Why are all my friends buying an overhyped digital currency?
theoutline.com
theoutline.com
In 2009^ I downloaded a BTC miner and had everything set up but then never started the machine because I was running folding@home and thought that was a better use of my distributed compute. Doh!
In my mind you can look at cryptocurrencies, and the idea of blockchain generally, in two ways. Either you evaluate it as how well it acts as Money or what it can do as a distributed ledgering system.
In the former case you need a comprehensive understanding of:
1. The history of money, which comes down to war and politics,
2. A deep understanding of what makes money work in it's three uses (store of value, medium of exchange, unit of accounting)
3. How it forms a scaffold in a modern economy.
The cryptocurrency-as-money perspective fundamentally has no legs, for numerous reasons, but primarily because it has no coercive power behind it enforcing it's use like all other currencies. A few people are trying it but it's no serious contender for legal tender anytime soon.
All of the "coin" that is created in these markets is effectively derivatives trading and should be avoided at all costs in my opinion.
From the digital ledger perspective there seems to be real value in that use case.
^Corrected year
>In 2008 I downloaded a BTC miner and had everything set up but then never started the machine because I was running folding@home and thought that was a better use of my distributed compute. Doh!
The first version of the bitcoin software was released in 2009, the white paper was published in October 2008.
For various activities it allows you to mask your identity while making purchases online far better than the alternative of using your credit card or PayPal or something.
Given the high opsec requirements, I think it's irresponsible to advertise an anonymity service which fails in a way which provides an irrevocable public record of every transaction.
Currently even a billion dislikes has no heft ad they can be ignored. Initial credibility can be gained via proof of stake like how banks used to be so luxurious. The stake that is most valuable is that which is most flexible and can be converted into other tokens with least hops. That would be USD currently but with other countries growing in power a distributed token recognized by all countries maytaje its place. (It may be adopted rather than designed just like may tourist industries have adopted the dollar)
Dollars fundamentally express a combination of values but because it is one token, the resolution of the values blur together. Tokens increase the resolution to kaleidiscope levels at the cost of confusion. Instead of being able to hold onto one type of token with consistent power holders need to constantly evaluate what combination of tokens allows them to trade for what they want with least hops.
The USD lost a lot of trust via bailouts and inflation that reduced wealth for the token holders. Fundamentally there was loss of trust in competence. (which can be made up with increased confidence in military ability!)
Ethereum is driven by trust in geniuses. Bitcoin is driven by trust in age. Many altcoins are driven by trust in their respective ideas. Interestingly I think the success of coins is all about building trust rather than technicals (though it's so early that the technical implementation is still very important!) The drum of marketing needs to be consistent for a long time but builds exponentially. Bitcoin currently has the most leverage from this perspective but as the earliest coin it may be saddled with too much baggage to get over the core necessary technical hurdles without splintering. (splintering causes it to become new, destroying the built up age trust!)
I think that both are equally true! Prices are obviously driven by speculation, there is tonnes of fraud, and no regulation. It is a wild wild west goldrush situation right now. Maybe this is unfortunate but I'm also not surprised by it. Isn't this how all markets get started? I don't have great sources but I think the situation was similar for the securities markets for many years.
I also think the blockchain is an incredibly remarkable piece of technology that it will be put to use in increasingly important and useful roles and that cryptocurrencies are here to stay. Both can be true.
The article makes the point that many people putting money into these schemes know nothing about the tech involved or the possible applications/drawbacks, they're gambling based on hearsay.
As with most bubbles, what comes after probably won't resemble what got everyone excited, and early investors will lose their money. So it's understandable many are sceptical.
Cryptocurrency is here to stay, whether or not it will be Bitcoin specifically is another question.
[1] http://archive.fortune.com/magazines/fortune/fortune_archive...
I wonder how many people who buy ETH are doing it because they believe in the future of the tech versus just gambling (which is basically what I did). All the hacks and scams involved have kept me away from keeping any money in it long-term.
