coinmarketcap.com/alexandria/article/who-are-bitcoin... The most significant recent upgrade is Taproot: https://www.investopedia.com/bitcoin-taproot-upgrade-5210039 https://www.investopedia.com/bitcoin-taproot-upgrade-5210039
amadeuspagel 4y ago
I always think it's useful to compare Bitcoin to gold, and to try to apply every criticism of bitcoin to gold. Gold mining provides constant downward pressure on the price, bitcoin mining (in the sense of creating new bitcoins) will eventually stop. Securing and transacting gold is a lot more expensive then securing and transacting bitcoins.
adammarples 4y ago
Rambling article which I couldn't follow but because the very first idea was that bitcoin could be considered a "pot" that you "put money into", I know the rest will be quite wooly. Buy bitcoin, money goes in, sell bitcoin, money goes out? But every buy is a sell and the same money goes "in" and "out" simultaneously. There is no pot at all, it's just traded.
- jevgeni 4y ago
  Crypto-to-cash liquidity is miniscule compared to cash-to-cash liquidity or cash-to-crypto liquidity.
rafaelero 4y ago
I mean... Electricity theoretically could be payed with Bitcoin... What am I not seeing here? This argument that Bitcoin will leak only works if people are taking their value to other monetary systems. Which is the case today, but decreasingly so, as judged by Bitcoin increasing price over the long run.
anotheraccount9 4y ago
It's not because a system leaks energy that it necessarily loses its value completely. When I use a light bulb, I need electricity and heat is generated. But the light is providing what it's used for. The loss of energy is not important enough to jeopardize the system - it still successfully accomplishes its goal within the set parameters.
Bakary 4y ago
What I don't really understand about the ideological basis for crypto and NFTs is that the number of people who are interested in it for reasons other than enrichment through speculation is vanishingly small. This of course circularily means that the value is almost entirely based on speculation. The other aspect is that adopting these systems just increases inequality since the early adopters are massively wealthy. It doesn't work as a liberating medium. At best it works as a useful temporary measure for poorly run inflationary countries. Instead of being at the mercy of a commercial or central bank, you are at the mercy of a small range of individuals who either hold almost all of the cards or develop and thus determine the monetary policy of the coin in question.
- zeroclip 4y ago
  > This of course circularily means that the value is almost entirely based on speculation. Most markets are primarily based on speculation: equities, real estate, art, VC. > you are at the mercy of a small range of individuals who either hold almost all of the cards or develop and thus determine the monetary policy of the coin in question. In crypto this policy is determined by users. The protocols are open source, development happens in public, and the tech is permissionless - anybody can develop new proposals and contribute changes. This is a far cry from most monetary policies in the world.
  - UncleMeat 4y ago
    I'd wager that the number of people who look at art in a museum or other environment and don't think about the price of that piece in detail dwarfs the number of people who think about art for speculation purposes by about four orders of magnitude.
    - deleted 4y ago
      [deleted]
    - zeroclip 4y ago
      The same happens with digital art and NFT. Hundreds, maybe thousands of people will 'like' or re-share a tweet or Instagram post without realizing the artist is selling it as a NFT. The audience just appreciates it, without thinking or caring about its dollar value. For a concrete example see[1] which is also a NFT[2]. Same with digital art in physical setting, such as Anadol's work which many audiences will not realize is NFT based[3]. There is "art" and there is "art market." If you look at NFT and only see a market, you will only find speculation. If you look at the "art" part, it turns out a lot of people just appreciate the work itself. [1] https://twitter.com/joepease/status/1542224719365017600 https://twitter.com/joepease/status/1542224719365017600 [2] https://superrare.com/artwork-v2/open-the-floodgates-35629 https://superrare.com/artwork-v2/open-the-floodgates-35629 [3] https://www.koeniggalerie.com/blogs/exhibitions/refik-anadol-machine-hallucinations-nature-dreams https://www.koeniggalerie.com/blogs/exhibitions/refik-anadol...
d--b 4y ago
Bitcoin is not a backed by a collateral and is highly volatile, two reasons that make it a terrible store of value…
guilhas 4y ago
Bitcoin is one of the biggest modern inventions If nothing else governments will maintain the network so that China, Russia, USA... does not control 51%
sunshinerag 4y ago
> But who is actually transacting on the Bitcoin network? No one. And I doubt anyone ever really will. When it comes to all transaction metrics, Bitcoin is horribly unscalable and expensive to transact on. > The Bitcoin network is doing around 250k transactions per day (source). With lightning network Bitcoin scales to far greater magnitude than that, amongst other things it collapses the entire premise of the article.
- xwolfi 4y ago
  Why am I not using it then?
  - pibechorro 4y ago
    Because you choose not to. Its out there.
    - xwolfi 4y ago
      What can I do with it ? I have many currencies in my Hong Kong bank and have very low fee, no capital gain tax, no criminal desires and no problem using cash. I also dont want to be richer or join a club.
  - sunshinerag 4y ago
    Lack of awareness? Since most people’s initial interaction with Bitcoin is through exchanges, exchange adoption of lightning will increase awareness. Like how Kraken is doing it https://blog.kraken.com/post/13502/kraken-now-supports-instant-lightning-network-btc-transactions/ https://blog.kraken.com/post/13502/kraken-now-supports-insta...
- DennisP 4y ago
  The article mentions LN and says it may be able to scale, but not without centralizing on large hub nodes, for reasons detailed here: https://medium.com/@jonaldfyookball/mathematical-proof-that-the-lightning-network-cannot-be-a-decentralized-bitcoin-scaling-solution-1b8147650800 https://medium.com/@jonaldfyookball/mathematical-proof-that-...
helen___keller 4y ago
When the value is set almost entirely by speculation then the fact that there’s a “drain” in the form of energy maintenance is basically irrelevant. How can you measure or analyze a speculation system with a 1 percent drain versus a speculation system without a drain? It’s all speculation in the end
sebastianconcpt 4y ago
The value of bitcoin is resisting censorship and state currency control al the rest are secondary benefits.
SergeAx 4y ago
> For anyone wondering, based on these estimations our BTC equilibrium price (break even point for miners) would be roughly $22k. Note: with the current network hashrate. If some miners become unprofitable - they turn off their equipment, total network difficulty decreases, and the hashrate needed decreases too.
derangedHorse 4y ago
>In this more accurate representation, we have miners pulling money out of the pot in two ways: transaction fees, and the selling of their Bitcoin mining rewards. The latter is harmful to BTC’s value in two ways. It dilutes the circulating supply of BTC which decreases its value, and it pulls money from the pot to cover energy costs. A majority portion of the money miners are pulling from the system is being burned forever in the form of energy costs, meaning it has no way of ever re-entering the system. "It dilutes the circulating supply of BTC which decreases its value" isn't necessarily true. Although a lot of Bitcoiners say an increased supply decreases value and that a decreased supply increases the value, that's assuming demand stays constant. If demand rises with an increase in supply then the price may remain the same or increase (if the demand was high enough), and likewise if the demand lowered with a decrease in supply then the price may remain the same or decrease (depending on how low the demand gets). The author mentions supply and demand later in their post but fails to reference it here. >If the network is valued at $568B, but costs $7.125B/year or more to secure, that’s a pretty big leak for something that is supposed to preserve value. It sounds like the author is trying to say that selling is a "leak" of value. This premise doesn't sound right to me considering that a miner has to sell their Bitcoin to someone who is buying in, and an exchange of Bitcoin shouldn't be seen as value leaving the system. I think the word "leaky" also doesn't help convey the overall message of the post which is that Bitcoin cannot be a store of value because the mining that secures the network is unsustainable over time and the fees will not be enough to cover this unsustainable cost ("mining is unsustainable long-term unless it is subsidized by transaction fees, which will not exist because transacting on Bitcoin is slow and expensive"). >According to Glassnode, (as of April 2022) ~63% of BTC’s supply had not moved in over a year. So it looks like our denominator is actually closer to 0.37 * $568B = $210B It doesn't make sense to claim that the value of the network decreases by the proportion of users who don't move their Bitcoin within a year. >So now imagine two Michael Saylor whales are just dumping ~700 BTC on the market every day or around 250,000 BTC/year. That’s essentially the energy cost of running the Bitcoin network. Who pays for that cost? Not the miners. They are profitable. They pass it onto the Bitcoin holders. Bitcoin holders pay for it in the decreased value of Bitcoin caused by this energy expense. The miners shouldn't be assumed to remain profitable if Saylor is dumping Bitcoin. Assuming demand is consistent and the supply of Bitcoin rises, then that Bitcoin dump would negatively affect the order books and therefore the price and the amount of money a miner would get for every Bitcoin sold. >Bitcoin was originally designed to be peer-to-peer cash, then when everyone realized it doesn’t scale, the store-of-value narrative emerged. This is false, the store-of-value narrative didn't "emerge". Satoshi wanted Bitcoin to be used for payments, yes, but that wouldn't restrict its usage to only be for payments. Satoshi mentioned in the bitcointalk.org forums that the currency would be "deflationary" (implying it can act as a store of value as well): https://bitcointalk.org/index.php?topic=12.msg62#msg62 https://bitcointalk.org/index.php?topic=12.msg62#msg62 >What about the lightning network? I can do a separate write-up on the the lightning network, but it would simply be a more poorly written version of this article: ... The linked article also makes a lot of assumptions about how big centralized hubs will get and ignores potential future solutions for smaller hubs of centralization and locality. They also attack the known fundamental problems with Lightning network scaling while ignoring the advances made for things like liquidity, etc. >Would you like to know how else I know Bitcoin is not thermodynamically backed? If you could remove the high energy consumption without sacrificing security or decentralization, it would be a net positive for Bitcoin. I agree with this, energy consumption is not the end goal but it is the only plausible way to achieve the goals Bitcoin desires. POW creates an independently verifiable ledger based off something that can't be replicated easily by the parties that secure the network (which other algos like POS can't pride themselves on). My conclusion: While I believe the author has a point, I also believe that the mining model is sustainable. In my opinion the way forward is to build numerous decentralized protocols on top of the Bitcoin blockchain and shift the Bitcoin blockchain's primary source of transaction traffic as layer 2 settlements. This will help decouple the value of Bitcoin as an asset with the number of transactions on the blockchain and will still allow demand for on-chain transactions to grow and meet the supply-demand curve.
ooaa 4y ago
This article is like the opposite of Saylors argument about energy being preserved in the form of bitcoin. Both oppinions are basically "that's what this concept feels like to me" and nothing more.

