You have to be careful with your choice of words. Especially on an engineering / science forum. The word "proven" implies a definitive certainty backed by solid theoretical foundation and a massive body of evidence. Very few things are proven in social science and economics. And most of them are simply definition.
You are free to express your opinion though, but please mark it as such and make at least a small effort to explain how you reached it as otherwise your post is not adding value to the conversation.
This public official laying down rules “you are free to… but please” tone has become commonplace on HN in the past few years. Anyone know the origin? Perhaps a shift in public enthusiasm for controlling speech? Did it start at universities? It seemed to just show up one day around 2018. It’s incredibly distracting.
The audience of hackernews has grown and old users are trying to maintain the culture of the site. The value of this site comes from its community. Let's not turn it into reddit. I personally welcome this type of policing.
Anyway, I don't think such tone-policing is all that off-culture for HN, nor do I mind it all that much. PG explicitly said back around 2008 that posts which keep the discourse civil and intellectually honest are welcome even if they don't directly add content. I just thought that there's a certain irony about "old users trying to maintain the culture of this site" when the users in question are less than a year old and are responding to someone who's been here for 14 years.
Some of us change account names as a matter of internet hygiene. I think I've had 6 or 7 here over the years, and even this old one was dormant for most of its life. Anyway, the point is you never know just based on account age.
I'm not a public official, but I like my readings to be informatives and display a good faith attempt to convey the truth. HN is one of the rare place on Internet that manages to do both. And I think everyone can contributes when given the opportunity to do so, so I think a small remainder can be better than an outright downvote / ban.
Seems like you are confused about why people might respond negatively to you (the comment thinking the issue is around 'shiny dirt'), and that some one had the time to try and explain what might be going on.
I see some one stating outright their respect for your freedoms, but it seems to trouble you. Why is that?
I think it would be helpful here to compare the theory of a ponzi scheme to that of bitcoin.
In the beginning, buyers buy into a ponzi scheme because of a story that the creators are telling about their scheme. As time goes on, people buy in because the early investors are making a ton of money, as the value of the asset begins to skyrocket. Later on, people buy in because of previous hype, even though returns are actually beginning to level off, people don't notice. In the end, returns start to go negative, and the asset plummets, because nobody else has any reason to buy the asset anymore.
With bitcoin the theory goes: In the beginning, buyers buy into bitcoin because of the vision and idea of a decentralized currency made by an anonymous hacker on the internet. As time goes on, people buy in because the early investors are making a ton of money, as the value of the asset begins to skyrocket. Later on, people buy in because of previous hype, even though returns are actually beginning to level off. In the end, however, due to the properties of the currency, and its penetration throughout the population, people continue to buy even though there is little profit to be made anymore. It has been shown to be a better long term store of value than fiat currency, but with similar liquidity, unlike other assets with higher returns such as bonds and real estate. It can be easily transferred around the globe and is highly divisible, making it useful for payments large and small, avoiding complex VISA networks and regulatory red tape. Due to its enforced scarcity, it isn't possible to create any more of it, and so it maintains its high price rather than simply being overproduced back down to a lower valuation.
A ponsi scheme is fundamentally different than a market.
With a market one day you trade five USD for one BTC. The next the best offer your able to get from anyone might be two USD for one BTC. That's just the nature of any market for anything. Value for anything depends on who comes to the market and their bias.
A ponsi scheme is nefarious and more of a shell game. When the asset is gone, it's really gone and not coming back. There eventually aren't units to redeem because the originator took the aasset.
If BTC or crypto were a ponsi the analogy would be satoshi hacking your wallet and draining your funds.
In traditional crypto there aren't returns, there's just potential for it's perceived value relative to a base like the USD to change.
There's a canonical toxic response to this = HFSP. I don't like that because we're all still learning. I hope you see how the money printer is making scarce assets outside of Govt manipulation more valuable. The Bitcoin rabbit hole goes deep. You're right in that stablecoins might actually be worthless in the long run since they're backed by USD which might be worthless in due course of time. Zoom out of the day to day movement - we're in price discovery stage where nothing makes sense in the short term.
>>There's a canonical toxic response to this = HFSP.
I don't feel this was your actual response, but I still need to address it because I don't understand how anybody ever can have that as a remotely legitimate, thought-out response.
How can any financial instrument/currency make everybody "rich", in any real terms?
If you gave everybody million USD tomorrow, it'd crash so bad that we'd be right back where we came from.
Is there anybody that believes that we could all invest fiat money into X.coin, and after some period of time, we'd all be rich? If so, how? What wonderful value does it produce, what mechanism would magically elevate all without disruption?
