Bitcoin Makes Even Smart People Feel Dumb
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Doesn't 'get it'.
Plenty of people understand Bitcoin. Go read the whitepaper.
No it won't. It's just a transfer of wealth from educated elite to other educated elite.
99% of the world's population can't understand it. 99.5% can't mine it.
It's so damn elitist that it's not even funny.
Not relevant. Mining is no longer profitable for any new entrants without some incredible innovation in computing power or electricity costs. Even the miners are unlikely to make money from mining only from holding their mining gains as investments.
> 99% of the world's population can't understand it.
That's underselling the human population. I would posit 10-20% are probably mentally incapable of understanding the basics of modern finance, therefore have no chance at a new form of currency. For all of the rest, they can understand what they need to know to use it.
BitCoin's entire proposal, including the original paper, the source code, millions of different explanations, and millions of different opinions about it are available for free. It's the most anti-elitist form of currency we have come up with. The costs of fiat currencies are hidden: central banks adjusting the money supply in real time at will, transactions aren't all visible to the globe on a single ledger, etc.
I'm not even very bullish on BitCoin. But I don't find it remarkably elitist -- at least no more than previous currencies.
However, with the exception of a few use cases e.g. countries with high and/or hyperinflation, what I don't understand is why the currency Bitcoin has any value at all. Frankly, if anything, it still looks more like a massive bubble to me.
Unless you already own Bitcoin, why would I ever consider paying for something through Bitcoin? Why would I ever transfer EUR or USD into Bitcoin?
Then again, maybe I'm missing something here, because gold also does not hold the value it generally trades at. I don't see how it makes sense to hold either gold or Bitcoin.
Because the person you're trying to pay only wants USD. And eventually, if you start getting paid in USD, it becomes only natural to pay others in USD.
The comparison is akin to someone in Europe exchanging EUR to USD as an investment, because he's betting on the fx rate. But why would the average European ever need to hold USD? Not that many situations that make sense either.
I think fiat currency will disappear in favour of bitcoin (or similar), and I think it will happen within only a small number of generations.
It will happen because bitcoin (or similar) is a superior form of money.
But I’m pretty sure central banks (or well, the elected politicians behind them) can’t and won’t give up control of their respective currency, because they use it as a way to adjust and regulate the economy.
If you look at what is happening in the Eurozone with the ECB and the previous discussions about Eurobonds, it's a one approach fits all solution, but it doesn't work for all. What is great for Germany sucks for Greece, and that is because goals are not aligned. If you have, say, one "global" cryptocurrency, then I think there are some inherent flaws to that approach.
And if you go the full currency route, you essentially end up with a digital equivalent of fiat?
Look: honestly, I want to believe, but no one has managed to convince me with proper arguments what would drive it to that outcome. Most people that I've met are just excited because they've turned $10k into $1M (or more) and now think they're the best investors in the world.
So, why would it happen? You need to give me more than its a superior form of money. I'm not saying it's not. I just don't see how we can get there from where we are now.
1.) To a first approximation, central bank policy consists of creating lots more money, all the time.
That is a bad thing for anybody holding the currency (everyone). Therefore these people (everyone) are incentivised not to hold the currency, and instead to hold a currency that can not be inflated away from them. For example, bitcoin.
2.) We're heading towards a cashless society. If the manifestation of a cashless society is one based on fiat currency, that means every single transaction and all money are subject to surveillance, censorship, and even seizure. By the state and by private companies.
Anybody who doesn't want those things to happen to them (everyone) is therefore incentivised to use a currency which is not subject to those things. For example, bitcoin.
You describe Bitcoin as a currency. To me, while it looks like a currency, it's not actually a currency. It seems more like a pure asset class.
I mean, maybe I'm a minority here, but who holds significant cash in a checking account these days -- especially with the market booming during the last few years like it has?
If you look at what happened with QE in the last few years, asset holders (i.e. mostly the upper classes) essentially made bank, because debt got extremely cheap and the value of the currency declined. The average saver lost money, or at least yield, because it didn't make any sense to save money.