224 points by cowtools 4y ago

cflynnus 4y ago

And yet it stores a lot of value…

fdsffaef334 4y ago

wmf 4y ago

This focuses on the money that "leaks" out of the Bitcoin ecosystem due to mining, which is entirely correct but it's not the reason Bitcoin isn't a good store of value IMO. Bitcoin has little or no guaranteed demand (i.e. things that you can only buy with Bitcoin); what's left is speculative demand which has no floor.

pjkundert 4y ago
Money that can’t be stopped by meddling do-gooders has high utility value. Just ask the poor slobs in Russia or Venezuela who can’t sell their software and feed their families, or in Canada who threw $50 to support their trucker buddy and got their bank account frozen. Also - there is easily $7B of “stranded” energy in flare gas and hydro “rotating reserve” available to secure Bitcoin and similar systems. Besides, the limiting factor for a successful 51% attack isn’t the energy — it’s the capacity to actually create the hash capacity to execute the attack. Not even the NSA could do that, let alone some non-state attacker.
- cowtools 4y ago
  >Also - there is easily $7B of “stranded” energy in flare gas and hydro “rotating reserve” available to secure Bitcoin and similar systems. Besides, the limiting factor for a successful 51% attack isn’t the energy — it’s the capacity to actually create the hash capacity to execute the attack. Not even the NSA could do that, let alone some non-state attacker. The cost of securing bitcoin is not just in electricity, it is also in the depreciation cost of ASIC hardware. I guess it would be easy for the NSA to pull off the 51% attack if they are able to backdoor the handful of ASIC manufacturers.
- esperent 4y ago
  Curse those meddling governments who want to tax you to pay for roads, hospitals, and schools, and social welfare. At least, speaking as a European, this is where the large majority of my tax euros go. If your government spends your tax on less useful things then maybe the solution is to work towards a better government, rather than trying to hide your savings in untaxable havens. (Actually I have no idea how easy it is to hide money from the tax collectors using crypto, but I assume that's one of the appeals). EDIT: user above me edited their comment to reference Russia and Venezuela. My comment about working towards a better government still stands although I recognize it's not an easy task.
  - tengbretson 4y ago
    Other governments out there spend money on roads, hospitals, schools, and social welfare regardless of the amount of tax dollars they collect. It would be understandable for people under such a system to view their taxes as purely punitive.
  - klabb3 4y ago
    > (Actually I have no idea how easy it is to hide money from the tax collectors using crypto, but I assume that's one of the appeals). Depends on which one but let's take pure bitcoin because that's what the post is about. Governments have 3 main tools, tracing, freezing and recovering. The breakdown is different in crypto vs fiat. In BTC, the blockchain contains all previous transactions, everything is public. If you send your BTC through middlemen it'll be mixed in with their assets but you can still follow the trail perfectly. So tracing is easier with BTC than fiat, because you won't have to convince some Cayman island bank to hand over the cash. Next, there's freezing, which is harder. You can't block transactions to Iran on the chain, but you can block entry and exit points when trading with fiat, on most exchanges. Since freezing is technically equal to censoring, it's a feature. Recovery is almost impossible, to the point of you can even lose your own private key, let alone someone who stole from you. The government can't produce a valid private key any more than your quad-core IOT fridge. TL;DR avoiding tax is hard to do for retail people, simply because the regulators are watching the entry and exit points. So even if you tornado cashed and zcash yadda yadda and your funds are untraceable you eventually need to buy fiat for them, because you'll need the fiat for the Lamborghini. > rather than trying to hide your savings in untaxable havens. Kinda OT, but why suddenly is tax evasion a problem with retail crypto of all things? We have institutionalized tax avoidance for the biggest players (megacorps & ultra rich) to the point where nobody raises an eyebrow anymore. Seems inconsistent to me.
- HWR_14 4y ago
  > it’s the capacity to actually create the hash capacity to execute the attack. Not even the NSA could do that, I don't see why. The current value of BTC mined in a year is around $6.5 billion. Hardware lasts, let's be generous, 2 years. No one will mine BTC at a loss, so the total cost of mining BTC for 2 years must be less than $13 billion. So for less than $13 billion, the NSA can create a new BTC mining network at 50%. That seems well within their budget. And if they sell their BTC, they can probably be cashflow positive before destroying the network.
  - sph 4y ago
    > So for less than $13 billion, the NSA can create a new BTC mining network The NSA doesn't go to the NVIDIA store to buy $13 billion of GPUs. Measuring only the monetary value conveniently ignores the bottleneck of underlying resources to build the hardware to do the mining. Where does the NSA find $13 billion worth of top-shelf GPUs or ASICs? Having money is not enough if there is no one to sell you. That hardware takes natural resources, knowledge know-how found only in a few companies and a non-negligible amount of rare earth minerals to build. That's a serious bottleneck and not something you can stealthily enter in in that capacity, NSA or not.
    - tromp 4y ago
      Large amounts of earlier generation ASICs whose efficiencies are no longer competitive are available for cheap. Many even end up on the scrap heap.
    - DennisP 4y ago
      It would not be surprising if the NSA is able to design and source whatever ASICs they need. That's a capability that would be directly applicable to attacking encryption in general.
    - HWR_14 4y ago
      > Where does the NSA find $13 billion worth of top-shelf GPUs or ASICs? Leaving aside the fact that they could have private secret production capability and I would believe it, the market is probably being flooded now as BTC is tanking. GPUs are apparently getting cheap again.
- Snacklive 4y ago
  Bitcoin literally does nothing special for Venezuela.
- XorNot 4y ago
