Tulips, Myths, and Cryptocurrencies
stratechery.com
stratechery.com
Much like the internet did then, crytpo-currencies now draw an assortment of technologists, anarchists, bankers and futurists. There's also a wildly optimistic bull case to be made and it's very difficult to determine a reasonable valuation.
In contrast, tulips weren't a new technology, they had no power to change the world's business or social graph and a radically new tools couldn't be build on top of them.
(Tulips are obviously not an efficient food source; don't expect to see people eating tulips except in unplanned-for emergencies.)
On top of that, you get tulip traders, who seek to buy tulips from people who value them less and sell them to people who value them more, and speculators who acquire and hold tulips on an expectation that they will be worth more in the future. From there the market can explode and the price can rise far beyond whatever the primary users of tulips are willing to pay.
The weird thing about Bitcoins is there is no floor to their value - their value as a unit of exchange or a store of value depends entirely on how many people are willing to accept them. A Bitcoin is not a tulip that some people want to simply admire or a corporation that has revenue or a parcel of land which has potential. With all those things, you might just want the thing for the thing. With Bitcoin, you only ever want it, either as a store of value or a medium of exchange, because other people also want it.
This is where everything becomes weird. With other markets, tulip or stock or real estate, you can speak of the commodity as being over-valued when speculation drives the price above what the people who want the thing itself are willing to pay. With Bitcoin, you cannot. You can't call Bitcoin overpriced or underpriced because it has no grounding, no price that is independent of demand.
Utility/value is relative - maybe a tulip is worth something to you, but it's not worth anything to me.
I do agree with OP that certain things might not be usefull even tough they currently hold commercial value, I just think Bitcoin is usefull. And I also believe that BTC is usefull in an infectious way.
Regardless, I fell like you're begging the issue. Not all value is relative, some thing are more practically valuable than others and sone, if you look at them objectively, are almost worthless.
I'm not understanding this argument. How can value be dependent on the context and intrinsic at the same time?
If peanut allergy spread to the entire population, would peanuts still have intrinsic value?
This is a facile line of argument. There are reasonable assumptions we can make about how stable a particular context is.
Can you enumerate these "reasonable assumptions"? The idea sounds pretty dubious to me.
And yes, I would say that if the sun exploded, killing all Earth life, nothing would have value, at least not from a human's perspective. This doesn't seem to help the case for intrinsic value.
However, the edge cases aren't imaginary, and they give us a chance to refine our ideas.
Say there is a huge harvest and a town now has much more food than it can eat. A food merchant passes through the town and wants to sell some of his goods, however obviously no one is interested. Has the merchant's food lost its intrinsic value? Why doesn't anyone want it?
We can also consider the vastly different food preferences found all over the world. And so on...
Being a bit pedantic, food isn't really a specific thing, it's an amorphous category. It's literally defined as "anything people eat that provides nutrition", so it almost feels tautological to say that food has intrinsic value.
Finally, almost any other concrete, specific example I can think is much less universal than "food".
http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/lloyd/val...
What is your argument against the inherent utility of owning Bitcoins?
In each case, the face value is identical but one of the units has an additional possible area of value, extrinsic to the marked face value. You can melt down the silver coin, eat the potato, plant the tulip. This puts a floor on the value of the item - it's worth min(facevalue, extrinsicvalue). Something worth min(facevalue,extrinsicvalue) should be worth more than something worth min(facevalue, 0).
Bitcoin doesn't seem to be something that can be planted, eaten, etc. It doesn't have another area of value, other than being bitcoin.
Until the regime gets the private keys, which isn't unlikely. As soon as cryptocurrencies are widely adopted, regimes will learn about them and not only take the cash but also search for the keys.
When circumventing government, there's also always the question of "how likely is it I will be caught?" and "what happens if I do?". If the penalty is "you get shot in the back of the head" or even just "you spend a year or two in a comfy minimum-security prison" and the probability is "non-zero", most rational people aren't going to assign a high enough value to "not having some money confiscated" to choose circumvention.
Customs can easily catch you smuggling cash, gold and potatoes, but they have no idea you are leaving to cash out your bitcoin in another country.
So not quite money, but not quite individual artworks/collectibles either; maybe more like prints with limited runs? (In a similar way, woodblocks wear out so scarcity for a particular print series is enforced.)
Depends on your definition of 'technology'. From wikipedia:
> The tulip was different from every other flower known to Europe at that time, with a saturated intense petal color that no other plant had. The appearance of the nonpareil tulip as a status symbol at this time coincides with the rise of newly independent Holland's trade fortunes.
In any case, they were certainly new, and there was reason to believe that lots of people would want to buy them.
If you think cryptocurrencies have no utility at this point, you have your head in the sand. To use money electronically right now, you need a bank, you can't do it yourself.
Another alternative would be to trade goods or altcoins for fractional BTC.
https://www.reuters.com/article/us-fidelity-bitcoin-idUSKBN1...
Second Life was an attempt to do a full simulation of life online, a clumsy transfer of what it is to be alive directly from reality to internet; as it turns out, the technology of the internet is good at a lot of the fun parts of Second Life (talking to friends, meeting new people) but those can be performed by new systems, unburdened from trying to be a simulation of something else (messageboards, forums, and so on to Facebook/tumblr/twitter etc). The other parts (from raising virtual pet rabbits to the whole concept of walking from place to place) were just sort of fluff, and so the experience faded not because it was a bad idea, but because it could be done better once it stopped caring about the simulated fluff.
