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Cryptocurrency is a solution desperately looking for a problem. The white paper was written 13 years ago. What actual problems does it legally solve? Store of

by 300bps 4y ago

Cryptocurrency is a solution desperately looking for a problem. The white paper was written 13 years ago. What actual problems does it legally solve? Store of value? Not so successful. Inflation hedge? Nope. Micropayments? Nobody wants them - any traditional financial company could implement it instantly. If people wanted it. So we are left with the few things that cryptocurrency has actually been good at: tax avoidance, illicit transactions and ransomware. Cryptocurrency has been a scourge and has no redeeming quantities. ETH mining did pay for a computer I bought a few times over though so I guess thanks for that.

SkyMarshal 4y ago
Anonymous and pseudonymous public, permissionless cryptocurrencies remove debt and leverage from the system, making GFC-like financial crises impossible. Without native identity, you can’t have native debt, leverage or margin. No native identity = no credit ratings or any other means of enforcing repayment. (Yes centralized crypto exchanges have these, but not the actual blockchains). All financial contracts on these systems must be fully- or over-collateralized, and if the collateral is used up there’s no margin calls for more, instead the contract is automatically closed. That creates an immense buffer against cascading financial collapse and house-of cards style financial structures that Wall St. likes to build. The possibility of a GFC or Great Depression (leveraged credit crises/collapse) is arguably the single biggest problem in all of the traditional financial system. Cryptocurrency may solve it.
- 300bps 4y ago
  Sure and you could use blockchain to store your personal recipes but there are better tools to do it. There are many ways to prevent Wall Street or other organizations from becoming overleveraged.
  - SkyMarshal 4y ago
    Oh? Correct me if I’m wrong, but it seems all the ways of preventing Wall St. from becoming over leveraged fundamentally depend on regulation, which is vulnerable to lobbying and political capture. That’s happened twice now - dismantling of Glass-Steagal after the Great Depression, and dismantling of Dodd-Frank after the GFC. The former took decades, the latter was done in just ten years. My point is, crypto may represent a permanent and deterministic solution to this problem, implemented at the protocol/infrastructure level, and which is difficult or impossible to corrupt via lobbying and political capture.
- ivalm 4y ago
  Being able to do things on credit is good, that’s where most of growth comes from and is a feature, not a bug.
  - SkyMarshal 4y ago
    Well there are two general ways of financing economic growth - debt-based and equity-based. Equity-based is the main way that the startup ecosystem works, for example, though debt is also a part of it. With little or no debt, economic growth would no doubt be slower in the short/medium term. But an equity-only system with slower growth might be comparable in the long-run, due to continuous growth with no principle drawdowns and setbacks from periodic financial collapses. I don’t know of any research attempting such comparisons, everyone assumes debt is inevitable and doesn’t bother thinking about this.
    - ivalm 4y ago
      Equity based growth (eg startups) is much much smaller in $ amounts. There are like $140B in equity investment vs trillions in debt financing.
      - SkyMarshal 4y ago
        True, though you have to include the stock market too, that's equity. US Bond market cap is roughly $120 trillion, stock market cap is ~$45trillion. So the equity market is about half the debt market, if you exclude govt debt. That said, if somehow you had a similar hypothetical economy but with little or no debt, the equity side might be larger.
        ivalm 4y ago
        Vast majority of stock market cap does not contribute to company capitalization. Primary equity offerings on the market are rare and use only a fraction of total equity. Most trades are secondary and don’t capitalize the company. The entire bond market value is a capital raise for the companies.
- polygamous_bat 4y ago
  If we wanted to remove leverage we could sign a law to remove it tomorrow. The problem is credit is a good thing that lets us accomplish more that what resources what we have right now. The fact that some people abuse trust doesn't mean we should throw trust out altogether, rather find ways to cost of breaching trust more.