  This comes up over and over, where people clearly don't understand how foreign currency exchange works. The name, of course, tells you, but people seem to think that "currency conversion" is some transformative process where rubles just become bitcoin. Which is of course: false. To turn rubles into bitcoin, someone who wants to buy rubles has to be willing to buy them for bitcoin. This means someone local, who can transact in rubles, needs to have a supply of bitcoin. Where are they getting it from? They can't buy it overseas because if you could exchange rubles with foreigners then you could also just buy USD. They could mine it, but that still means they need to be willing to accept rubles for their bitcoin, and yet the scenario presented suggests there's a path to exchange rubles for USD which is more favorable. In fact at every step of the process, you have the problem that the only way to get Bitcoin from your stranded currency, is to buy it from another party locally.
  - lolc 4y ago
    No actually you can sell services (software, as the original comment alluded) and get Bitcoin in return. These Bitcoin can be sold for Rubles, or bread, or whatever. There's no forex involved unless people want the convenience of exchanges. Which is one of the limitations of Bitcoin: it's hard to deal on-net.
    - XorNot 4y ago
      You would have to sell Bitcoin constantly to pay your taxes in your local jurisdiction. And while there's no unrest locally, you're at a negative: no one has any reason to give you a favorable rate, since you need rubles much more then they need Bitcoin. It's just Forex concerns, and you're going to be paying out the nose constantly on a "what if". Of course, while there's no sanctions, you could also just buy USD directly.
      - lolc 4y ago
        Before, you said that nobody in the local market has Bitcoin. Now you're arguing the opposite, that nobody in the local market wants Bitcoin. Sure, both can be true, when there's just no market. But that's a different argument.
- tsol 4y ago
  >Just ask the poor slobs in Russia or Venezuela who can’t sell their software and feed their families Wait why are they slobs?
  - pjkundert 4y ago
    It’s a term of endearment. Anyone who can’t defend themselves from the connected entitled elites are, by definition, “poor slobs”.
    - nly 4y ago
      I think the expression is actually "poor schlub", schlub being Yiddish in origin
- betwixthewires 4y ago
  The US could if it wanted 51% attack bitcoin with less than 10% of the yearly DoD budget.
yuan43 4y ago
Stories like this have been appearing pretty regularly on HN ("Stripe has decided to nuke my entire business"). https://news.ycombinator.com/item?id=32854528 https://news.ycombinator.com/item?id=32854528 Considering that a USD payment company can literally destroy a business without a reason, how confident are you about that "little or no guaranteed demand" part?
- adventured 4y ago
  Very. The premise you're floating is the size of a mountain and you're attempting to rest it on top of an egg. A $25 trillion economy, a massive payments ecosystem, a large payments company in Stripe, and you're talking about isolated examples. Even if there are ten examples, it's ten in tens of thousands of counter examples where businesses aren't having that problem. The obvious point being: all those other businesses aren't worried because your premise is so rare. And for the small number of businesses that end up in the negative scenario, they're not prominent enough to matter as a warning sign to everybody else. You'd need a very big, very common problem to spur the kind of adoption premise you're suggesting. It doesn't exist at present. A big share of Stripe's customers (along with other processors) would need to be suffering like that example.
- _uhtu 4y ago
  And a company like OpenSea can arbitrarily destroy the value of blockhain assets on a whim as well. It turns out that the problem isn't that companies like Stripe are evil and looking to screw people over, the real truth is that money is complicated and dealing with things like fraud cause myriad edge and corner cases which have real financial effects. Blockchain, for all it's promises of decentralization, has rapidly centralized on a few players who's interpretation of the chain are practically law, and thus, is subject to the same problems as any other centrally governed system. The many differences include that stripe (and it's competitors) can handle millions of transactions whereas bitcoin struggles on a few thousand.
  - thr0wawayf00 4y ago
    > the real truth is that money is complicated and dealing with things like fraud cause myriad edge and corner cases which have real financial effects. More specifically, policies like "know your customer" are great in theory but very hard to implement in practice, which is why companies like Stripe tend to be ruthless with their merchants. Crypto tries to sidestep this entirely by arguing that it's trustless from the ground up. The problem with this is that it facilitates the creation of an unstable marketplace full of interconnected players and nobody knows who is legit and who is a complete crook. Projects like Terra show that when the crypto market recedes, entire segments of the blockchain ecosystem are at risk of being wiped out because there is no transparency to their underlying operation. It's all gravy in a boom cycle, but the bust always happens. Crypto and its derivative products can only truly thrive in an environment that is free of market downturns because there's absolutely nobody at the wheel making sure that these companies are actually doing what they claim to be doing.

erulabs 4y ago

> If the network is valued at $568B, but costs $7.125B/year or more to secure, that’s a pretty big leak for something that is supposed to preserve value. > Now some of you are already thinking, hey 7.125/568 is only 1.25% per year. But that’s not exactly how market cap works. This 1.25% system leak doesn’t necessarily translate to a 1.25% price decrease per year. Far from “not exactly how market cap works”, this is more or less “not even close to how market cap works”. Econ 101 time: value is subjective. Human beings merely use value as a description - it does not exist inside of any object or inside of any equation. A “store of value” has always been an ill considered term - but this is not the argument against it. What Bitcoin is good for is being internet dollars that can’t be spent twice. That’s a nontrivial feature.