From where I'm sitting, any currency or investment is a re-distribution of wealth/money/value. A person who bought X.coin yesterday can only derive/extract value tomorrow if somebody else buys it for more. We didn't gain/extract/create value out of thin air by virtua of fintech, it's a simple exchange.
So what if everybody DID get some X.coin, so that nobody did "HFSP"? What'd happen then?
I will restrict myself to Bitcoin as I don't believe as strongly in the rest though I do own some of those as well. Bitcoin is at a market cap of 1T. That's less than major tech cos (Apple 2.5T, Google ~2T), gold(10T), total USD (~30-40T) etc. If you believe BTC will be used as the global store of wealth and currency, buying anytime (until the time BTC gets there) will make anybody who buys rich.
Of course, after price discovery is more or less complete, we can't all be rich as the value relative to goods and services will stagnate, and BTC will become as boring as gold.
> From where I'm sitting....if somebody else buys it for more.
Sure, and they will if the value of said coin keeps going up. Note that you don't need to sell it for USD, you could be paying for services in said coin directly. Point being that the exchange doesn't need to happen in USD, it can happen in any form of value.
A central plank of the US dollar (all fiat currencies, really) is that if you hold on to them for long enough all the wealth you had when you first picked them up gets transferred to someone else.
Compared to that baseline holding literally anything else - including crypto - has a better theoretical chance of preserving your wealth. When measured in terms of US dollars, that has the appearance of everyone who owns it getting richer.
> How can any financial instrument/currency make everybody "rich", in any real terms?
You have resources, someone else has a really good idea for how to use them. Financial instruments let the situation play out sensibly (you lend them resources, get back resources + something) with easy-to-manage legal enforcement if something goes wrong.
More complicated financial instruments let that scenario play out in more abstract ways. All in theory, in practice most people are bad with debts and more complicated concepts.
No, crypto does not 'theoretically' hold out better than USD or other things.
An asset - no matter what it is - is only going to have value in the future depending on how others are going to a value it.
This means does it survive war? National collapse? etc..
USD is a currency, not a store of value, it's designed to be slightly inflationary. That's policy and public information. Don't hold them for 'long term' but it will at least have some value.
Gold and Real Estate (to the extent you can control that real estate, which depends on rational social organization etc.) - will probably hold their value. As will some other things.
Crypto would be the last choice among many as a store of value, as they could all be wiped out in a second, forget the issues of what financial fashions might come into place in the future.
Crypto is still 100% experimental, and every dollar traded in crypto, is at least today, purely speculative, no different than trading Baseball Cards. But without at least the Baseball Cards. That's where it is today and while something might come along, nothing is quite on the horizon just yet.
>>You have resources, someone else has a really good idea for how to use them. Financial instruments let the situation play out sensibly (you lend them resources, get back resources + something) with easy-to-manage legal enforcement if something goes wrong.
I agree with that in general; however, that's not the current premise of most cryptocurrencies - I see them more like gold in that you buy them and hold on to them; not as a capitalist investment into anything specific or generic. I may be wrong...
For newer cryptocurrencies you often buy them and then either (1) stake them (earn rewards for contributing to network security) or (2) deposit them in a crypto-bank like Aave and earn yield from having your money loaned out. Increasingly people don't look to cash out to USD but rather stay within the crypto ecosystem.
I do think that BTC and its clones engender a certain dragon-cache hoarding mentality that aligns with either plans to eventually cash out at a higher price or some kind of apocalyptic vision where eventually USD is no longer used at all.
>How can any financial instrument/currency make everybody "rich", in any real terms?
By organizing economic activity in a more efficient way than our present system of centrally planned debt supplies. That's what currency is "for" - organizing real activities.
So what kinds of economic activities, besides ransom, drug sales and donations to wikileaks and others not liked by u.s. government does bitcoin facilitate? Remittances to countries under repressive economical regime or under embargo?
Not saying those are good or bad, just aiming to quantify the market size.
The potential of cryptocurrency is a lot brighter than the potential of Bitcoin. The right investment to make in cryptocurrency isn't buying it, it's thinking about it and economics to try to figure out how it can be gainfully used. Ethereum has many potential applications and so may be worth buying, but only if you have a use for it. (The price of every asset is such that buying it is a martingale.)
BTC isn't even truly decentralized - it's Chinese.
This summer, China banned Bitcoin mining, which resulted in a temporary drop in the hash rate. We're almost back where we were before the ban: https://www.blockchain.com/charts/hash-rate
That speaks volumes about how resilient Bitcoin's ecosystem is.
Bitcoin isn't Chinese. Bitcoin doesn't belong to any country, nation, tribe, political party, institution, or person at all.