I'll be the first to admit that I'm probably the type of investor whom people will point to as an example of an ethereum bubble (someone who knows little of the technicals behind ethereum, but is in it 'for a quick buck').
It truly scares me to hear about cases where somebody invests a large portion of their worth into something as volatile as crypto currency.
I always see "traditional" investors point to this and say "How could you possibly invest money into something you don't fully understand?"
I'm personally not invested in crypto at the moment but I can understand the draw- my response is this: When you look through your 401k, how many of those companies are even recognizable? If I were to ask extremely basic questions about any of their financials, could that person speak to them? The answer is almost unanimously "No", but it's completely accepted (beyond accepted really, it's pushed on you) to invest into companies that people don't fully understand, yet shamed if someone takes a gamble on crypto.
That's why the general advice is for people to fill their 401k's with a few index funds (and chasing average market returns) rather than trying to get lucky by picking the next FB, AAPL or GOOG.
A good example is if ETH or some other ccy takes off and BTC withers. What is a BTC worth? nothing. But people are buying it because it'll be worth more in the future. That is the definition of a bubble. Given that the original owners make the money from new entrants - that is the definition of a pyramid scheme.
By that criteria, any company that undergoes an IPO is also a pyramid scheme.
I agree that the entire cryptocurrency market is in a bit of a bubble, but to write it all off as a pyramid scheme seems a bit of stretch to me.
edit: also, "pyramid scheme" to me is a very loaded term with a specific legal meaning to it as it applies to one single entity, i.e. the person or company operating at the "top" of the pyramid. There isn't really such an entity at the top of the entire cryptocurrency market, so I think it's much more apt to call it an asset or asset class bubble rather than toss around such contentious terms.
With cryptocurrencies this is driven by excess trust for the leaders in the space and for each coin. Probably driven a lot by "technology eating the world" and "young genius" mythologies.
Anything that is grown organically rather than designed top down (like USD) needs some sort of bootstrapped energy source to amass energy/capital for maneuvers. The USD uses proof of military power to arbitrarily generate capital but many altcoins only stake the reputation of their creators which many people would willingly give up for millions.
So while ponzi schemes definitely have their downsides due to lack of sufficient proof of stake, the structure is very similar to many organic methods of amassing energy. Startup funding is similar though safer because there is supposed vetting by smart people (angels/VCs)
So I actually think that ponzi structures are rather important as an organic energy source. However they need to be vetted by asking questions look like "what are you going to do with this energy?" and "what is your proof if stake?"
What strikes be about altcoins is that it's unclear how the energy will be used. It reminds me of throwing money at the TSA for ridiculous theater because too many people think throwing money at problems solves them. (an extension of military minded brute force IMO)
Once the technical fundamentals start becoming solid I'd place a bet on the coin that has the strongest marketing as the increased mind share would directly increase the stability and trust in the coin. Btc/eth may be sacrificial lanbs like pets.com as this new space is explored. (or may be Amazon/Google, who knows. )
If you believe it's a big scam/bubble and won't turn into anything, then don't purchase any. But what's with the influx of "ETH is the worst and you're stupid if you buy any" articles? They add 0 value to the blockchain culture and development, and only seem to be thinly veiled "I told you so/I'm smarter than you" think pieces.
Decentralised anything is an awful market strategy, it works for some things where regulation gets in the way (AKA issues that are hard to solve in a legal way).
Ironically, p2p crowdfunding has been the killer application of cryptocurrency so far, since it's tricky to do that legally and it turns out if you ICO with crypto you can just take the money and run.
I don't believe ETH will succeed to the extent people are hoping it to, long term, I think the real market cap should be a fraction of what it is today. But I'm not stupid; I still made a bunch of money trading it and riding the hype.
Nobody really knows what bets will pay off but people are placing bets none the less in the same way they placed bets on startups before.
I believe it is a scam/bubble.. but I don't really care if people waste their money on it. I see it like I see getting your Tarot cards read for $500 a session or buying a lottery ticket. A pretty poor use of money there are many others ;)
They get people on the page and counting towards their ad revenue. In a word: clickbait.