cowtools 4y ago
>Far from “not exactly how market cap works”, this is more or less “not even close to how market cap works”. >Econ 101 time: value is subjective. Human beings merely use value as a description - it does not exist inside of any object or inside of any equation. A “store of value” has always been an ill considered term - but this is not the argument against it. Who cares? The general point here still stands: bitcoin's valuation will have to double every halfening (in terms of some indicator like USD) in order for the cost of security (total block reward) to stay constant in (terms of some indicator like USD). >What Bitcoin is good for is being internet dollars that can’t be spent twice. That’s a nontrivial feature. Any cryptocurrency can do this, and many do not have bitcoin's crippled market cap or development structure. The question is this: "Why bitcoin?". Bitcoin's sole advantage over other cryptocurrencies is its name brand.
- rabuse 4y ago
  No, it doesn't. Bitcoin's difficulty automatically scales based on how fast the previous blocks were "solved". With that, if miners start dropping off, then the protocol will adjust for the falloff in "hashrate".
  - adgjlsfhk1 4y ago

greyface- 4y ago

> Will investors choose to invest in a system that leaks value, or a system (like Ethereum post-merge) that is designed to accrue value? Ethereum is leaky, too. Since the merge, supply has grown by more than 2500 ETH.

deleted 4y ago
[deleted]
mudrockbestgirl 4y ago
You realize supply growth was significantly larger with PoW, right? It's like saying "Ethereum uses energy too!" completely ignoring the fact that it uses 99.9% less energy.
- sph 4y ago
  What has supply growth anything to do with how the network is secured (PoW specifically)? There is no correlation nor relation whatsoever between the two.
  - zeroclip 4y ago
    Security is strongly correlated with issuance i.e. supply growth. If miners must spend X amount of value to compute hashes and secure the network, and the issuance or protocol reward is not sufficient to justify this spending, the security of the network is at risk.
  - mudrockbestgirl 4y ago
    Miners/stakers get paid for securing the network and that's exactly what determines how much ETH is issued.
  - DennisP 4y ago
    Ethereum lowered the issuance rate dramatically when it changed to PoS. The reason it was able to do this without lowering the cost of a 51% attack is that it no longer has to rely on rewards alone. It can also apply penalties. Certain provable attacks result in automatic destruction of stake. In PoW terms, it's as if a 51% attack caused the attacker's mining rig to burn down.

yuan43 4y ago

> Any token system can be thought of as a pot of money. Every cryptocurrency is its own pot of money. When people sell, they are taking money out of the pot. When people buy, they are putting money into the pot. I'm not sure where the author gets this from, but it doesn't make sense. Buying and selling bitcoin does not change the size of the pot of bitcoin. Look on the block chain and you'll find no mention of USD, alpaca socks, or Lambos purchased. What you'll find are state transitions with value being unlocked and simultaneously re-locked. The one exception is a block reward, which requires no unlock (input). The block reward can be viewed from one of two perspectives: 1. value being created 2. value being unlocked Either way, the block reward comes into existence on a fixed schedule known to all participants. The author tries to once again bring in the US dollar as follows: > In this more accurate representation, we have miners pulling money out of the pot in two ways: transaction fees, and the selling of their Bitcoin mining rewards. The latter is harmful to BTC’s value in two ways. It dilutes the circulating supply of BTC which decreases its value, and it pulls money from the pot to cover energy costs. A majority portion of the money miners are pulling from the system is being burned forever in the form of energy costs, meaning it has no way of ever re-entering the system. Again, bitcoin transactions merely unlock and re-lock value as an atomic operation. What the author characterizes as "value" is an off-chain phenomenon. That last part about "being burned forever" is debatable. The residual value of the energy expenditure is proof-of-work that the author conveniently ignores. That proof-of-work is what stands between the Bitcoin network and an attack that rewrites history. So to characterize mining as "burning forever" value misleads the reader into thinking nothing of value remains. This is demonstrably false.

SV_BubbleTime 4y ago
I had a sidetake on that quoted bit. It’s been curious to me just how related all these coins are, even as speculation devices. When Bitcoin falls, they all fall, when it rises for the most part they all rise. The correlation to completely separate pots is something I don’t think anyone can fully explain.
- drc500free 4y ago
  Isn't it fully explained by most of the money being from speculators whose thesis is "if crypto goes big these will be worth more!"? If you add up the net worth of all the people who deeply understand how each coin works, you don't get anywhere near $500 billion.

plebianRube 4y ago

You the laborer have the capacity to decide where the value of your labor should be kept. Whether some think it's leaky, or that it is a melting ice cube or ultrasound money is irrelevant. Despite or with support from opinions of others, it is ultimately you who makes the decision where to store your value. Only time can say if you've made a good decision, as not one person can predict the future, and likewise you must suffer or enjoy the consequences of your decision.

lottin 4y ago
While we can't predict the future precisely the future isn't completely unknown either. This allows us to say beforehand that some investments are better than others, regardless of what the actual outcome of such investments will be.
LanternLight83 4y ago
I find this meaningful and empowering, thanks c:
anm89 4y ago
It's funny to me that this is such an offensive idea that it needs to be downvoted. It seems pretty straighforward and self evidently true. The irony is that the whole message is that it doesn't matter if you disagree or disagree, only the quality of the decisions you apply your framework towards. Time will reward those who take time to understand this stuff and punish those who don't. Liking the message is entirely besides the point.
pessimizer 4y ago
> You the laborer have the capacity to decide where the value of your labor should be kept. Depends on the laborer. There's no law of nature that grants me the ability to make good financial decisions as an award for my labor. The ability to manage risk is not an ability that gets unlocked once you accumulate enough money to invest. Now, I have to both work hard to make money, and gamble to protect my future.
- gjs278 4y ago

latchkey 4y ago

> According to the University of Cambridge, about 118.75 tWh (terrawatt hours). I stopped reading as soon as they quoted that silly inaccurate UoC website that gets quoted over and over again. Why? Because they even admit, in their own methodology (https://ccaf.io/cbeci/mining_map/methodology https://ccaf.io/cbeci/mining_map/methodology), that it is an extrapolation from less than 50% of the total hash. Even worse, is the pools they extrapolate from have been Chinese based. Although, that's changed over time, which invalidates their numbers even more. Even still, there is no way to know how that power is generated, how much it offsets other power generation, etc... there are just too many variables to simply quote UoC. At the end of the day, read this: https://www.lynalden.com/bitcoin-energy/ https://www.lynalden.com/bitcoin-energy/

ajross 4y ago
> Even still, there is no way to know That seems unconvincing. In fact how much energy is required per hash is something that's really quite easy to measure accurately. At any given time there are no more than a few dozen hardware platforms in use (they get priced out rapidly, everyone is running the newest stuff in the BTC world). Just plug them in and measure them. All that's left from there is to come up with second order corrections about stuff like grid efficiency. But we absolutely know to quite high precision how many joules were spent to produce the coins we observe to have been created.
- bombcar 4y ago
  And the only way to hypothesize something different is if there's a ASIC or something that can mine much better than existing equipment (in which case the group that had it would suddenly shoot up in the blocks mined lists) or there's a weakness in the cryptographic protocol somewhere that we don't know about.
  - sanxiyn 4y ago
    I must note that this in fact happened in the past (AsicBoost). Currently, I don't think there is AsicBoost-like secret information, but you can't be sure. https://arxiv.org/abs/1604.00575 https://arxiv.org/abs/1604.00575

anonymousiam 4y ago

"In this system, if supply outweighs demand, price will go up." I'm pretty sure he's got that backwards.

tantalor 4y ago
Yeah really gives me confidence to read the rest of the article.