Cryptocurrencies may not be that useful, but there's a possibility that they prefigure something larger; they're still mimicking a pre-existing model of currency, economy, and exchange that can itself be disrupted. If we analogize cryptocurrencies to Second Life, it means they'll fade because their functions will be replaced by a completely new way of interacting/handling value, and the blockchain can still be an important technology for that. (For the record, I think it's too soon to tell, and am not that optimistic about any current blockchain ventures.)
All of these are in the early development (even concept) stages but investors are seeing the obvious huge upsides if the teams can pull it off, and to me these are the most exciting technologies which counter the aged arguments about crypto's worth as an exchange of value with solid real-world use cases which can be compared in real terms to current centralised solutions.
Bitcoin would continue to exist without the exchanges and wallets, they are peripheral to the core technology. Blockchains can't be 'forked at a whim' without majority consensus, that's the whole point. ETH is the obvious example where the devs forked with support from the community and it led to the ETH/ETC divide.
You could ask what would happen if Cisco tried to force a new version of TCP/IP with unwelcome changes?
The comparison isn't quite the same yet, but it could be in the future and many bitcoin supporters think that's how it will turn out.
Of course Ethereum is one chain that infamously forked. That was only possible because all the client devs agreed to do it, and most users chose to use the new software. (Some didn't, so the original chain still exists as ETC.)
i always found this to be a ridiculous statement. you won't do well coining non metalic minerals/elements, and many others are subject to corrosion. gold on earth is finite and it is not man made. gold is the third most metalic electrical conductor. gold is also has the oligodynamic effect of inhibiting bacterial growth.
>One of the big recent risers, Ethereum, is exactly that: Ethereum is based on a blockchain, like Bitcoin, which means it has an attached currency (Ether) that incentivizes miners to verify transactions. However, the protocol includes smart contract functionality, which means that two untrusted parties can engage in a contract without a 3rd-party enforcement entity.
all this effort to not pay lawyers to draft/read/interperet contracts due to "legalese" only to write contracts in programing languages no one can read and understand....see the doa contract which was misread by the founders, by the third party reviewer, and every single person who bought in (except the party that stole $150m via smart contract).
The author's main point, though, is that perception is reality. If I accidentally offend you, your offense does not become any less real just because I didn't mean to offend you, or that you should not have been offended.
Silver also inhibits bacterial growth, which is why it's used in deodorants, silverware, etc.
I'll give you an example contract that I think could be useful: an escrow service. Let's say you want to pay someone for their work, but only if they do it. You deposit the payment into a contract with 3 keys. The contract can send money only to two places. Either back to you, or to the worker. Each key has a vote where to send the money. Once any 2 of the 3 keys have voted the money is sent. You give 1 key to yourself, 1 key to the worker and 1 key to the third party. If you are satisfied with the work, you and the worker both vote to send the money to the worker and the money gets sent without bothering the 3rd party. The third party only gets involved and decides how to vote ONLY if there is a disagreement, which should be infrequent. In a world without cryptocurrencies it's much harder to implement this. The third party would have to be much more involved. It would hold the funds for a while and then have to transfer the money. You also have to be concerned what if the 3rd party runs away with the money. This contract can be written once, and even formally verified. Anyone can than create an instance of it for their needs and specify the addresses of the 3 key holders. Basically you upload a "class" to the blockchain and anyone can create an instance of that class for themselves.
But the whole point of a contract as a program was that it was supposed to be easier to debug, and that wasn't true. Whereas the point of using software for space probe navigation is that it can navigate almost as well as a human while requiring less air.
> I'll give you an example contract that I think could be useful: an escrow service. Let's say you want to pay someone for their work, but only if they do it. You deposit the payment into a contract with 3 keys. The contract can send money only to two places. Either back to you, or to the worker. Each key has a vote where to send the money. Once any 2 of the 3 keys have voted the money is sent. You give 1 key to yourself, 1 key to the worker and 1 key to the third party. If you are satisfied with the work, you and the worker both vote to send the money to the worker and the money gets sent without bothering the 3rd party. The third party only gets involved and decides how to vote ONLY if there is a disagreement, which should be infrequent. In a world without cryptocurrencies it's much harder to implement this. The third party would have to be much more involved. It would hold the funds for a while and then have to transfer the money. You also have to be concerned what if the 3rd party runs away with the money. This contract can be written once, and even formally verified. Anyone can than create an instance of it for their needs and specify the addresses of the 3 key holders. Basically you upload a "class" to the blockchain and anyone can create an instance of that class for themselves.
Standardised escrow contracts and escrow services already exist, and charge fairly small fees. There are published template contracts and anyone with the legal skills can use such a contract themselves, and anyone without legal skills can pay any reasonably qualified lawyer to use them. Turning this into code that anyone with programming skills can use and anyone without can pay a qualified programmer to use doesn't seem to make much difference. The problem of not having a trustworthy third party sounds difficult but it isn't really, at least in countries with a functioning legal system etc.
(The hard part of running an escrow service is determining whether the thing that was supposed to be paid for has actually happened - whether the grain was of acceptable quality, whether the house was as described, etc. - and the blockchain doesn't help with that part at all)
No, another point of a contract as a program is that once it is ready, and considered bug free by many, it can be reused potentially unlimited times, with all the productivity increase that it implies. It can free people from having to pay the expensive lawyers.
You mean the entire history of the World which includes the creation of contracts thousands of years ago and independent/third parties (courts/legal systems) to determine things like enforceability, legality, breaches and defenses?
I'm afraid cryptocurrencies aren't anymore useful or capable of any of those things anymore than say...a tulip.