The reason why I can't see fiat disappearing is because the government is in control and makes laws as they see fit. I don't agree with all levied taxes yet will still pay them. Even if I didn't want to pay them, my only alternative is to relocate to a different country.
Useful PoV though, thanks!
So if you're a saver, this is the problem that bitcoin solves. A way for savers to protect themselves from being robbed by central bankers to bail out asset speculators.
Bitcoin is also easier to take with you when you relocate. Bitcoin is a weapon is the battle of savers vs debtors.
Something can't be a reliable store of value if it can drop (or increase) 50-100-200% in a day. That is, in the best case, a speculative instrument.
If I had $50m, why wouldn't I invest it in property rather than in Bitcoin?
Gold is prone to bubbles as well. Personally I'm not a gold bug and I don't really see why (in the current day and age) it still acts as a safe haven asset.
Ultimately, it has little economic use, meaning most of its value is just derived from it "being gold". Land, that I get, that makes total sense. You can't make more, and you definitely can't make more land in good locations. But gold -- that seems very artificial to me as well.
But you're right, if I had to a pick, Bitcoin probably makes more sense over gold.
"Bitcoin - with capitalization, is used when describing the concept of Bitcoin, or the entire network itself. e.g. "I was learning about the Bitcoin protocol today." bitcoin - without capitalization, is used to describe bitcoins as a unit of account. e.g. "I sent ten bitcoins today."; it is also often abbreviated BTC or XBT."
And that's why I've been calling it a Ponzi scheme lately. Once mining become unprofitable, or even impossible (asymptotically) people will stop mining, but the blockchain only works if people keep mining. At some point it's got to fail doesn't it?
It's self-correcting; fewer miners means higher profitability for remaining miners...
It certainly is much more elitist than typical currencies if it requires a certain level of capital and knowledge to use.
*Scientific Wild Ass Guess on amount of people in the world lacking a device capable of dealing with bitcoins.
I have seen the excitement for Bitcoin come about here in Pakistan, mainly from the lower class, to the middle class, I know the founders of one of the Bitcoin exchanges in Pakistan(Urdubit), and the number of people that come from the rural areas to trade or buy bitcoins, would surprise you.
Yes, most people won't read the whitepaper, and many more will read it and won't understand it, but you don't need to understand the inner workings of it fully to take advantage of it.
Yes, right now, creating a paper wallet, or storing your coins in cold storage can be a little bit difficult for most people, and till these things are simplified enough, my mum won't be using it to pay for groceries at the supermarket. But that's with any technology!
http://bitcoinist.com/starving-venezuelans-turn-to-bitcoin-m...
Cheap power has allowed people to operate Bitcoin miners without the usual accompanying cost. Reports have stated that successful Bitcoin miners can earn up to $500 a month, which is enough to fully feed and supply a family of four. As the country’s cash currency is essentially worthless, many businesses and people are now using bitcoins to exchange goods and services.
However, there is a fly in the ointment. President Maduro has begun cracking down on Bitcoin miners, calling them “capitalist parasites.” Yet trading bitcoins is still allowed. This has led to a number of miners being arrested on flimsy charges, which can occur as there are currently no cryptocurrency laws in Venezuela.
The results of the goverment fiscal policy are debatable.
You don't need to know how bitcoin works internally to be able to use it, just as you don't have to read the minix book to be able to use an Operating System.
Do most people understand how their computers work? How their air conditioner works? How about the pressure dynamics that make their toilets flush?
Saying everyone can't mine it is inaccurate, everyone can mine it even with a smartphone. Is it profitable? No, but neither is mining iron ore with a shovel. Those with the knowledge and capital to fully utilize any system will always have an edge over those who don't, in what reality is this not the case?
Plenty of people on HN. Maybe. And that's about it.
Mainstream acceptance is far, far away, and having a condescending attitudes towards those who struggle with the concept is not going to help.
You don't need to know the knitty-gritty of SHA256, blockchains, or the game theory associated with Proof of Work to "understand" BitCoin.
If you apply the same standards for "knowledge" of the US Dollar, you also have to require that people understand the intricacies of the US Treasury, the Mint, The Federal Reserve (and it's 12 constituent regional Central Banks), concepts of fiat currency, etc.