Waterluvian 4y ago

Bitcoin eventually stops awarding new coins and becomes a fixed number of coins indefinitely, right? Or no? But then wallets inevitably get lost and become impossible to recover. Is this a planned feature? What’s the economic effect of a currency that can only decrease in quantity of issued notes?

foobarbecue 4y ago
It never stops, it just starts awarding them slower and slower as mining difficulty increases. So, the total approaches an asymptote.
- etchalon 4y ago
  It stops. We can predict when it will stop.
  - foobarbecue 4y ago
    Upon reading more I see you're right. I might have been getting blockchains mixed up.
- tromp 4y ago
  > slower and slower as mining difficulty increases That makes no sense. The entire point of difficulty adjustments is to keep a constant average blocktime.
hackernudes 4y ago
You are right. That would make... Number go up! But really, I don't think anyone knows what a deflationary currency would be like. It's not like fiat currency will go away. There will probably be some people who want to fork Bitcoin to increase the supply.

naet 4y ago

Crypto currencies are IMO all speculative assets. They may go up or down. People try to anticipate which way they will go based on various different criteria, but it's mostly a crap shoot. The same crypto currency is likely to fluctuate significantly up and down in value over time.

BurningFrog 4y ago
Aren't all assets speculative, and may go up or down?
- Consultant32452 4y ago
  My dollars are going down like a ton of bricks.
  - Proven 4y ago
- Quindecillion 4y ago
  Yes, and just because early adopters are disproportionately rewarded to laggards doesn't make it a "pyramid scheme" either. If it was that would mean all stock investments are "pyramid schemes" too. Did early investors in companies like Apple, Amazon, Google, or Tesla benefit from a "pyramid scheme"? They saw value before others did, got in early, and reaped the rewards once the majority cottoned on to their value proposition. It's no different with Bitcoin. People see value in it before others have and may reap the benefits if demand continues to rise from society seeing value in its properties. You can argue about whether that perceived value is justified or not, but ultimately only time (and the market) will tell.
  - jboy55 4y ago
    I'm not sure where you are getting "Pyramid scheme", most criticisms of crypto are that they are Ponzi schemes. The difference is that rather than money funneling up to the top of the pyramid, in a Ponzi scheme an illusion of returns is created by redistributing newer investors money to existing investors, rather than from the underlying investments gaining value. See Madoff's great scheme. There was a great article, probably lost in time, which explained how the dot-com crash of the 00s was basically the collapse of an internet advertising Pyramid, and a smaller collapse of a dark-fiber pyramid.

spir 4y ago

If you are interested in this topic, you may like my recent essay in Bankless: https://newsletter.banklesshq.com/p/why-the-flippening-is-good-for-crypto https://newsletter.banklesshq.com/p/why-the-flippening-is-go...

Cypher 4y ago

What about pokemon cards?

kfarr 4y ago
You gotta catch em all before they leak too much value

yashg 4y ago

Bitcoin is neither a currency nor a store of value. It's just a speculative magic token for punters to bet on and for scammers to scam starry eyed suckers by promising eternal wealth.

no1groyp 4y ago

Quindecillion 4y ago

I've seen similar arguments like this before, which of course have their own set of counter-points from the other side of the debate. Both sides are unverifiable because they're trying to predict the behaviour of complex interacting systems. We're in the middle of a big experiment and the only way to know for sure who is right is to wait and observe. I won't bother to respond to his core argument because it has been countered plenty of times before and as I said above it's ultimately a pointless endeavour to debate, but I did want to pick out what I found to be the most egregious part. > Bitcoin was a phenomenal first attempt, just like Blockbuster was amazing while it lasted. But to think that we nailed it on the first try is crazy. I cannot think of a single piece of technology that hasn’t been improved for the better over time. Would you prefer to use a computer from 1988? A tablet from 2014? A car from 1932? Would you attempt to fly across the Atlantic ocean in the first airplane ever made? Of course not. Technology gets better with time. Period. This is an outstandingly poor take from someone who clearly doesn't know the history of "e-money" or understand the core promise of Bitcoin, and is a common argument by "crypto defi bros". The first, but lesser problem is that... no, Bitcoin isn't the first attempt at "digital money". The whitepaper specifically references previous attempts, why they failed, and how Bitcoin addresses those shortcomings. Bitcoin was just the first, arguably, successful attempt. The second, but more significant problem is that the author thinks "crypto" is the new technology that's just starting out and being evolved here. Perhaps it is in a way, but that's missing the point. The technology been evolved here is almost as old as civilization itself. Money. Money has an incredibly long history of evolution through various technologies from stones on the island of Yap, shells, cloth, glass beads, ledgers, and yes, gold and other metals. In the modern age we saw paper certificates appear as IOUs for gold, then this link was severed in 1971 by Nixon, we saw the emergence of credit cards and e-commerce which all come with their various advantages and disadvantages. So framing Bitcoin as the "first" of a new technology is recently and historically... wrong. There's also the argument that the design space of money is limited. Bitcoin arguably fills in the final properties of money that needed to be improved on from gold (salability across space and divisibility) and fiat (scarcity i.e. salability across time). Vijay covers the properties of good money in his well-known article [1] (now book) better than I could. If you buy this argument the logic goes that there's not much more room for improvement when it comes to money. But who knows what someone might think up next... [1] https://vijayboyapati.medium.com/the-bullish-case-for-bitcoin-6ecc8bdecc1 https://vijayboyapati.medium.com/the-bullish-case-for-bitcoi...

michaelwww 4y ago

Saying "Bitcoin is not a Store of Value" is not the same as saying "Bitcoin has no value," because of course it does as long as people think it does. I translate the original title to "Bitcoin is a terrible store of value", which I already knew, especially since the 75% drop in value. Yes I know, it's gone up a bazillion percent since 2012, but trees don't grow to the sky and saying otherwise is the kind of thing they tell suckers at casinos along with "There's only 21 million that can ever be mined so they are guaranteed to go up due to scarcity that can't fulfill demand." The demand part of the equation is unknowable and could go to zero.

betwixthewires 4y ago
Read the article. It's talking about something entirely different.
- michaelwww 4y ago
  I did read the article. Your dismissive comment is typically what I get in these threads > Some people actually believe that Bitcoin is “thermodynamically backed”. This is utter nonsense. There's no such thing. BTC is backed by demand just like everything else in the world. Remove the demand and price falls. How am I so far off? Author is talking about value measured by price and the effect on that value by demand.
  - betwixthewires 4y ago
    Itst talking about how capital inflows must continue to match capital outflows that exist in the form of energy expenditure.
    - deleted 4y ago
      [deleted]
    - michaelwww 4y ago
      Yes, I got that, but I don't think it has much to do with Bitcoin being a good store of value. The price of Bitcoin isn't set by the price of electricity.