When people refer to "smart contracts" what is actually possible is a specific type of funding contract, in which funds are held in a third party account until the funding amount hits a predetermined level at which point the funds are transferred...no different than kickstarter or gofund me does only cryptocurrencies are not centralized with readily identifiable entities that can be held liable in the instance of a breach. However, everyone is using smart contract as a marketing term to imply something much greater which doesn't exist, basically they are marketing smart contracts as a replacement for lawyers and courts as a sort of ai that can determine if a contract is completed or breached and perfect enforcement accordingly...that is the tulip, and no one is stepping in to correct this misinformation. Even in the crowd funding example, once predetermined levels are reached and finds released, a smart Contract can't enforce anything to ensure the funded party actually performs according to their promises.
If that seems ludicrous to you, we can all stop using computers as well. Because of the potential bugs!
In reality, there are startups that aim to process actual contracts with algorithms to avoid such ambiguities.
I have no problem with a dencentralized/distributed "if this, then that" algorithms but let be honest about its real life applications and its limits...and not call them "smart contracts" capable of replacing lawyers/courts/legal systems in order to sell the tech to investors who are uneducated about the technology or law.
im not saying we should not use smart contracts (computers) because there was a bug in one, I am saying the tech is being sold as something it purports to be which it is not, and that is ripe for abuse. In the case of dao, assuming there was no bug and smart contracts really were capable of contract enforcement and preventing breaches, they never needed to collect investors money up front, yet no one ever stopped to ask why they did that, well when $150m gets stolen it becomes obvious why they wanted investor funds upfront before a single investment opportunity even existed.
This startup has nothing to do with cryptocurrencies: http://beagle.ai/
How about a little analogy? In the mid fifties a trucker conceived the idea of having his trucks' cargo loaded directly onto a ship, thus inventing the container ship, which essentially revolutionized the shipping industry. Nobody moves cargo the old way anymore, unless they are completely insane.
Moving value using distributed consensus systems based on pure mathematics is a similar revolution. However, it is likely to be at least an order of magnitude more significant.
It might be a good time to invest.
Blockchains, especially Bitcoin, have multiple fundamental flaws that only wait until they are exploited. Bitcoin for example is the most inefficient way of handling payments ever invented. The whole system is based on the fact that not someone with a higher hashrate comes along. State-level actors might be not be a threat to the system right now but wait until it gets more and more popular. Most of the miners (and the hashrate) are in China and the Chinese government will not sit with their hands in their laps while a unregulated currency becomes widely adopted in the country.
A zero-trust distributed database is kind of cool. A distributed database that can do 6 transactions/second with a commit time of about 30 minutes and an enormous energy consumption is not very cool. The only people for whom bitcoin is valuable are people for whom the former outweighs the latter, i.e. people for whom trust is extremely costly and zero-trust extremely valuable. Basically, criminals. There's a decent population of those, but it's still a small fraction of society and shrinking every day; drug legalization and the collapse of capital controls in the few places that still have them will destroy most of bitcoin's value.
In the developed world, capital controls are definitely increasing. Financial regulations in general are increasing. Mass-surveillance of people's personal finances, and in particular, private transactions, is increasing as well, as cash gets replaced by identity-linked electronic accounts controlled by larger trusted third parties. There is demand for a cash-like electronic currency.
In the developing world, there are billions who are unbanked, and with one-third of children being born without a birth certificate [1], and the trend toward increasing centralisation and regulation of banking making government identity documents increasingly necessary to get a bank account, there will likely continue to be a large number of unbanked in the world for whom a permissionless and censorship resistant electronic currency is extremely valuable.
[1] http://www.independent.co.uk/news/world/politics/220-million...
The "commit time" (time until a transaction is considered irreversible) is 60 days for Visa, but 10-60 minutes for Bitcoin. The "notification time" (time until a transaction is announced to recipient) is < 1 second for both systems. The "processed time" (time until a received transaction is spendable) is next-business-day for Visa, and 10 minutes for Bitcoin.
Bitcoin miners consume less energy than the annual electricity consumption of decorative Christmas lights in the US, which process 0 transactions and do nothing other than looking shiny: http://blog.zorinaq.com/bitcoin-electricity-consumption/
The people for whom Bitcoin is valuable include notably (1) senders/recipients who needs to send/receive money quickly (10-60 minutes) to/from anybody around the world, and (2) recipients who want to eradicate fraudulent and eventually reversed payments. Definitely more than "just criminals."
Just because Bitcoin may not be useful to you in your life does not mean others will not need the utility it provides.
But in reality, if it is OK for a shop to tolerate the risk of credit card chargeback fraud (which is real and is exploited every day) then it is OK to also tolerate the risk of accepting a zero-confirmation Bitcoin tx. Notice the language I use. "Tolerate" doesn't mean "annulate", but "accepting some degree of risk that can be controlled."
Of course the downside of this cautiousness around zero-confirmation transactions causes people to think Bitcoin transactions are slow, when it's not true. They are as fast as, if not faster, than CC transactions.
You can draw all sorts of gerrymandered lines to make different things sound equivalent. The question that matters for a merchant is how long do they have to wait to confirm a transaction in order to not end up losing massive amounts of money to fraud, and that number is <1 second for visa and 10-60 minutes for Bitcoin.
> Bitcoin miners consume less energy than the annual electricity consumption of decorative Christmas lights in the US, which process 0 transactions and do nothing other than looking shiny: http://blog.zorinaq.com/bitcoin-electricity-consumption/
Only because Christmas lights are used by more people, more often. How much energy does bitcoin consume per transaction, hmm?