On that note, I hadn't seen The Outline before and today I've already seen two articles on HN from that site. I noticed because they have one of the worst reading experiences for an article that I've seen in a while. Embedded ads, mobile un-friendly to the point that I had to quit my news app in order to back out of the article, and distracting animated horizontal rules.
I wouldn't say I'm vehemently opposed, but I do kind of regard the whole thing as a bit of a joke. If you're curious for my two cents:
* There are no regulatory bodies or any kind of oversight; little legal recourse or way to insure your investment
* There is no predictability of any kind in relation to the value; it goes up and down as it likes, often by large amounts, for literally no reason
* Mining the various coins consumes a massive amount of energy, essentially computer busywork and in most cases (not BTC or ETH) the result is utterly worthless
Honestly these things feel more like a tech-bro exclusive version of the lottery than anything; sure your 10,000 redcoin is worthless today, but someday it might be worth millions! Granted you probably have much better odds with Redcoin than Powerball but it still feels like the same sort of thing.
It is kind of fun watching a bunch of libertarians suddenly figure out why laws and regulatory bodies exist when every crash or major theft happens.
Edit: In other words, don't think of it as protecting you from your own bankruptcy; think of it as society protecting itself from your bankruptcy.
Libertarianism is a nice idea, but it needs to be balanced out with some compassion. You pay into something that you might never use, because someone else might need it, and they do the same for you elsewhere.
Libertarian socialism is where it's at.
When on Earth did I say anything like that? First of all I was implying opting out of the taxes for whatever community, not paying for fire fighters directly. Also, it's worth pointing out that in many rural communities (and more prominently, the area between them) paying for fire fighting service is not uncommon precisely because it's not viable for the communities in the nearby area to cover them as well without being compensated.
But besides all of that:
> Libertarianism is a nice idea, but it needs to be balanced out with some compassion. You pay into something that you might never use, because someone else might need it, and they do the same for you elsewhere.
I completely agree, this is what I was attempting to get at.
Lots of people investing money in things they don't understand the fundamentals of, looking to get rich quick. It'll happen to some people, but many others will get bitten. Money that they could have reasonably spent elsewhere on things they need, or invested in things that are less risky.
Sure, you might win it big, but you probably won't, you'll probably lose your money, it's a gamble. People are going around saying that playing blackjack is a way to make easy money, and I'm raising an eyebrow and saying "Hmm, are you sure?"
Yes, there's tons of hype, nonsense and even scams, but the cream will eventually rise to the top, and the best ideas will survive. I've listened recently to some podcasts with Olaf Carlson-Wee, someone who has thought long and deep about the implications of having funding at the protocol-level of the internet, and how it could swing the balance away from large, centralised web monopolies who capture most of the value, towards the users of the network[1]. Union Square ventures also have some interesting ideas as to where the future of the internet might be heading.[2]
It's hard to see where we're heading with all the short term price boom and busts though, which I agree are unconnected with reality (currently).
[1] Two podcasts + notes with Carlson-Wee- http://buynhodl.com/ethereum-investment/ether-investor-focus...
I think in the crypto space, much of the value will not actually be in P2P cash systems, but in P2P decentralised apps that will enable a decentralised web to emerge, and early adopters and network users will capture most of the value in these networks (instead of large centralised companies).
Also, having a new funding model (crowd funded token sales) could unlock massive amounts of capital to fund new projects. The implications of this could be unprecedented - so many ideas and talent, particularly outside the US, currently goes unfunded. I doubt that anybody, up till a few years ago expected to see a way that traditional funding models for new companies would emerge, literally out of the ether. Turns out there's a torrent of speculative cash waiting for founding teams (yes, at some point there will be a massive crash, but like venture funding post the dotcom, lessons will be learned and the valuable ideas retained).