deleted 4y ago

[deleted]

betwixthewires 4y ago

Wow, that's actually a pretty compelling case. A summary for those of you not quite grasping it is, mining means bitcoin has capital outflows, and to maintain a stable price needs equal capital inflows in the form of new demand. It's security is proportional to this inflow/outflow value, so if you lower the capital outflow you require less capital inflow but reduce it's security. A network with no capital outflow is a network with no mining happening at all, a network with high security means a network with either high capital inflows or a steady drop in price for each coin. The more spent on mining, the quicker the price will drop if new money doesn't enter the market. Compound this with the relationship between market cap and liquidity and it paints a very bad picture. Add the business about halvenings and it's worse. An asset that requires capital inflows cannot store value, an asset that has no security cannot store value, and those are your only options with bitcoin, so it isn't a store of value. I'd love if someone could refute it, I couldn't find a comment in this thread that did, the only refutation I can come up with is if bitcoin were actually used as money by everyone that would be the same as capital inflows equaling capital outflows and you'd have no change in value, although you'd have a change in value for an entire economy as you burn resources to secure it which would be price inflationary which amounts to the same thing.

eaurouge 4y ago
I'll try to simplify it. The network pays miners to secure the network. The network earns transaction fees. It also mints new money through inflation. In its bootstrap phase, while the network isn't earning enough in transaction fees, the network relies on inflation to supplement its earnings in transaction fees. It pays its miners with a combination of the two. This is not too different from a startup relying on stock options to incentivize employees, contractors, painters of art pieces etc, while still in its growth phase. The rest of the article conflates the market for BTC, buyers, sellers, holders etc, with the above. To be clear, I'm not making a declaration on what is or is not a store of value.
- imafish 4y ago
  As I understand the article, it argues that relying on transaction fees to reward miners is not viable, as there are too few transactions happening thus making the transaction fees extremely high. > "$7.125B / 91,250,000 tx = $78 per transaction." > "But we just proved the store-of-value narrative breaks down because of the $7.125B/year leak and the fact that mining is unsustainable long-term unless it is subsidized by transaction fees, which will not exist because transacting on Bitcoin is slow and expensive."

rufusroflpunch 4y ago

This is a rambling article, but the core premise that Bitcoin is leaky because it has an energy INPUT is a weird one. The argument that other tokens being fully closed loops that don’t leak value is certainly a take… Proof of work plays many roles in the Bitcoin. One role it plays is that it ties a digital token to a real world, scarce, valuable resource. The only thing a digital token can be tied to: computation, or energy. Closed loop staking tokens have no tie. It is a formless, virtual, free floating concept. Not to mention that they are all highly centralized, so they don’t even have confidence in their monetary policy to fall back on. With Ethereum, Cardano, Solana, etc, your value is in the hands of where the developers choose to take the protocols. They can and have changed their monetary policies, and they will again. This person’s real concern appears to be “number go up”. It seems to have infected their thinking. They see a system that decided to engineer for NGU instead of stability and confidence, and thinks that’s “not leaky”. It is extremely short sighted. In the stormy world of crypto, Bitcoin is the port.

anonymoushn 4y ago
The article also discusses stability, and Bitcoin does not really have a credible stability story if miners are paid only from L1 transaction fees.
- someguydave 4y ago
  why not? Fees will go up to cover mining costs in the distant future.
  - cowtools 4y ago
    By what mechanism will fees increase?
    - TakeBlaster16 4y ago
      Competition for limited block space. https://jochen-hoenicke.de/queue/#BTC,30d,weight https://jochen-hoenicke.de/queue/#BTC,30d,weight Constant supply and fluctuating demand will lead to times where you must choose between paying low fees and waiting a long time for confirmation, or paying high fees for faster confirmation. If you zoom out all the way, you can see this has played out with every halving so far.

anm89 4y ago

ravenstine 4y ago
Substack seems to be quickly devolving into the new Medium.

varajelle 4y ago

The article takes the hashrate and cost of electricity as a proxy of the cost of maintaining the bitcoin network, but there is no need for a proxy because the cost of maintaining the network is, by definition the block reward and the transaction fees. No wonder that the two estimates are about the same, because the hashrate directly depends on the rewards and the price of bitcoin and electricity.

cowtools 4y ago
Okay, but consider that bitcoin's comparative hashrate must be greater than that of an attacker in order for it to resist an attack.
- tromp 4y ago
  Again that can be phrased without a hashrate reference. If the daily block rewards (subsidy + fees) becomes a small enough fraction of market cap, then 51% attacks become likely.

highwaylights 4y ago

I don’t think this is at all the reason that it’s not a store of value. It’s not a store of value as the supply is infinite. You’ll read in many places that only 21 million tokens will be produced. This is false. You can freely create as many new ones as you want by copying and pasting the source code any time you like. That one is on the “real” chain and another is not, hasn’t actually mattered at all - as long as another chain can be perceived to have any value, the original is undermined. Satoshi wrote about this at the very start - the notion that if it ever came to have any perceived value, even a minuscule value, then it’s achieved its goal of being transferable. That’s true of any and all others too, though. This has been seen many times over the decade since: any time the perceived value climbs steeply it’s seen as being “overpriced” and money starts flowing into smaller “underpriced” tokens, nullifying it’s use case as a store of value. Slowly and eventually I think the passive speculators will come to learn this, it’ll stagflate, then it’ll decline back close to nothing when it’s not producing the 300% CAGR it’s holders demand.

01100011 4y ago

No interest in reading the article, but I'm curious who still thinks an asset that can experience a 27% drawdown in 3 days is usable as either a store of value or as a currency?

cowtools 4y ago
Historically many fiat currencies have been dramatically debased, for example the german papiermark or the zimbabwean dollar. Currencies fluctuate. Currencies that are not backed by sound business relationships fluctuate more. But if it facilitates trade, it's a currency. As for a store-of-value? I don't know. I think it's clear that the cryptocurrency market is chiefly driven by speculation in its current state, and this strongly perturbs the nature of cryptocurrency in a strange way. But I think it is more interesting to discuss what happens at some equilibrium state as t -> inf.
tim333 4y ago
I plan to buy some if it drops below $15k or so as I think it will be basically up from there, maybe hitting 200k in 2025. It can hold value if you do it right.

bayesian_horse 4y ago

It's an investment. You buy bitcoin because you believe you'll get a certain amount of value back when you sell or exchange it. There is no "pure" store of value. All investments, including gold, all currencies, art, baseball collectibles, even food change their value over time. When people mean "store of value" they mean something that appreciates more than the commodity they exchange it for.

jevgeni 4y ago
Oh, so just like CDOs and MBSs in 2007?
- deleted 4y ago
  [deleted]
- eldenwrong 4y ago
  You are smart. Yes, literally the same. Good boy
  - jevgeni 4y ago
    The hurt tone really counters my argument. /s
    - eldenwrong 4y ago
      You have no argument.
      - jevgeni 4y ago
        Yet you are still hurt for some reason.