Yes, exactly my thoughts.
It's IMPOSSIBLE to understand HOW and WHY Bitcoin works without a baseline understanding of public-key cryptography, cryptographic hashing functions, key ideas of computational complexity, and algorithmic processes in distributed systems, particularly peer-to-peer networks.
In other words, to understand how and why Bitcoin works, one must first understand the key concepts underpinning Satoshi Nakamoto's groundbreaking paper: https://bitcoin.org/bitcoin.pdf
The general public, lacking the necessary education and knowledge to understand these things, has no choice but to use Bitcoin based on faith and experience.
Note that the general public doesn't understand government-issued money either, but they happily use it every day based on faith and experience. The same thing is happening with Bitcoin.
However, at this point I can only see it as a currency. So I can't say if the second point is even applicable here.
Maybe the reference is to the underlying blockchain, the effort required to understand it, and consequently customize it like people did with the older web technologies.
When someone says they "understand bitcoin" it means grappling with cryptography, mining, ledgers, economics, game theory, fiat currencies, deflation, dapps, etc. etc.
Very few people need to really understand all of that to "get" bitcoin, mainly because most of the use cases aren't figured out. Most people are overthinking at this point and not attacking it from a "how is this useful to me and what do I need to know" perspective, but trying to grok it all, which is pretty hard.
Except when a fork comes, or why control of 51% of the hashing power is bad.
I don't understand the systemic nuances of the SWIFT payment system but I was able to conceptually understand how it works without too much trouble.
But equally messy was the origination of the Euro. Equally messy (maybe even more so) was the introduction of "legal tender" in the US in the 1860s-1890s. Equally messy was the abolition of "National Bank Notes" and the brief period where we had bank notes, Federal Reserve notes, United States notes, and Silver Certificates all existing and only mostly compatible. Or the Indian demonetization of the 500 Rs note. Or the Cypriot bank seizures. Less messy, but still complicated for those affected by it, was the seizure of gold bullion or the closing of the redemption window in the US.
Money is complicated, and Bitcoin has less history than any of these currencies.
Last month it was 3 dollars and change. I'm thankful it was slightly more reasonable.
I might use an alt coin for awhile to save on fees.
How much does Paypal charge to send $70 to a friend, isn't it free?
It's kind of like saying the web in 1991 was expensive to use.
The core conceit that people gloss over is the fact there is no such thing as a "wallet" that "stores" bitcoins. The only thing that exists is a public record of numbers saying they're giving bitcoins to other numbers.
When you create a "wallet", you're choosing a private number that nobody knows and nobody has already picked. You use this private number to create another number, the public number, the "wallet address".
Since this number doesn't exist anywhere in the public record, we say you have "zero bitcoins."
Then, you get someone to claim "I am giving x bitcoins to your number". If you can get this claim (a transaction) into the public record (the blockchain), we all decide to agree "This happened." And now we say you have x bitcoins. Why? Because now you're allowed to make a transaction saying you're giving those bitcoins to another number!
It's all made up. This is what currency is, it only exists because of collective trust.
You need something like a telephone party line, too, but that part can be skipped over; it still works if people sit close enough that they form a peer-to-peer earshot network.
For a trustless currency there's a lot of trust going on there!
No one has ever won the jackpot even two times in a row, so do we really need to worry about someone doing it four times in a row?
(Two people generating the same 256 bit number is a collision, which means the probability is 1/sqrt(2^256))
2^256 - 1 is around 1.15e+77, which is ridiculously huge (to put it technically :P)
Git is just a way to deal with objects in a DAG (insert standard joke about homeomorphic endofunctors mapping submanifolds of a Hilbert space). Not super difficult. But unless you have worked in a horrible version-control system, you probably just don't care about having that capability, so when someone starts excitedly jumping up and down while showing you how easy it is to draw a line connecting two circles, you might figure you just aren't smart enough to get it.