I get that, at some high level; but I'm not really seeing any of the current coins being actively used as currencies as much as investment / static store of value. They all look more like Gold than Dollar, to my ignorant eye
To start with, I'll say that I agree with the mainstream view that cryptocurrency isn't actually creating wealth, in the sense of non-financial real goods that improve people's lives. It's redistributing it. Everybody's crypto gain comes at the expense of somebody else's crypto loss.
I'll also throw in that folks who say "HFSP" are often the losers, because they're the ones who FOMO in because of greed and ego at the top of the cycle and then panic-sell at the bottom when they actually become poor. The folks who are making millions in crypto are the ones who buy at cyclical bottoms - 2012, and 2015, and 2019 - and hold on to sell at the tops, when everybody else is making fun of the folks sitting on the sidelines.
However, they're on to something. Imagine that you're inside a group with superior military technology - the Mongols in 1200, for example, or an American settler in 1840 - and you're looking at the people you are about to conquer. Or less bloodily, you're going into software in 2002, aware that a computer program will replace the jobs of whole industries, and trying to figure out which profession to go into. It's much better to be on the inside of change than on the outside.
They aren't necessarily wrong, either - they're correctly perceiving that the fiat currency system is unsustainable and is its own Ponzi scheme, and creating an alternative Ponzi scheme to recruit participants into. Game theoretically, if you have an inflationary currency and a deflationary currency, it makes sense for everybody to spend the inflationary currency and save the deflationary currency (Gresham's Law) which further drives up the relative price of the deflationary currency so long as there's an excess of savings available. If we enter a time of shortages (which we might), then the value of the deflationary currency will collapse (since everybody needs to spend money, and merchants are accustomed to taking the inflationary currency) - but if that happens, Bitcoin and its electricity & Internet demands are screwed anyway. In the meantime, as long as labor and savings both remain abundant, holders benefit at the expense of new adopters.
The actual claim isn't that crypto is going to make everybody's life better. The claim is that it's going to make the life of holders better, at the expense of late adopters. People can't come out and say that directly - "Hi, I'm going to fuck you over and take all your wealth". I'm sure that'd go over great with the general public. So they say it in coded egoisms like "have fun staying poor", where you can write it off as somebody blowing off steam.
Can you explain how all gains are from other peoples losses?
Someone invented a technology. Initially it was worth zero. Now it’s worth 1tn. The gains are from the gradual realisation that the technology has some merits. There are way more gains than losses… so far at least.
Other than the number in someone's bank account, what do you get from cryptocurrency?
With technologies like washing machines and dishwashers and stoves, it's pretty easy to see the real gains in wealth: you save labor. Ditto cheap housing and automobiles: you can live places you wouldn't before, which opens up a yard and white picket fence to people who previously lived in tenements. The Internet opened up a whole new world of information, which let people start businesses, learn new skills, apply for jobs they wouldn't otherwise know about, plan vacations, etc.
With cryptocurrency, the product is money. Money isn't wealth though; it's something you can trade for wealth. And whatever money you get from cryptocurrency got paid in by someone who newly bought what you just sold. There are people who have bought houses with gains from crypto (more power to them!), but that's paid for by other people putting money into crypto and getting nothing tangible in return. For those other people to get tangible benefits, somebody else would have to put money into crypto, and so on.
Money is a measurement tool, not a thing in of itself. In a properly functioning economy you get money when you create wealth, but money isn't itself wealth.
I agree with you. However I’m not sure about classing them as losses.
If the price now plateaus indefinitely (obviously this won’t actually happen) then the early adopters made some profits and the more recent investors don’t lose anything. Everyone is free to buy and sell as they wish going forward.
Plus, if the crypto offers some people some benefits, such as avoiding large fees when sending money abroad or avoiding inflation, then it’s possible that the crypto invention is a net positive.
Thank you; your two posts have given me more of a practical understanding/faith in cryptocurrencies at large than any number of passionate posts over the years.
I guess it pays to think of Cryptocurrencies other than BitCoin (which is in 90% of headlines), and imagine what CAN be / what superior systems are and can be out there.
Amazing how many people are die hard advocates of being closed minded. The net market for crypto hits over a trillion dollars, and you still say things like this declaring they are proven to be worthless. This is posted on a report by the US government on a technology that is effectively a digital wrapper to use the US dollar easily online. How is there no worth in that?
Out of curiosity, what would it take to change your mind on this? Is there not even a single dollar of real value in the crypto world?
Then don't use Tether. Plenty of more reputable companies and projects providing stabletokens with strong (USDC, GUSD) or soft (DAI, sUSD) pegs to the dollar.
