"I think this is mostly correct, but I see it a bit differently. This bubble is slowly building up real housing for hard working poor and middle class people. Use cases like pay-day loans and sub-prime mortgages become more and more viable as the network size grows. Eventually enough people own mortgages that it makes sense for it to be baked into a CDO, and for it to be used in lieu of liquid assets. Bubbles are the boot loader of real utility."
Creating utility/value from achieving network effects (something pretty common) isn't really comparable to issuing loans to people who cannot afford to pay them back, regardless if you think there's overvalued speculation or not.
Did you mean for the terms you listed to relate to the bitcoin situation in any way?
EDIT: I was also trying to make a point that CDOs were based in a kind of network effect where the risk was submerged under an ocean of statistics. Yet in the end, the underlying assumptions were faulty and the network effects lit on fire like gasoline.
The thing I'm taking away from the article is that it compares BTC to gold favorably, which is an interesting angle. I generally think that gold is an irrational investment, after all there is no intrinsic value to gold other than for jewelry electronics, and high tech science experiments but that's not what the gold bugs claim.
However, if you kind of turn the argument on its head a bit, gold is sort of like a ground up fiat currency. It has no intrinsic value and it has no army, but it forms a focal point of public consciousness that renders it deflationary fiat.
However, there are other problems with BTC even if you accept the idea of deflationary fiat. For instance, money doesn't just pool in rich people's pockets, you can literally lose a BTC wallet and the money is just gone forever. Over time, this will result in the number of BTC in circulation approaching zero. I don't know how long that will take.
The other argument against BTC is that its essentially capitalism run amok. We already destroy the environment to extract dollars, but now with cryptocurrencies, we actually have to destroy exponentially more raw energy to fuel the monetary system itself. It's a satire of capitalism in a world of environmental catastrophe.
As for the Tulips, maybe I'm interpreting the chart incorrectly, but while the options price rose to insane levels, the realized prices, for a shorter duration, still rose to 100x (options were at 200x).
What did you mean by "extract dollars"?
Also, the digital transfer of money throughout the globe and even just domestically requires a significant amount of processing (which requires raw energy) by many different entities. It makes me wonder if a transaction within a cryptocurrency payment system is actually more or less efficient, even with all of the miners.
I get what you're saying, but the entire idea of bitcoin is literally an exponential ramp. Each new technology that improves speed (CPU->GPU->ASIC) will be a linear step up, but mining will get exponentially harder. There are network effects from the banking world, but I don't think they should grow even as (N^2 where everyone is connected to everyone else) as they probably use something between than and a spoke and hub model.
Bitcoin competes more against Western Union than against Visa. WU does only 31 transactions per second, perfectly within range of Bitcoin's capabilities (https://corporate.westernunion.com/annual-report/highlights....)
really thinking about this it is probably not a problem because the free market should find the true price for an on-chain immutable transaction. coffee transactions will happen off chain and be settled up on-chain (lightning network)
Is it not just a blockchain slapped on top of the slower blockchain?
Once the channel is set up on the blockchain between two users and has some amount of bitcoin committed to it, the participants can securely transact between each other with only private communications between each other, without requiring transactions in the blockchain. When either user is done with the channel, either of them may broadcast the settlement transaction which withdraws the committed funds in the correct amounts to each participant. (Every time the participants make a transaction between each other, they create create a new settlement transaction, and a separate transaction which invalidates the previous settlement transaction. These are regular Bitcoin transactions, but they're held privately by the participants instead of being broadcast on the blockchain immediately. If either of the particpants tries to broadcast an earlier version of the settlement transaction, then the other participant can broadcast the invalidation transaction within a certain pre-agreed time, which rewards them the funds as punishment to the defector.)
Then the real fun comes from the "lightning network" part: if Alice wants to send funds to Charlie but has no open lightning channel to Charlie, but she knows that both her and Charlie have an open channel with Bob, then she can do an off-chain lightning transaction through Bob to Charlie, without any risk of Bob taking the funds for himself.
That's not true. By locking funds into a Lightning Network payment channel you solve the double spend problem _in the channel_ (the person receiving your payment knows that in order for you to double spend the channel, the payment recipient would need to approve the double spend). The risk of being double spent still exists on the underlying blockchain though, which is solved with a smart-contract structure that allows the counter party to the perpetrator of fraud to revoke a fraudulent double spend.
This process effectively doubles the required amount of transactions and time spent for the 'lightning' transaction to take place?
Lightning is exactly the same way. You set up a contract with the payment processor. This requires the transaction to be accepted into a block. Then you make as many smaller transactions (which require no blockchain transactions) with the payment processor as you want. At any time, the payment processor can terminate the contract by cashing in the amount of money you have spent. This requires a transaction to be accepted in the block chain. After that the channel is closed and only the amount spent is transferred (the remaining amount is freed up). If it goes beyond the contract length without the payment processor cashing in, then the contract is cancelled and the total amount is freed up.
So basically it allows you to make many transactions through a payment processor, while only making 2 transactions on the block chain. Anyone can be a payment processor, but the protocol requires the payment processor to have capital equal to the transactions in process (they have to transfer funds to a third party before they get paid -- although they are guaranteed to get paid by the end of the contract).
It's actually a pretty slick protocol. Their website has a video with implementation details that explains exactly how it works: https://lightning.network/
And secondly, frankly, I think Bitcoin dreadful for micropayments. It's really hard to get hold of for most people, requiring all sorts of setup and accounts.