nazgulnarsil 4y ago

yet another case of not reading and understanding the original paper or econ more generally. Energy, labor, ingenuity, and resources are used to pull gold from the ground. After which it serves as a reusable proof of work. Is gold leaky?

cowtools 4y ago
I think you are misunderstanding the article. Perhaps re-read it. The point is that bitcoin does not spend enough energy to protect the network. Bitcoin mining is not comparable to gold mining because the purpose of bitcoin mining is to secure the network's transactions, the fact that bitcoin mining produces bitcoin is merely a side-effect of this. If gold mining ceases to exist, or if a single company dominates the world's gold mines, that doesn't prevent people from moving gold ingots around. It doesn't allow the gold mining monopoly to double spend. But this is true of bitcoin. So it's unwise to make such a comparison.
jevgeni 4y ago
That's not even remotely coherent. Value of gold is not in the fact that it was pulled out of the ground.
- nazgulnarsil 4y ago
  you don't understand reusable proof of work. If it didn't take energy to get more gold what do you imagine would happen to the price?
  - jevgeni 4y ago
    So the value of gold should be exactly the same as the value of silver or coal then?
    - voat 4y ago
      I'm not sure how that follows?

k__ 4y ago

My PoW theory after talking to a bunch of people at Berlin Blockchain Week: PoW is easy mode and PoS is the logical consequence of it. First, letting people calculate random hashes is easy to implement, because you don't have to check useful stuff, just a hash. PoS then is just giving people that did these calculatios, who now value their tokens because of the work they put in their creation, an incentive to validate txs, or they will lose that work. Chains like Filecoin, Sia and Arweave go a harder route. Their PoW is storing real data of real users, so the "miners" get rewarded to do actual work. It's a decentralized version of S3, and S3 also was one of the first services AWS started with. I think, in the next years, we will see more and more of these useful proofs cropping up. And people will understand the value they're "storing", no pun intended.

josu 4y ago
>I think, in the next years, we will see more and more of these useful proofs cropping up. And people will understand the value they're "storing", no pun intended. You could be right, but the first time something like this was discussed was around 2011 [1], and here we are 12 years later, still waiting for a widespread implementation of a "useful" proof of work. [1] https://primecoin.io/ https://primecoin.io/ was the first result of that.
- k__ 4y ago
  My assumption is, Primecoin was too theoretical. People easily understand when you take money to store their data. That might not be the case for prime calculations.

spreeker 4y ago

A big feature of BTC that there is no upgrade path and it will running for a long time. No BUG can be introduced that way. Thus is very safe compared to other chains. What if there is a BUG in a future ETH / X Y Z chain upgrade? BTC miners er being build on places with excess energy or wasted energy places and on renewable energy which have lower costs and mining chips are becoming more and more efficient. So the 'leak' to miners probably goes down. NOBODY is in control of BTC anymore which is big plus IMHO. BTC is the coin that created and made the crypto space possible. So If you force me to buy something that has to be around in 20 years. I would buy BTC.

BSVogler 4y ago
There is no such thing as "excess energy".
- spreeker 4y ago
  Currently it is possible to be paid to use energy since too much of it is dumped on the main energy network because of sun / wind. Countless other examples.
quickthrower2 4y ago
If you think BTC is a codebase that isn't evolving and nobody is in control, I have some Bitcoin Cash to sell you!
psd1 4y ago
Excuse me, but mining cartels are in control of bitcoin.
DennisP 4y ago
Contrary to popular belief, there are people developing Bitcoin. Here's who they are: https://coinmarketcap.com/alexandria/article/who-are-bitcoin-cores-developers https://coinmarketcap.com/alexandria/article/who-are-bitcoin... The most significant recent upgrade is Taproot: https://www.investopedia.com/bitcoin-taproot-upgrade-5210039 https://www.investopedia.com/bitcoin-taproot-upgrade-5210039

amadeuspagel 4y ago

I always think it's useful to compare Bitcoin to gold, and to try to apply every criticism of bitcoin to gold. Gold mining provides constant downward pressure on the price, bitcoin mining (in the sense of creating new bitcoins) will eventually stop. Securing and transacting gold is a lot more expensive then securing and transacting bitcoins.

adammarples 4y ago

Rambling article which I couldn't follow but because the very first idea was that bitcoin could be considered a "pot" that you "put money into", I know the rest will be quite wooly. Buy bitcoin, money goes in, sell bitcoin, money goes out? But every buy is a sell and the same money goes "in" and "out" simultaneously. There is no pot at all, it's just traded.

jevgeni 4y ago
Crypto-to-cash liquidity is miniscule compared to cash-to-cash liquidity or cash-to-crypto liquidity.

rafaelero 4y ago

I mean... Electricity theoretically could be payed with Bitcoin... What am I not seeing here? This argument that Bitcoin will leak only works if people are taking their value to other monetary systems. Which is the case today, but decreasingly so, as judged by Bitcoin increasing price over the long run.

anotheraccount9 4y ago

It's not because a system leaks energy that it necessarily loses its value completely. When I use a light bulb, I need electricity and heat is generated. But the light is providing what it's used for. The loss of energy is not important enough to jeopardize the system - it still successfully accomplishes its goal within the set parameters.

Bakary 4y ago

What I don't really understand about the ideological basis for crypto and NFTs is that the number of people who are interested in it for reasons other than enrichment through speculation is vanishingly small. This of course circularily means that the value is almost entirely based on speculation. The other aspect is that adopting these systems just increases inequality since the early adopters are massively wealthy. It doesn't work as a liberating medium. At best it works as a useful temporary measure for poorly run inflationary countries. Instead of being at the mercy of a commercial or central bank, you are at the mercy of a small range of individuals who either hold almost all of the cards or develop and thus determine the monetary policy of the coin in question.

zeroclip 4y ago
> This of course circularily means that the value is almost entirely based on speculation. Most markets are primarily based on speculation: equities, real estate, art, VC. > you are at the mercy of a small range of individuals who either hold almost all of the cards or develop and thus determine the monetary policy of the coin in question. In crypto this policy is determined by users. The protocols are open source, development happens in public, and the tech is permissionless - anybody can develop new proposals and contribute changes. This is a far cry from most monetary policies in the world.
- UncleMeat 4y ago
  I'd wager that the number of people who look at art in a museum or other environment and don't think about the price of that piece in detail dwarfs the number of people who think about art for speculation purposes by about four orders of magnitude.
  - deleted 4y ago
    [deleted]
  - zeroclip 4y ago
    The same happens with digital art and NFT. Hundreds, maybe thousands of people will 'like' or re-share a tweet or Instagram post without realizing the artist is selling it as a NFT. The audience just appreciates it, without thinking or caring about its dollar value. For a concrete example see[1] which is also a NFT[2]. Same with digital art in physical setting, such as Anadol's work which many audiences will not realize is NFT based[3]. There is "art" and there is "art market." If you look at NFT and only see a market, you will only find speculation. If you look at the "art" part, it turns out a lot of people just appreciate the work itself. [1] https://twitter.com/joepease/status/1542224719365017600 https://twitter.com/joepease/status/1542224719365017600 [2] https://superrare.com/artwork-v2/open-the-floodgates-35629 https://superrare.com/artwork-v2/open-the-floodgates-35629 [3] https://www.koeniggalerie.com/blogs/exhibitions/refik-anadol-machine-hallucinations-nature-dreams https://www.koeniggalerie.com/blogs/exhibitions/refik-anadol...