Also, you are missing the point of view of the merchant and the amount of possibilities that open with crypto. E.g, you can sell digital goods with zero risk of fraud or chargebacks, to anyone in the world, at whatever price point. No credit card operator will ever be able to do that.
Yes, but you likely live in a first-world country with generous options for banking. Bitcoin can serve anyone anywhere, regardless if they live in a privileged country or not. Try using your USD bank to send/receive money as a citizen of Iran or Libya or Nigeria. There are over 1 billion unbanked in the world today. They cannot use the US dollar easily online.
I work on an international team and 2 of our devs are based in Nigeria. Nigeria currently suffers from 16% annual inflation and so the people have flocked to crypto as a store of value. Over 20% of the population uses cryptocurrencies. There are many more examples including Venezuela, Iran, the West Bank, and El Salvador.
Consider that many more have internet and a smartphone than a bank account. There are over 1 billion unbanked in the world, many of those have internet and smartphones. You would be surprised at the spread of smartphones amongst the world's poor - much greater than the prevalence of bank accounts with FDIC insurance or the equivalent.
I'd like to see people actually spending it day to day items, rather than hoarding it or spending it on blackmarket/illegal goods. There's a claim that people send money home to families in other countries, but I don't see how that could be trillions? And when pressed, enthusiasts hide behind "third world" claims.
No one is buying groceries with it. No one is buying commodities with it. People are buying it to get rich. Even in El Salvador, it failed immediately because the transaction fees were too high and the stipend given to citizens swung in value too radically.
I will be convinced when people are buying groceries with it and not trying to become crypto mill/billionaires overnight.
Monero and other privacy coins have some real utility for enabling drug sales, tax evasion and ransomware. In terms of above-board use cases, I'm deeply skeptical.
I just went through the process of buying something expensive in a "trustless" system in an IRL country. It was pretty painful and very expensive -- I paid $300 just to get a guaranteed check cut!
Of course this is a trivial problem to solve with smart contracts, if you can have things like real-life identity and real-life money mapped to them.
While I don't think any of the crypto stuff out there today solves any of these problems realistically, at least Ethereum sure looks like an experiment in that direction.
That a lot of people are getting rich speculating on crypto absolutely triggers my FOMO, and sometimes my disdain (cf. certain NFT sales) -- but I definitely wouldn't call it worthless.
Some day we may have free, secure, trustless escrow via smart contracts, and a bunch of other neat stuff. I think that's unlikely to be on any of the current networks, but I also think we'll get it decades earlier because of them.
> Of course this is a trivial problem to solve with smart contracts, if you can have things like real-life identity and real-life money mapped to them.
This reminds me of talking to a salesperson at $BIG_CO about their "blockchain platform cloud" offering for "ending inventory tracking system inaccuracy problems once and for all".
I could never figure out how cryptography was supposed to help with the "is the physical thing actually where it's supposed to be in the physical warehouse" problem. That seemed like the non-trivial part. Everything else you could just do with a flat-file CSV or whatever.
"Of course this is a trivial problem to solve with smart contracts, "
No, it doesn't. The 'contract' was never the issue really. We need a judicicial and regulatory system in which the contract is valid, the means to redress issues, undo transactions.
Now, $300 is probably too much to move money and speaks to the incumbency of financial actors ... but a good chunk of that cost is actually the reality of the fact that it takes a lot of very smart, very conscientious and super 'small-c' conservative running financial infrastructure.
I think regular fintech startups will beat down that $300 cost faster than crypto will.
Even less than people want to hear that gold is just shiny dirt, people don't want to hear that almost all perceptions of value are inherently subjective and meaningless.
That social credit, and money, and everything we hold dear and true is just narrative we've crafted around ourselves to cope with the uncaring void that is the cosmos.
So -- my guess -- people are probably going to keep thinking that things are valuable so long as everyone else around them does. And technically everything can be reduced to nothing more than a set worthless human brain farts.
Edit: except for your values of course. Whoever you are, your values are certainly meaningful, and your life is a story that really matters.
Where do you get that people “don’t want to hear” this? I find it’s a tedious revelation that people seem to love having. Yes, things are only valuable if people believe they’re valuable. Deep. So what though?
The downvotes are because "worthless" is hyperbolic and unhelpful. Clearly, the coins have value because someone out there feels like paying money for them.
More importantly: we _HAVE_ to understand the market dynamics here. What's going on is very human and very important to realize.
Matt Levine from Bloomberg has a very simple explanation: the cryptocoin world has discovered "senior debt vs junior debt", and are using this concept to create stablecoins.