> (1) senders/recipients who needs to send/receive money quickly (10-60 minutes) to/from anybody around the world
Obviously no-one wants to wait any longer than they have to, but what's the realistic use case where the participants are far enough apart that this matters and 10-60 minutes is so much better than a couple of days? And again this is a case where bitcoin could very easily be undercut in the near future by trustful systems that have fundamentally much lower costs - within-country those systems are already single-digit minutes (2 hours is advertised but that's an upper limit, bitcoin has a very high upper limit on how long a transaction might take).
> (2) recipients who want to eradicate fraudulent and eventually reversed payments
Irreversible payment is too easy to exploit in the other direction, by selling faulty goods. Non-criminal consumers like the option of chargebacks, and non-criminal merchants accept that.
They are equivalent. I note that you failed to make a detailed rebuttal, and that is because the factual data I mentioned is true.
"Only because Christmas lights are used by more people, more often. How much energy does bitcoin consume per transaction, hmm?"
It's neither about the number of users, nor about the energy per tx. My point was that people are OK to spend energy on things that are seemingly useless (shiny colorful lights, or SHA256 computation.) And in both cases, Xmas lights or Bitcoin mining, it's fine to spend the energy doing so. Because what we get in return (comfort of life, economic product) is worth the energy spent on it. So if people are OK spending 7 TWh/year on technically useless decorative lights, it is obviously OK to spend a similar amount of energy on powering a revolutionary distributed trustless financial network. Every kWh spent on Bitcoin mining not only enables transactions, but also: creates jobs, creates wealth, reduces trade friction, improves economic output, and on and on.
"what's the realistic use case where the participants are far enough apart that this matters and 10-60 minutes is so much better than a couple of days?"
Seriously? If you can't answer this question, you have never run a company (even a small company) who engages in international trade.
"Non-criminal consumers like the option of chargebacks, and non-criminal merchants accept that."
And yet reversibility hampers trade. Some business is never done with reversible CC transactions precisely because merchants can't accept the risk. Bitcoin enables them to pursue ventures that would otherwise not be doable.
I note that you failed to respond to my high-level point that makes all your technical minutiae irrelevant.
> My point was that people are OK to spend energy on things that are seemingly useless (shiny colorful lights, or SHA256 computation.)
Not the same thing at all. People enjoy looking at colourful lights, and so choose to pay to display them.
> Every kWh spent on Bitcoin mining not only enables transactions, but also: creates jobs, creates wealth, reduces trade friction, improves economic output, and on and on.
In a hypothetical large-scale Bitcoin economy, how many transactions would happen that wouldn't have happened without bitcoin, what proportion of those would be transactions that were positive rather than negative for society, and what would be the energy cost per such transaction?
> And yet reversibility hampers trade. Some business is never done with reversible CC transactions precisely because merchants can't accept the risk. Bitcoin enables them to pursue ventures that would otherwise not be doable.
We have techniques for doing irreversible transactions in the existing financial system. They're used for a tiny proportion of transactions, and an even tinier proportion of legitimate transactions, because the overwhelming majority of the time reversibility is what you want.
My response would have been redundant with what I already told michaelt: your point is wrong, waiting <1 second for a visa transaction does not protect the merchant from potential massive losses, because of credit card chargeback fraud which is very real, exploited every day, and can be conducted up to 60 days after the purchase. Example: https://www.reddit.com/r/legaladvice/comments/5r9nqi/credit_...
"Not the same thing at all. People enjoy looking at colourful lights, and so choose to pay to display them"
And people enjoy making money, and so choose to pay the electricity to mine bitcoins. Same thing. People pay for things they enjoy.
"In a hypothetical large-scale Bitcoin economy, how many transactions [...], what proportion [...], and what would be [...]?"
I estimate that if Bitcoin's market capitalization reaches $1 trillion, then miners will still not account for more than 0.74% of the energy consumed by the world ($1.25 billion per TWh), which is more energy-efficient than, say, Canada (whose economy produces $450 million per TWh.) See http://blog.zorinaq.com/bitcoin-mining-is-not-wasteful/
"We have techniques for doing irreversible transactions in the existing financial system. They're used for a tiny proportion of transactions..."
Yes and this is a physical exchange of cash/commodities. Bitcoin/cryptocurrencies make irreversible transactions possible digitally and have no other equivalent in the digital world. This is one of the biggest innovations they bring to the table.
"the overwhelming majority of the time reversibility is what you want."
No. Litterally 1 in 2 persons conducting transactions would prefer irreversibility. Recipients want it. Senders don't.
And yet it remains economically viable for merchants to operate waiting <1 second for payment, because the trust-based visa system and the broader legal system have countermeasures against chargeback fraud. With bitcoin that's impossible by design; merchants don't accept bitcoin in <1 second and never will, because there is no way to deal with the fraud that would lead to.
> And people enjoy making money, and so choose to pay the electricity to mine bitcoins. Same thing. People pay for things they enjoy.
Not the same thing. Bitcoin isn't decorative, it's a means to an end - paying for things. And there are much cheaper ways to pay for things, unless you're a criminal.
> I estimate that if Bitcoin's market capitalization reaches $1 trillion, then miners will still not account for more than 0.74% of the energy consumed by the world ($1.25 billion per TWh), which is more energy-efficient than, say, Canada (whose economy produces $450 million per TWh.) See http://blog.zorinaq.com/bitcoin-mining-is-not-wasteful/
That calculation is using an artificially low energy price and an artificially high profit margin for "miner"s, and it's completely disregarding how transaction fees are intended to displace mining fees as a source of mining profits. But even using that number, world GDP is $80t; at a conservative P/E of 20 that makes the world economy's market cap around $1.6q. So bitcoin would be 0.06% of the world's market cap, but consuming 0.74% of the world's energy.