  - SkyMarshal 4y ago
    Theoretically we sign a law to remove it tomorrow, but practically it’s completely impossible. The financial industry would never allow it, and would spend billions defeating both the law and any politician who even remotely supported it.
    - polygamous_bat 4y ago
      Not because there will be billions spent, but because such a law would be extremely unpopular. Try convincing people that any option for your home loan and your car loan won't exist anymore (those are leverage too!) and see how happy they are.
  - everfree 4y ago
    > If we wanted to remove leverage we could sign a law to remove it tomorrow. The kind of unsafe leveraged bundling that caused the great financial crisis was already illegal. In theory, the banks should have suffered the consequences of their poor trades. In practice, both the banks and the government knew that by enforcing those consequences, the entire financial system as we knew it would fall apart. So the banks smartly factored the bailouts into their risk calculations when entering into those trades. Crypto enables systems that cannot be as easily bailed out. It changes the game theory so that failure is no longer a "get bailout and still win" condition for speculative lenders. So in a way, crypto absolutely does create "ways to make breaches of trust cost more."
Andrew_nenakhov 4y ago
> The white paper was written 13 years ago. What actual problems does it legally solve? Receiving payments from abroad is far faster and cheaper than bank transfers, and I can do it ignoring restrictions by various governments. I can finance anti-Putin initiatives without risk of getting caught and prosecuted. Bitcoins is a godsend and even if it didn't have any other uses, these would be enough to make it valuable.
- alphabettsy 4y ago
  > without risk of getting caught and prosecuted Idk if I’d be so confident about this point.
MildlySerious 4y ago
Digitally and trustlessly transferring value without being at the whim of some big corporation that makes and changes the rules as they see fit. I don't care about any of the use cases you mention because those are made up. The need to transfer value isn't. There's a new Stripe or Paypal horror story on HN every other week, and the only way to get around them is to trust the next best entity until they break down, or to give up more privacy than a simple purchase should ever require.
- ivalm 4y ago
  How much volume is there today in bitcoin for payment processing? Afaik extremely little. So bitcoin fails this usecase too.
  - polygamous_bat 4y ago
    7 transaction per second, so (as far as I remember) for every person in this world to make one transaction it would take around 30 years. Finance of the future and all that.
    - ivalm 4y ago
      To be fair they do have layer 2 to roll up more transactions, it’s just I think even with that it’s not a lot.
  - MildlySerious 4y ago
    Bitcoin sure does and I haven't used it in half a decade. It's not a great benchmark for crypto as a whole.
quags 4y ago
The only use case I have for crypto is as an alternative payment method. I take payments by credit card, give or take 70%, and PayPal the next 25%. The rest are check and crypto, which I have started in the last year. So I have been mostly off crypto until it became easier integrating a payment system - which I used coin base for. For myself , it has to be centralized - integrating into my billing system and tracking payments is something I didn’t want to do. Now, payments are increasing and I’d love to get crypto as a third payment option and a much higher number. It doesn’t need to be first but having most payments through a merchant account that will raise fees regularly , or PayPal which has higher fees and is not known for good support is a risk on its own. Crypto has helped with payments from countries like Nigeria who have currency limits on payments of $20.
zmaurelius 4y ago
Before Bitcoin, there did not even exist the possibility of programmable money because no unit of account could ever be guaranteed to actually exist since there was no way to verify said existence. After Bitcoin, we now have a fundamental change where programmable money is now a possibility. So what if we have not found all the possible use cases of programmable money? That's going to be a work in progress for a long long time. You can assert that programmable money doesn't have any real use and you are welcome to have that opinion. Personally I think programmable money will have many uses and will allow for the creation of a more robust and more efficient financial system.