Likewise, Bitcoin is a combination of recognizing a certain problem and exploiting a certain technology to solve it. If you understand that distributed, trustless consensus is a hard problem, and that digital signatures and proof-of-work algorithms combine in this exciting way to solve it, then Bitcoin makes perfect sense. But otherwise your inner voice keeps asking "why are we even discussing this?" and making you feel dumb.
There are exceptions, of course, but all of them involve you having some information not generally available to the public.
I'll just continue to invest in robot-managed index funds, thanks.
If you can't use the cryptocurrency effectively without buying in early, there is a fundamental problem with it, and the people who bought in early probably should not have done so. So the obvious conclusion is to not buy in early. Those stories I keep hearing about people who made fortunes off of Bitcoin are fun and inspiring, but there is no way I would have been any of those people, because I didn't have the extra disposable cash to invest in Bitcoin at the times when it would have been most advantageous to do so, and it has never matched my risk profile since 2009. If it had been invented in 2000, yeah, I could have been a Bitcoin millionaire. But that's not how it worked out. Those grapes aren't sour; I just couldn't reach them.
And right now, this very instant, the next big thing could be staring me right in the face, and I would still choose not to invest in it, because I don't have enough investment money left after the sure things, boring but prudent choices, and dubious but exciting possibilities to put a single penny into moon-jumping unicorns that fart nuclear-powered rainbows. I'd rather have 98% confidence of retiring at 65 than make a gamble between between retiring two years from now and never retiring at all.
So cryptocoins can be the playground of the young and foolish, the old and treacherous, and the financial geniuses.
It could be argued that the opposite is also true; a unit of trade with activity (let's call it its "velocity") has value, because (also by definition) it must carry the value that it's being traded for. The precise relationship I have no idea, but I think it could follow. I feel like I read a paper about this idea back when Bitcoin was new, but it escapes me now.
EDIT: Found it, dates from 2013 which puts things into interesting perspective: https://bitcoinsurvey.wordpress.com/2013/04/08/what-is-the-r...
In this type of work, it's not that bitcoin is making people feel dumb, it's that the smartest people playing in Bitcoin are making money at the expense of everyone else. There are a lot of really smart people playing in Bitcoin who are comparatively dumb.
Bitcoin is just the stock market 2.0: the big guys manipulate the market with impunity, except there aren't any laws to stop them (nevermind the government ignores the rules in the stock market if you're "too big to fail"...)
A lot of Bitcoin enthusiasts understand neither cryptography, nor distributed systems, nor economics.
What could go wrong?
How on earth do people use USD?! It's so complicated!
It not normal for prices to fluctuate up and down 50% so quickly.
Bitcoin is an equation. A mathematical specification of how much bitcoins are there at any given moment of time, how new blocks are added to the chain, which sequence of blocks is accepted to be authoritative, etc. This is why it is a work of genius. An equation can't be hacked, unless you can challenge underlying mathematical assumptions, which is somewhat hard to do.
However, you can't run an equation on its own. You need an implementation, which actually runs calculations in the equation ("mining", verifying transactions etc). Technically, anybody can write their own implementation of the Bitcoin equation for running the blockchain, substituting their own parameters (e.g. maximum block size, how often the blocks are generated, the reward amount etc.) I can write a Bitcoin client today where new blocks will be attached to the chain the way I want it to. Giving me free money, for example. Or increasing the block size to shovel more transactions in. However, the Bitcoin network consists of many thousands of clients (A.K.A. "full node" clients). They have to accept my blocks to consider them valid, and sign the acceptance, and they won't accept anything that is not hardcoded in their implementation. tl;dr I (or anybody else) can fork Bitcoin today -- the only idea is that I will have hard time to persuade others to accept my fork. And without acceptance, anything stored or transacted in this fork will have no value.
However, some people manage to persuade others to run their fork as it has some feature some see as valid. As they are accepted by some people, they start to have value (and can be bought and sold by gamblers). However, more often than not, these forks fail to catch traction and deemed to obscurity, and as their user base diminishes, so it their value.
The more you learn, the more you realize just how much there is to learn.
See? I even feel dumb trying to explain why people feel dumb.
The tech is fairly simply, at least the principles. As simple as basic cryptography, anyway. And most people use that on a daily basis.