> Yes and this is a physical exchange of cash/commodities. Bitcoin/cryptocurrencies make irreversible transactions possible digitally and have no other equivalent in the digital world.
There are irreversible digital settlement systems (those that currently exist are even slower than bitcoin, but there's no reason they have to be - it's just that at the scale of the financial entities that can make use of such systems, waiting a couple of days for settlement is a non-issue), and we could easily make more if there were demand for it. Credit card chargebacks are a design decision, not a fundamental limitation.
The same legal system will be used to sue thieves, regardless if they chargeback a credit card, or revert a 0-confirmation bitcoin transaction. Do you live in a fantasy world where judges tolerate theft of bitcoins?
"merchants don't accept bitcoin in <1 second and never will, because there is no way to deal with the fraud that would lead to."
You seem to have never heard of Gemini (second biggest US exchange) who does accept 0-confirmation transactions meeting certain criteria. Or greenaddress.it. Or services like gap600.com.
"Not the same thing. Bitcoin isn't decorative"
You are right, Bitcoin is not a useless decorative thing. Bitcoin is a revolutionary distributed trustless financial network. Again, it is your 3rd message, and you still failed to explain why it is ok to spend energy on useless (on a technical level) decorative Christmas lights, but not on Bitcoin.
"And there are much cheaper ways to pay for things"
No. Again I can send $5000 or $50 million across the world and pay a flat tx fee of $2. No system other than cryptocurrencies accomplishes this.
"That calculation is using an artificially low energy price"
Why do you complain? The low energy price of $0.01/kWh benefits your argument, not mine, as it allows miner to spend even more electricity in this model.
"So bitcoin would be 0.06% of the world's market cap, but consuming 0.74% of the world's energy"
You are missing the point. It is not market caps that need to be compared, but the GDP increase caused by Bitcoin that needs to be compared with its energy use. The market cap of Bitcoin is in itself irrelevant. The point http://blog.zorinaq.com/bitcoin-mining-is-not-wasteful/ is making is that if Bitcoin's market cap is that high, then it probably will have helped increase the world's GDP by at least 0.74%, therefore it will be worthwhile to spend 0.74% of the energy on it.
"There are irreversible digital settlement systems"
False. You cannot name them because they do not exist. Only cryptocurrencies accomplish this.
Christmas lights produce value and there isn't a less wasteful way to provide the same value (because the value is a subjective notion of prettiness, we can't say that other forms of decoration are acceptable substitutes). Whereas bitcoin does have a cheaper substitute (because bitcoin is functional, so any other system that does the same thing is just as good).
> The point http://blog.zorinaq.com/bitcoin-mining-is-not-wasteful/ is making is that if Bitcoin's market cap is that high, then it probably will have helped increase the world's GDP by at least 0.74%
There is no logical basis for that inference - I suspect that article is just trying to trick people by making them compare a large-sounding number ($1 trillion) with a small-sounding number (0.74%), because people don't have a good intuition for how big the world's GDP is. Compare market cap with market cap or compare production with production.
> False. You cannot name them because they do not exist. Only cryptocurrencies accomplish this.
"there isn't a less wasteful way to provide the same value"
Yes there are many ways: migrate from incandescent to LED, run LEDs at lower PWM duty cycle, reduce number of lights, etc.
"Compare market cap with market cap or compare production with production"
Comparing production to production is exactly what the article is doing.
RTGS transactions are reversible. Eg. when fraud is detected, banks simply agree to perform a reverse transfer.
All of which affect the subjective beauty of them.
> Comparing production to production is exactly what the article is doing.
It's not - comparing market cap (a total value measure) to GDP (a per-year measure) is dishonest.
> RTGS transactions are reversible. Eg. when fraud is detected, banks simply agree to perform a reverse transfer.
Agreeing to perform a reverse transfer will be possible in any system you could meaningfully call a currency. It's certainly possible with bitcoin.
"It's not - comparing market cap (a total value measure) to GDP (a per-year measure) is dishonest"
Yes it is. It says "it would have probably directly or indirectly increased the world's GDP by at least 0.74%" This is a percentage that relatively compares Bitcoin's production (0.74%) to the world production (100%). Bitcoin's market cap is mentioned in passing, but not part of the core argument.
RTGS: of course the 2 banks part of a transaction can agree to any transaction. What I meant is the central bank or other authority (not part of the initial transaction) can reverse it at will. Most RTGS systems are operated by central banks. If a fraudulent transfer from bank A to B is made, then of course the central bank would step in and reverse it. As I said, again, irreversible digital transactions outside of cryptocurrencies don't exist.
Hey man, christmas lights and LEDs are your example, not mine; I'm just answering your questions.
> This is a percentage that relatively compares Bitcoin's production (0.74%) to the world production (100%).
No, because it doesn't give any reasoning to connect up Bitcoin production with that 0.74% figure. The only number it gives for Bitcoin is the $1T market cap number, and fundamentally it's completely implausible for something with a $1T market cap to be responsible for 0.74% of world productivity. As I said a few posts back, a $1T market cap in a mature industry corresponds to being responsible for about 0.06% of world productivity (and a $1T market cap in a growing industry corresponds to less productivity than that, as the market cap is including the growth potential).
> What I meant is the central bank or other authority (not part of the initial transaction) can reverse it at will. Most RTGS systems are operated by central banks. If a fraudulent transfer from bank A to B is made, then of course the central bank would step in and reverse it. As I said, again, irreversible digital transactions outside of cryptocurrencies don't exist.