by 300bps 4y ago

SkyMarshal 4y ago

Anonymous and pseudonymous public, permissionless cryptocurrencies remove debt and leverage from the system, making GFC-like financial crises impossible. Without native identity, you can’t have native debt, leverage or margin. No native identity = no credit ratings or any other means of enforcing repayment. (Yes centralized crypto exchanges have these, but not the actual blockchains). All financial contracts on these systems must be fully- or over-collateralized, and if the collateral is used up there’s no margin calls for more, instead the contract is automatically closed. That creates an immense buffer against cascading financial collapse and house-of cards style financial structures that Wall St. likes to build. The possibility of a GFC or Great Depression (leveraged credit crises/collapse) is arguably the single biggest problem in all of the traditional financial system. Cryptocurrency may solve it.

300bps 4y ago
Sure and you could use blockchain to store your personal recipes but there are better tools to do it. There are many ways to prevent Wall Street or other organizations from becoming overleveraged.
- SkyMarshal 4y ago
  Oh? Correct me if I’m wrong, but it seems all the ways of preventing Wall St. from becoming over leveraged fundamentally depend on regulation, which is vulnerable to lobbying and political capture. That’s happened twice now - dismantling of Glass-Steagal after the Great Depression, and dismantling of Dodd-Frank after the GFC. The former took decades, the latter was done in just ten years. My point is, crypto may represent a permanent and deterministic solution to this problem, implemented at the protocol/infrastructure level, and which is difficult or impossible to corrupt via lobbying and political capture.
ivalm 4y ago
Being able to do things on credit is good, that’s where most of growth comes from and is a feature, not a bug.
- SkyMarshal 4y ago
  Well there are two general ways of financing economic growth - debt-based and equity-based. Equity-based is the main way that the startup ecosystem works, for example, though debt is also a part of it. With little or no debt, economic growth would no doubt be slower in the short/medium term. But an equity-only system with slower growth might be comparable in the long-run, due to continuous growth with no principle drawdowns and setbacks from periodic financial collapses. I don’t know of any research attempting such comparisons, everyone assumes debt is inevitable and doesn’t bother thinking about this.
  - ivalm 4y ago
    Equity based growth (eg startups) is much much smaller in $ amounts. There are like $140B in equity investment vs trillions in debt financing.
    - SkyMarshal 4y ago
      True, though you have to include the stock market too, that's equity. US Bond market cap is roughly $120 trillion, stock market cap is ~$45trillion. So the equity market is about half the debt market, if you exclude govt debt. That said, if somehow you had a similar hypothetical economy but with little or no debt, the equity side might be larger.
      - ivalm 4y ago
        Vast majority of stock market cap does not contribute to company capitalization. Primary equity offerings on the market are rare and use only a fraction of total equity. Most trades are secondary and don’t capitalize the company. The entire bond market value is a capital raise for the companies.
polygamous_bat 4y ago
If we wanted to remove leverage we could sign a law to remove it tomorrow. The problem is credit is a good thing that lets us accomplish more that what resources what we have right now. The fact that some people abuse trust doesn't mean we should throw trust out altogether, rather find ways to cost of breaching trust more.
- SkyMarshal 4y ago
  Theoretically we sign a law to remove it tomorrow, but practically it’s completely impossible. The financial industry would never allow it, and would spend billions defeating both the law and any politician who even remotely supported it.
  - polygamous_bat 4y ago
    Not because there will be billions spent, but because such a law would be extremely unpopular. Try convincing people that any option for your home loan and your car loan won't exist anymore (those are leverage too!) and see how happy they are.
- everfree 4y ago
  > If we wanted to remove leverage we could sign a law to remove it tomorrow. The kind of unsafe leveraged bundling that caused the great financial crisis was already illegal. In theory, the banks should have suffered the consequences of their poor trades. In practice, both the banks and the government knew that by enforcing those consequences, the entire financial system as we knew it would fall apart. So the banks smartly factored the bailouts into their risk calculations when entering into those trades. Crypto enables systems that cannot be as easily bailed out. It changes the game theory so that failure is no longer a "get bailout and still win" condition for speculative lenders. So in a way, crypto absolutely does create "ways to make breaches of trust cost more."

Andrew_nenakhov 4y ago

> The white paper was written 13 years ago. What actual problems does it legally solve? Receiving payments from abroad is far faster and cheaper than bank transfers, and I can do it ignoring restrictions by various governments. I can finance anti-Putin initiatives without risk of getting caught and prosecuted. Bitcoins is a godsend and even if it didn't have any other uses, these would be enough to make it valuable.

alphabettsy 4y ago
> without risk of getting caught and prosecuted Idk if I’d be so confident about this point.

MildlySerious 4y ago

Digitally and trustlessly transferring value without being at the whim of some big corporation that makes and changes the rules as they see fit. I don't care about any of the use cases you mention because those are made up. The need to transfer value isn't. There's a new Stripe or Paypal horror story on HN every other week, and the only way to get around them is to trust the next best entity until they break down, or to give up more privacy than a simple purchase should ever require.

ivalm 4y ago
How much volume is there today in bitcoin for payment processing? Afaik extremely little. So bitcoin fails this usecase too.
- polygamous_bat 4y ago
  7 transaction per second, so (as far as I remember) for every person in this world to make one transaction it would take around 30 years. Finance of the future and all that.
  - ivalm 4y ago
    To be fair they do have layer 2 to roll up more transactions, it’s just I think even with that it’s not a lot.
- MildlySerious 4y ago
  Bitcoin sure does and I haven't used it in half a decade. It's not a great benchmark for crypto as a whole.

quags 4y ago

The only use case I have for crypto is as an alternative payment method. I take payments by credit card, give or take 70%, and PayPal the next 25%. The rest are check and crypto, which I have started in the last year. So I have been mostly off crypto until it became easier integrating a payment system - which I used coin base for. For myself , it has to be centralized - integrating into my billing system and tracking payments is something I didn’t want to do. Now, payments are increasing and I’d love to get crypto as a third payment option and a much higher number. It doesn’t need to be first but having most payments through a merchant account that will raise fees regularly , or PayPal which has higher fees and is not known for good support is a risk on its own. Crypto has helped with payments from countries like Nigeria who have currency limits on payments of $20.

zmaurelius 4y ago

Before Bitcoin, there did not even exist the possibility of programmable money because no unit of account could ever be guaranteed to actually exist since there was no way to verify said existence. After Bitcoin, we now have a fundamental change where programmable money is now a possibility. So what if we have not found all the possible use cases of programmable money? That's going to be a work in progress for a long long time. You can assert that programmable money doesn't have any real use and you are welcome to have that opinion. Personally I think programmable money will have many uses and will allow for the creation of a more robust and more efficient financial system.