d--b 4y ago

Bitcoin is not a backed by a collateral and is highly volatile, two reasons that make it a terrible store of value…

guilhas 4y ago

Bitcoin is one of the biggest modern inventions If nothing else governments will maintain the network so that China, Russia, USA... does not control 51%

sunshinerag 4y ago

> But who is actually transacting on the Bitcoin network? No one. And I doubt anyone ever really will. When it comes to all transaction metrics, Bitcoin is horribly unscalable and expensive to transact on. > The Bitcoin network is doing around 250k transactions per day (source). With lightning network Bitcoin scales to far greater magnitude than that, amongst other things it collapses the entire premise of the article.

xwolfi 4y ago
Why am I not using it then?
- pibechorro 4y ago
  Because you choose not to. Its out there.
  - xwolfi 4y ago
    What can I do with it ? I have many currencies in my Hong Kong bank and have very low fee, no capital gain tax, no criminal desires and no problem using cash. I also dont want to be richer or join a club.
- sunshinerag 4y ago
  Lack of awareness? Since most people’s initial interaction with Bitcoin is through exchanges, exchange adoption of lightning will increase awareness. Like how Kraken is doing it https://blog.kraken.com/post/13502/kraken-now-supports-instant-lightning-network-btc-transactions/ https://blog.kraken.com/post/13502/kraken-now-supports-insta...
DennisP 4y ago
The article mentions LN and says it may be able to scale, but not without centralizing on large hub nodes, for reasons detailed here: https://medium.com/@jonaldfyookball/mathematical-proof-that-the-lightning-network-cannot-be-a-decentralized-bitcoin-scaling-solution-1b8147650800 https://medium.com/@jonaldfyookball/mathematical-proof-that-...

helen___keller 4y ago

When the value is set almost entirely by speculation then the fact that there’s a “drain” in the form of energy maintenance is basically irrelevant. How can you measure or analyze a speculation system with a 1 percent drain versus a speculation system without a drain? It’s all speculation in the end

sebastianconcpt 4y ago

The value of bitcoin is resisting censorship and state currency control al the rest are secondary benefits.

SergeAx 4y ago

> For anyone wondering, based on these estimations our BTC equilibrium price (break even point for miners) would be roughly $22k. Note: with the current network hashrate. If some miners become unprofitable - they turn off their equipment, total network difficulty decreases, and the hashrate needed decreases too.

derangedHorse 4y ago

>In this more accurate representation, we have miners pulling money out of the pot in two ways: transaction fees, and the selling of their Bitcoin mining rewards. The latter is harmful to BTC’s value in two ways. It dilutes the circulating supply of BTC which decreases its value, and it pulls money from the pot to cover energy costs. A majority portion of the money miners are pulling from the system is being burned forever in the form of energy costs, meaning it has no way of ever re-entering the system. "It dilutes the circulating supply of BTC which decreases its value" isn't necessarily true. Although a lot of Bitcoiners say an increased supply decreases value and that a decreased supply increases the value, that's assuming demand stays constant. If demand rises with an increase in supply then the price may remain the same or increase (if the demand was high enough), and likewise if the demand lowered with a decrease in supply then the price may remain the same or decrease (depending on how low the demand gets). The author mentions supply and demand later in their post but fails to reference it here. >If the network is valued at $568B, but costs $7.125B/year or more to secure, that’s a pretty big leak for something that is supposed to preserve value. It sounds like the author is trying to say that selling is a "leak" of value. This premise doesn't sound right to me considering that a miner has to sell their Bitcoin to someone who is buying in, and an exchange of Bitcoin shouldn't be seen as value leaving the system. I think the word "leaky" also doesn't help convey the overall message of the post which is that Bitcoin cannot be a store of value because the mining that secures the network is unsustainable over time and the fees will not be enough to cover this unsustainable cost ("mining is unsustainable long-term unless it is subsidized by transaction fees, which will not exist because transacting on Bitcoin is slow and expensive"). >According to Glassnode, (as of April 2022) ~63% of BTC’s supply had not moved in over a year. So it looks like our denominator is actually closer to 0.37 * $568B = $210B It doesn't make sense to claim that the value of the network decreases by the proportion of users who don't move their Bitcoin within a year. >So now imagine two Michael Saylor whales are just dumping ~700 BTC on the market every day or around 250,000 BTC/year. That’s essentially the energy cost of running the Bitcoin network. Who pays for that cost? Not the miners. They are profitable. They pass it onto the Bitcoin holders. Bitcoin holders pay for it in the decreased value of Bitcoin caused by this energy expense. The miners shouldn't be assumed to remain profitable if Saylor is dumping Bitcoin. Assuming demand is consistent and the supply of Bitcoin rises, then that Bitcoin dump would negatively affect the order books and therefore the price and the amount of money a miner would get for every Bitcoin sold. >Bitcoin was originally designed to be peer-to-peer cash, then when everyone realized it doesn’t scale, the store-of-value narrative emerged. This is false, the store-of-value narrative didn't "emerge". Satoshi wanted Bitcoin to be used for payments, yes, but that wouldn't restrict its usage to only be for payments. Satoshi mentioned in the bitcointalk.org forums that the currency would be "deflationary" (implying it can act as a store of value as well): https://bitcointalk.org/index.php?topic=12.msg62#msg62 https://bitcointalk.org/index.php?topic=12.msg62#msg62 >What about the lightning network? I can do a separate write-up on the the lightning network, but it would simply be a more poorly written version of this article: ... The linked article also makes a lot of assumptions about how big centralized hubs will get and ignores potential future solutions for smaller hubs of centralization and locality. They also attack the known fundamental problems with Lightning network scaling while ignoring the advances made for things like liquidity, etc. >Would you like to know how else I know Bitcoin is not thermodynamically backed? If you could remove the high energy consumption without sacrificing security or decentralization, it would be a net positive for Bitcoin. I agree with this, energy consumption is not the end goal but it is the only plausible way to achieve the goals Bitcoin desires. POW creates an independently verifiable ledger based off something that can't be replicated easily by the parties that secure the network (which other algos like POS can't pride themselves on). My conclusion: While I believe the author has a point, I also believe that the mining model is sustainable. In my opinion the way forward is to build numerous decentralized protocols on top of the Bitcoin blockchain and shift the Bitcoin blockchain's primary source of transaction traffic as layer 2 settlements. This will help decouple the value of Bitcoin as an asset with the number of transactions on the blockchain and will still allow demand for on-chain transactions to grow and meet the supply-demand curve.

ooaa 4y ago

This article is like the opposite of Saylors argument about energy being preserved in the form of bitcoin. Both oppinions are basically "that's what this concept feels like to me" and nothing more.