Cryptocurrency transactions can be reversed by those operating the cryptocurrency - look at the Ethereum DAO fork.
You are not answering. You still (3rd time I point this out) haven't replied to the majority of what I wrote in https://news.ycombinator.com/item?id=14442878 where I explain the utility of Bitcoin, legal protections, and 0-confirmation transactions. Should I take your silence as tacit acknowlegement?
"No, because it doesn't give any reasoning to connect up Bitcoin production with that 0.74% figure."
It doesn't give the reasoning, but I also don't think your estimate is correct, especially your choice of P/E 20, which is not conservative at all. Remember the world's market cap is comprised of very average companies, including companies that are so terrible they are not worth taking public: for example a small corner store, which I am sure you will agree should not be valued at a P/E of 20. In fact we can estimate a more accurate world P/E by looking at the global market cap of listed companies: $60T (http://data.worldbank.org/indicator/CM.MKT.LCAP.CD) If 1/4th of the world GDP is produced by public/listed companies and 3/4th by private/unlisted ones, then the "world's market cap" is $240T, which means the world's P/E is 3. Bitcoin being valued at $1T would be 0.42% of a $240T world market cap, so it would be reasonable and very average for it to use 0.74% of the world's energy. In fact after doing this math I am surprised how close these 2 figures are. This means Bitcoin would be even more efficient compared to other industries (eg. aluminum smelting) that use disproportionately even larger amounts of energy compared to their contribution to the world's economy/GDP.
"Cryptocurrency transactions can be reversed by those operating the cryptocurrency - look at the Ethereum DAO fork."
Replace "cryptocurrency" with "Bitcoin" in my sentence. Bitcoin has a 8+ year history of never reversing transactions despite many massive thefts. So, as I said, Bitcoin's irreversible property has no equivalent in other financial systems. And you were wrong that RTGS systems provide irreversibility.
You're link goes to some random comment in an unrelated thread, so I've no idea what you're talking about. The legal system is great when you can identify a thief, but that's difficult enough for in-person theft; it's virtually impossible when operating pseudonymously over the Internet. As for 0-confirmation transactions, the bottom line that no amount of sophistry will get away from is that 0% of the shops I've been to in the real world that take bitcoin allow payment in seconds, whereas 100% of the visa-accepting ones do.
> for example a small corner store, which I am sure you will agree should not be valued at a P/E of 20.
Huh? It absolutely should be; that's exactly what a P/E of 20 being normal for mature businesses means.
> Bitcoin has a 8+ year history of never reversing transactions despite many massive thefts. So, as I said, Bitcoin's irreversible property has no equivalent in other financial systems. And you were wrong that RTGS systems provide irreversibility.
I'm sure there'll be examples of RTGS systems that have gone just as long with no reversed transactions, especially if you measure by transaction volume rather than clock time.
More importantly there's no fundamental difference between Bitcoin and Ethereum that makes it impossible for the same thing to happen; indeed the 0.8 (I think?) hard fork demonstrates that the level of coordination that would be necessary to reverse a transaction already exists. The only difference from conventional RTGS is policy; Bitcoin's operators doesn't reverse fraud, whereas it sounds like some RTGS operators do. I'm not sure why any non-fraudulent business would prefer the former.
0-conf txs are a thing, see the link. Although uncommon, they are becoming a bit more used as people demand faster transactions. But the reality is in most cases waiting 10-60 min doesn't matter (eg. wouldn't prevent a package ordered online from arriving in 2 days.)
As to the P/E, I have demonstrated to you why the average P/E of the average company is probably closer to 3 than 20. On average, it's companies that are better than average that are taken public. So it makes sense that private companies have a worse P/E.
"I'm sure there'll be examples of RTGS systems that have gone just as long with no reversed transactions"
Still doesn't mean RTGS provide irreversibility, as you incorrectly claimed. I am repeating myself again, but Bitcoin's irreversibility is one of the biggest differentiator it has over non-cryptocurrencies. Seeing you refuse to acknowledge this is silly.
"I'm not sure why any non-fraudulent business would prefer the former."
I already told you: literally 1 in 2 persons involved in a transaction (the recipient) would prefer irreversibility. Is it so hard for you to understand why a legitimate non-fraudulent recipient would prefer the sender not have the ability to take the money back?
Why?
1. The author starts out by relating how the standard story about the tulip crash may be a myth.
2. The author does not think that the above myth is a good analogy for cryptocurrencies. I'm going to go ahead and paste the closing paragraphs here:
The problem, of course, is that while blockchain applications make sense in theory, the road to them becoming a reality is still a long one. That is why I suspect the better analogy for blockchain-based applications and their associated cryptocurrencies is not tulips but rather the Internet itself, specifically the 1990s. Marc Andreessen is fond of observing, most recently on this excellent podcast with Barry Ritholtz, that all of the dot-com failures turned out to be viable businesses: they were just 15 years too early (the most recent example: Chewy.com, the spiritual heir of famed dot-com bust Pets.com, acquired earlier this year for $3.35 billion).
As the aphorism goes, being early (or late) is no different than being wrong, and that’s true in a financial sense. As I noted above, I would not be surprised if the ongoing run-up in cryptocurrency prices proves to be, well, a bubble. However, bubbles of irrationality and bubbles of timing are fundamentally different: one is based on something real (the latter), and one is not. That is to say, one is a myth, and one is merely a fable — and myths can lift an entire species.
Most will lose and go broke but a lot of infrastructure gets left behind that later, more considered, businesses build on.
True of the railways, the automobile, telecoms and the internet.