Disclaimer: I own cryptos
I'm opposed to it for a variety of reasons. As a payment method it is wanting because of the long confirmation times, lack of reversibility and low volumes. As a currency to be used on a country scale it is wanting because of the fixed amount, necessitating deflation, which is bad in itself, and the idea of handing huge parts of the economy to a few early adopters. As an investment, well, it's not really an investment as "investing" in BTC doesn't put money into the economy like investing in a company would, it's more akin to sitting on gold. And all this is before we get into the "competing to burn the most energy" aspects of mining, which are only really necessary to support the decentralised nature of the system - not something most people give much of a crap about.
How or if these criticisms apply to Ether I'm not sure.
I know they're also looking into "proof of stake" either as a replacement or an adjunct to "proof of work", which may cover some of the energy concerns, but again I don't understand PoS well enough yet.
Also, bubbles that grow large enough can have an impact on the larger economy when they burst. Probably the Ethereum bubble, assuming there is one, won't get anywhere near that large before it bursts. But if it's successful, it will be replicated on a larger scale. (By successful, I'm not talking about the value of ETH, I mean that financial players make lots of money without significant consequences.)
Some people feel very threatened by the idea of the disruption of money and all of it's controls to the extent they simply won't even entertain the idea of something new coming along.
Take VC funding / angel investing - it's being blown to pieces by cryptocurrency as we speak and that's merely one example of what a cryptocurrency can do...
That would be ironic if it were true but it's simply not. If you read the threads here, the heat comes from two camps: people who are pushing The Future of Economics!!! Get Rich Quick!!! and people who actually understand economics, have enough life experience to recognize bubbles, and are asking questions which the sales guys would prefer not to answer.
There are plenty of good technical discussions about distributed trust here but they don't start from the breathless boosterism. They especially do not start from someone responding to serious criticism with “you just don't like change” rather than addressing it.
Cryptocurrency takes that away, and there is no way of getting it back. If cryptocurrency becomes widespread and socially acceptable, then you better hope all the things that people want to buy and other people want to sell are good for society, because there will no longer be anything society can do about the ones that aren't. It's not just a worthless bubble, it's a genuine threat to civilization.
> a genuine threat to civilization
Hyperbole.
As long as such transactions are inconvenient/costly, people will do less of them; if the inconvenience/cost is high enough to make the transaction unprofitable then it won't happen.
What are you even on about? Things that weren't acceptable to buy and sell fifty years ago are now. What is good for society anyway and more importantly who should decide that?
The people, through the democratic system. I'm not talking about trying to lay down some fixed rules for all time, but the populace as a whole should have the ability to outlaw things.
Just because you have the means doesn't mean that you have the availability.
On a second level, no cryptocurrency seems able to support a reasonable transaction volume, so it could replace money in large scale. All of the current algorithms have scalability issues that come from the kernel idea of a distributed single truth.
Another level up, distributed cryptocurrencies are so inefficient that it's a wonder they even got so far. The only thing holding them up is the complete anachronism of every government on Earth that didn't create any viable centralized cryptocurrency. That can't last forever. At a minimum, some company must get it right at some point, and in all likelihood the UN will eventually settle on a shared protocol among everybody.
That said, I don't often go out there writing stuff opposing cryptocurrencies. So, I'm probably not among that vehement opposition you cited.
However looking at fundamentals (low volume of transactions, niche utility, liquidity, high-hype levels, etc), there are tons of signs of bubble in crypto now (and have been for ages).
There may be huge bubble, but that comment is a complete misunderstanding. Suppose all the gold in the world had been mined. Would all the existing gold become worthless? If you think about it, you'll see that just the opposite will happen. The world supply of gold (or Bitcoin) will become more valuable.
I repeat: I'm not saying that there is no bubble.
An aside: Maybe you're thinking that if no more Bitcoin is being mined, then the market can't grow or that there won't be enough Bitcoin to support more transactions. However, there's a plan for that since the original Bitcoin paper. Bitcoin is finely divisible and the idea is that people will use smaller and smaller units for a certain value.
+1 to the shoeshine boy indicator reference in this thread.
Each one of those would result in multiple patents if solved by a traditional corporation.
The casino economy where "investors" roll the dice to the muffled cry of "efficient allocation of resources".