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The issue is, the rest of the world _REMEMBERS_ 2008, and what happened the last time we relied upon the senior/junior debt split. The concept is simple:
Junior debt is high-risk. Senior debt is low-risk. Through the use of structuring your economy around this concept, your junior debt "supports" senior debt.
A stable-coin, is simply the senior-debt on some other cryptocoin.
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Lets take BTC for example. Lets say I want to "create" a stablecoin out of BTC, despite its widely varying valuation. Lets say I set up a senior set of notes: it stays at $1 as long as BTC stays above $10,000.
But what about all the "risky part" ? Well, someone out there in the world wants to bet it all on the risky part. When BTC rises from $10,000 to $50,000, they want to make $40,000 with $0 investment. Because the "senior" guy already took the risks for $10,000 and below, I can now offer the "rest of the gains" to the junior guy, who can play with all the values of BTC above $10,000 (except, without having to pay any money in the first place).
When BTC goes up to $20,000, the junior guy spent $0 and made $10,000. Senior guy still has $10,000.
When BTC goes up to $50,000, junior guy now has $40,000 and senior guy has $10,000.
This sounds hypothetical, but its in fact very similar to how the stablecoin TITAN / IRON was structured, with Titan as the "senior" stablecoin and Iron as the junior.
Now just wrap it all up in a smart contract, maybe tie the concept to Ethereum (or whatever other cryptocoin suits your fancy), and you too can reinvent senior/junior debt structures and pretend you're a genius.
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You see? Senior is "just" the stablecoin guy. Junior is the WSB idiot who might lose all of his money.
Or in other terms: your CDO of CDOs is truly and 100% secure. You may have a pile of shit, but you can extract stable values out of it.
Or at least, so went the theory of 2008 housing crisis, CDOs, and CDSes and all that. We know where that went however.
It hasn't even been 13 years and everyone's forgotten about the underlying assumptions that broke the market in the 00s.
> Is the correct value for a Ponzi scheme really determined by the most recent dollar they took in?
I wouldn't say a Ponzi scheme should be valued by this dollar. It should be valued by the next dollar that someone is willing to put into it as the whole point of the Ponzi scheme is to gather the next dollar.
I certainly agree that worth and current market price are correlated. But I disagree that they're definitionally the same.
Indeed, pretending they're equivalent is a great way to lose a lot of money. I used to work for financial traders and I got some very fat bonus checks paid for by people who confused the two during high-volatility events while our traders stayed more flexible.
Your post makes a lot of sense to me from a fundamental econ perspective, however, I know I don't know enough about the topic of crypto-currencies in general to trust my opinion much. I'd love to see the strongest possible counter-argument to yours to help me understand why so many people seem to disagree.
All crytocoins have their own programming and therefore their own general behaviors that fail to generalize.
My post was largely based on the TITANIUM / IRON saga of the cryptocoin world, just a few months ago ("Titan" for short). I'd suggest you read up on the mechanics of how / why that crashed.
> When BTC goes up to $20,000, the junior guy spent $0 and made $10,000. Senior guy still has $10,000.
When BTC goes up to $50,000, junior guy now has $40,000 and senior guy has $10,000.
You used a lot of words to describe a Ponzi scheme.
I'm describing a CDO scheme. Its important to remember the difference. Ponzi is a very, very different structure.
CDOs do well as long as the underlyings don't crash beyond a certain value. The "junior" guys have lots of risk (and they _WANT_ the risk and enjoy it). The "senior guys" think they're safe.
Indeed: senior/junior is roughly how we split up fiat dollars: banks do this with our money all the time (under tight regulations of course, to ensure that the banks are following the rules). Senior/junior can work, but in practice... someone out there will want to cheat the system. At that point, it all comes crashing down.
Regulating the heck out of banks to ensure that no one cheats is a big part of the solution.
> CDOs do well as long as the underlyings don't crash beyond a certain value
Which, to be clear, didn't happen in 2008. People assumed that super safe meant super liquid. The AAA tranches of every CDO I've looked at performed as promised, in terms of not losing money. Even when the underlying securities performed abysmally. They just didn't trade in a crisis like the Treasuries their buyers were using them to replace.
(Side note: a lot of algorithmic stablecoins similarly assume perfect liquidity and continuous pricing.)
There's of course, "The Big Short" if you want a stupid 2-hour movie. But that movie glosses over so many details and is straight up hyperbole at many points... so its not "realistic" but maybe a better thing to watch if you really don't want to put in much effort?
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I guess my post was based off of the Bloomberg blogpost "Looking for Tether’s Money" by Matt Levine. So read that for my original inspiration, though you may need a Bloomberg subscription to be able to read it.
Edit: Love the immediate fear downvote. No one wants to hear their gold is really just shiny dirt.