Most crypto currencies will be worthless but systems be created to allow me to buy shares from you with no broker or stock exchange, to track the ownership of patents and property publicly, to enforce government spending to prevent cronyism and uses that nobody has yet thought of.
Best investment is to learn the skills.
"The defining characteristic of anything digital is its zero marginal cost…Bitcoin and the breakthrough it represents, broadly speaking, changes all that. For the first time something can be both digital and unique, without any real world representation."
My question is this: is this the solution to our ongoing problem of not being able to properly reward the creation of digital goods because they can be infinitely reproduced ? I know that this could be considered bad news by a lot of people that use such digital goods for free, but this type of technology can't help but be a net positive benefit for everyone, if true. Especially since we're seeing a future in which more and more people will experience the ill effects of automation on their jobs and careers.
If I think a little deeper, it is true, you're proving identity by proving ownership of a private key, but the goal of crypto is proving ownership based on previous peer-agreed ownership by proving identity by proving ownership of a private key.
Or maybe I'm just full of shit, but It intuitively feels different than just signing something.
No. Blockchains allow abstract concepts that can't be reproduced, but the data makes up the concepts can still be reproduced just like any other piece of data. In fact every mining node has a complete copy of the Blockchain.
This is where he lost me. "Market cap" is a meaningless number for cryptos, as it's not realisable at all. It also gets people thinking of cryptos like companies, where you could actually realise something like it.
His entire thesis is "you can't prove this isn't just a bubble of timing!" and it's not a strong argument. Every bubble ever has had people claiming this one is unique.
Crypto "market cap" doesn't work like that - cryptos, including Bitcoin, are so thinly traded that the price is exquisitely sensitive to trades many magnitudes smaller than the total number of units. There's 15 million bitcoins, but trades on the order of 100 BTC can cause flash crashes. e.g. http://www.coindesk.com/high-seas-bitcoin-trading-whales-sti... Apple has 5 billion shares outstanding, but you couldn't flash-crash it selling 20,000 of them - the volume is ~20m/day.
====
Investopedia: Thin market http://www.investopedia.com/terms/t/thinmarket.asp
A market with a low number of buyers and sellers. Since few transactions take place in a thin market, prices are often more volatile and assets are less liquid. The low number of bids and asks will also typically result in a larger spread between the two quotes.
Also known as a "narrow market".
A thin market has high price volatility and low liquidity. If supply or demand changes abruptly, resulting in more buyers than sellers or vice versa, there will typically be a material impact on prices. Since few bids and asks are quoted, potential buyers and sellers may find it difficult to transact in a thin market.
====
Applied to Bitcoin: if the market is thin, i.e. the order books aren't very deep, then a small amount of trades will strongly affect the price.
So it's not a matter of what proportion of the total units a given trade is - but more of how busy trading is, and how likely a given trade is to strongly affect the price. In Bitcoin, single trades on the order of 100BTC can send the price up or down $30.
(Note also that the quoted "price" is a weighted average of exchanges. The price has been observed going up or down when the blockchain was actually getting flooded with transaction spam, and non-spam transactions were near-impossible; this is because trading inside the exchanges didn't stop, even though it wasn't linked at all and you couldn't transmit bitcoins between them. So the number to worry about is not depth of all order books, but depth of the order book on each exchange.)
As someone dedicated to eliminating scarcity in the material world, (a la Bookchin's /Post-Scarcity Anarchism/, compare Doctorow's /Walkaway/), this argument does not sit well with me.
If you think about tulips today, they are not expensive anymore but they do cost something and they still have some utility value as an ornament.
The value of anything (regardless of whether it is rare or not) tends to be proportional to the cost of producing the thing.
It doesn't cost much to produce a new cryptocurrency and because cryptocurrencies can be easily traded/converted between each other, they are essentially all the same. The tulips might come in many varieties, but they are all just tulips and their financial value is derived from a common utility attribute (which is ornamentation). Because of this, one should not value Bitcoin because of its perceived scarcity - Ultimately, it all comes down to utility value.
Scarcity is not a utility.
I think the author lives in a bubble. For 99% of all humans this is not true.
[1] Many other shiny, corrosion-resistant, and cheaper materials exist and would make more sense to use for jewelry. But when gold is used over these other materials, it is almost always for the only reason that it is more valuable.
As long as a thing has consumer demand that doesn't derive from speculation or decay quickly with time, it can have intrinsic value. Phrased another way, "jewelry" and "dentistry" are both legitimate uses of gold, because they both create organic consumer demand (and from what I can tell most people don't use gold in jewelry for speculative reasons).
The author's usage of the word "intrinsic" is confusing to me, because its fuzzy and imprecise. He's not really using the term in the traditional financial sense, as you would in e.g. fundamental valuation, or options pricing (theta decay, etc).
I disagree. But it's not because they want to speculate. People enjoy solid gold jewelry over gold plated jewelry for the only reason that the first is "more valuable" and is associated to a "higher status." They also prefer real gold over gold imitations for the same reason.
Here is a thought experiment: if gold prices fell to $0.001 per gram tomorrow, would people continue using it in jewelry? No. I guarantee you demand for gold would dramatically fall in jewelry.
About 50% of the gold produced ends up in jewelry. Most of it ends up in solid gold / gold filled jewelry items (the rest in gold plated items.) And my claim is that demand for these solid gold / gold filled jewelry items would fall.
One point: bitcoin is inherently deflationary. Anyone who uses it as a medium of exchange, specifically, who buys something, is economically irrational.
I dont see any reason for the average Joe to buy them and like anything with speculation involved dont put all your savings into it unless your happy to get burnt.
It is quite likely that cryptocurrencies and related tech will revolutionize many aspects of our lives. But that is also exactly why Bitcoin will decline. Its current value comes from speculation rather than utility. When actual business is done on the blockchain, the value created by that will surpass value from speculation so much that no consideration will be given to bitcoin and its technological baggage. Business will simply use a newer crypto because it is more economical. We'll use something that's faster, easier, cheaper, and less energy consuming.
When superior competitors exist, Bitcoin will simply have no inherent value. It will be like a government invalidating a currency, except it won't happen as fast.
Maybe the same thing that happened when JPEG, mp3, email, C, and http were replaced with superior technologies. I actually think the future will be a combination of crypto-currencies for quite a while, but there are plenty of examples of certain formats and protocols being good enough to keep their dominance after having a superior network effect.
Bitcoin's major hurdle right now is that Blockstream, the current bitcoin github maintainers, and the moderators of /r/bitcoin working very hard to suffocate bitcoin through lies and propaganda. There are hundreds of cases of them lying and misleading people, while /r/bitcoin is heavily censored.
Even here on hacker news they are aggressive in controlling the narrative, but go to /r/btc and ask how many people have been banned or have their comments deleted from /r/bitcoin. Or go to /r/bitcoin and say something positive about bitcoin unlimited or bitcoin classic. /r/bitcoin's moderation logs aren't even public.
I'm just pointing out that there are boatloads of old technologies which don't still have value, like APL, ALGOL and gopher.
Oh man, remember HyperCard?
There's a lot of ferment for them, but then there were Casey Serin's making big money in 2007 on subprime loans, or Pets.com superbowl commercials, or Dutch tulip bulbs. It always feels heady during the times people are publishing books with titles like "Dow 36000". It's almost always right before the crash.
As Bitcoins are worthless, people go casting about for something else which they consider worthless. They come up with the dollar bill, and say the Bitcoin is just like the dollar bill, but electronic and untied to government.
This is pretty silly for a whole host of reasons. It would take too long to go into fully, and pointless to those who've already drunk the kool-aid. The USA has the world's largest GNI by some measures, it holds thousands of tons gold in Fort Knox and other places. In 1971 the dollar was an abstraction of its gold reserves, since then its been an abstraction of that abstraction, something akin to class B non-voting shares of a large stock. If it were possible for states to run the printing presses and create value, you'd wonder why that innovation was discovered in the past century. Any how, the Bitcoin scam claimed a magic wand could create value, so unsurprisingly other scams arose - Ethereum, Ripple, NEM etc. all currently have billion dollar market caps.
It's illustrative of how these cons work. I mean I don't know how much more blatantly it can be spelled out to you its a scam - Bitcoin was not created by a Ponzi, but by some criminal who has kept their identity completely secret. If this doesn't wake you up to the con, I don't know what will. Except its inevitable crash to becoming worthless, just like "Flooz" and "Beanz" did 17 years ago. And those were electronic currencies created by VC backed firms.
I'd be intrigued how you think a government is going to shutdown a FOSS project with no leadership?
Last I looked turning off the internet isn't that popular and making laws doesn't prevent crimes, nor migration to other jurisdictions.
Until there is a ban in the US (or EU, or China).
Or even a rumour of a ban.
So it's a decent bet, but right up until it becomes a problem for the US authorities at which point it becomes a disaster.
On that note, cash is also impossible to ban.
You smash in the door, you grab up the peoples, you put them in the room with a pen and paper.
You have the bitcoin. Double quick.
If you are a businessman in Venezuela, it's unlikely the local corrupt politicians will know you have bitcoin. They can search your properties and find cash, bullion, etc, but they should never be able to find your bitcoin. If you travel or leave the country you dont need to hide it on your person to get away.
Once out of the country you can easily turn it into cash and other assets. You can easily return and rinse/repeat.
> The USA has the world's largest GNI by some measures, it holds thousands of tons gold in Fort Knox and other places. In 1971 the dollar was an abstraction of its gold reserves, since then its been an abstraction of that abstraction.
Bitcoin is an abstraction of an abstraction of that abstraction. Care to explain why 2 levels is fine but 3 levels is obviously worthless?
> Any how, the Bitcoin scam claimed a magic wand could create value, so unsurprisingly other scams arose - Ethereum, Ripple, NEM etc. all currently have billion dollar market caps.
Bitcoin has value for the same reason that anything has value. Because people value it. No magic wands needed.
> Bitcoin was not created by a Ponzi, but by some criminal who has kept their identity completely secret. If this doesn't wake you up to the con, I don't know what will.
This is the icing on the cake of stupidity. You call him a criminal. What law has he broken?
You have to (if you live in USA) pay taxes in USD; if do not you will be met with the force of the state.
This creates a default demand for USD and there is nothing comparable to that for bitcoin.
Let's say you earn 100 BTC at the start of the tax year, and your tax rate is 30%, but BTC drops from 1000$ to 100$ over the course of the year. How much in taxes do you owe at the end of the year? 30000$ or 3000$?
I don't actually know the answer for certain, but my guess is you owe 30000$ -- and if you didn't sell your BTC early, you're screwed. You could perhaps offset some of your taxes by claiming an investment loss, but that usually only works to offset capital gains taxes, not income taxes.
On the other hand, what if BTC rises from 1000$ to 10000$? I expect you'd still owe 30000$ in income taxes, plus capital gains taxes if/when you sell your BTC.
Stop and identify yourself, apparently.
Anyone failing to see this magnificent invention for what it is will just hurt him or herself.
If you are going to give anyone else power over your money you are going to have a bad time, simple as that. History pretty much proves this beyond any doubt.