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Comment by vthallam | Hacker News Reader

The last time China explicitly banned Bitcoin, it dropped by around 45% to around $6000. It went on to $20K from there.

But what's different this time is that there are first time investors in millions who joined in the last 2 months. They didn't read the white paper, they didn't invest in technology, they invested for the monster returns. So I think there will be a more sell off this time before it rebounds back to $13K+ or may be the 1000th time is the charm and the bubble actually gets burst.

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I love bitcoin and cryptocurrency as potential solutions to problems with gov-controlled currencies (I've used crypto to buy drugs, for example). But I'm still confused why people refer to purchasing currency as an "investment." Obviously the rates are going up now, but doesn't everyone expect them to just come back down? I don't convert my USD to Yen and call it an "investment."

Well, there is actual forex investing (speculating). For instance, the value of the USD versus the Argentine Peso (ARS) is something I track (my girlfriend lives there and long term I would consider moving there, current plan is for her to move here). The USD to ARS conversion is increasingly favorable for the USD, the buying power of ARS hasn't dropped significantly (in country) but the USD is worth more ARS now than 1.5 years ago (1USD:15ARS then versus 1USD:18ARS today). Someone who had currency in ARS at the time, and converted it to the USD, could see significant returns on that investment (assuming reasonable exchange fees). Almost 20% gains, that matches the US stock increases over this past year.

It is speculation, however, as you generally don't have the same sort of insight into currency movements as you will into stock movements and commodities in general. Someone watching the Brexit vote in summer 2016 would have made a decent return on ARS had they moved it to the USD before the vote and back after (changed from 1USD:13ARS to 1USD:15ARS practically overnight). But that is speculation and requires watching global and national scale events to predict.

I live in Argentina. I want to add that we don't invest in dollars, we save in dollars. We don't expect to have more money after some time, we just expect not to loose money by inflation.

Although it might seem that buying dollars have a return of 20% or more in a year, by the time you sell it everything cost more in ARS because most prices are tied to US dollars. So you end up having the same. If you have saved in ARS, with the same money you could buy a lot less things

Out of curiosity, did you check the inflation rate of Argentina? May be you could get same value in Argentina with 20% more Argentinian currency after a year?

I found this thinking about my home land - India..

I believe strongly that the word 'invest' should be used to distinguish one's activities from speculation, rather than be a superclass of it. Discourse is poisoned when people promote semantic overlap and create ambiguity, rather than using words to create meaningful distinctions.

Investing is what you do when you're not merely speculating on short-term returns, but are instead focused on long-term value creation. It is right to call it currency speculation, because instead of investing capital to create sustainable growth in something, you're just skimming the fluctuations using massive leverage.

Unless you are part of an IPO or are buying newly issued stock you are also speculating on stocks when you buy them.

Note: Not a finance person, just a personal opinion.

In practice, it may not be possible to neatly classify any particular financial decision as being purely investment or purely speculation. This only increases the need to have these words mean clearly different things so that we may use them to analyze the different aspects of the ambiguous world in which we find ourselves. Blurring the meaning of the words effectively robs people of the ability to reason about their circumstances, and it is no wonder that many people feel invested in creating such confusion.

The impossibility of separating the two concepts necessitates two different words for those concepts?

That's a contradiction.

The concepts are easy to separate: Investment is symbiotic, Speculation is parasitic. Having clear concepts is more important when the real-world examples are complicated.

Speculation isn't necessarily parasitic at all. For example it can function in assuming risk.

How is speculation parasitic?

Speculators seek to extract alpha without regard to the overall health of the instrument. Shorting is just as good as going long, so far as you make a profit.

That doesn't mean they're parasitic. To show they're parasitic, you'd have to describe how they hurt the company.

Regardless, what defines speculation is not parasitism, it's uncertainty. And there's uncertainty in any investment as well. That's why there's no clear line between the two.

I disagree. I have made a clear delineation in the semantic content of my definitions, while you continue to attempt to confuse the issue.

I mean, the definitions aren't yours to make. These words exist in the dictionary.

Writers of dictionaries are archaeologists of language. They do not prescribe the meaning of words like a programmer or mathematician. Their definitions are posterior to language. The definitions are in fact mine to make, provided they result in successful communication with people who have adopted similar definitions.

Go read my original post again. I am advocating against ambiguity in language, as this serves to obscure analysis. You are clearly happy to obliterate distinction, however, and have made no attempt at a positive argument why it is beneficial to discourse.

Language is a constant negotiation about the meaning of words, and I have made my position clear.

I'll bow out here, but I'll just point out that this is a great example of how one's adherence to their ideas makes rational conversation impossible.

We can only communicate to the extent that we agree on the definitions of words, so for you to invent your own definitions, which contradict how other people use the word, as codified in dictionaries, then there's zero hope of reaching shared understanding.

It would be absurd for me to claim that "the sky is brown", the later argue that I was right all along because I'm defining "brown" to be "blue".

I will simply point out that at every opportunity, I have been upfront about what definitions I am adopting and the distinctions I am attempting to make, while you have done nothing but dissemble and create ambiguity, without offering a positive program of your own. I will leave it up to other readers to make their own conclusions.

If I say "the sky is brown", am I being up front that I'm defining "brown" to be the color of the sky?

This comment thread has been one of the weirdest internet arguments on the semantics of a word that I've seen in a while.

only on HN.

Would you say that all short selling is parasitic?

It depends I guess on how you do your homework and how long you hold the stocks for. Warren Buffett style long-term value based investing vs speculative day trading for example.

Speculation relates to uncertainty, not timing.

You would call it an investment, if the USD-YEN prices are so volatile and give you 1000X profit in 6 months. Again, this all goes back to whether Bitcoin is a store of value or a medium of exchange.

By now it's very clear, it can't be medium of exchange.

I disagree that short term returns make it an investment. Speculation is term that much better fits the action of buying a currency with intent to return a profit.

"A speculator is a person who trades derivatives, commodities, bonds, equities or currencies with a higher than average risk in return for a higher-than-average profit potential" https://www.investopedia.com/terms/s/speculator.asp

People keep saying that, but the lightning network is in testing at the moment and when it gets widely deployed we should start seeing near zero transaction fees on the bitcoin network.

You can say what you want about the philosophy of that - the lightning network will add yet another group of people who collectively have an outsized control over the network. But if the scaling issues get addressed I don't see any reason why it couldn't work as a currency. And it looks like they are being (slowly) addressed.

Any successful Lightning Network (at scale) would require a dramatic block size increase. The last (Lightning Network tech) I saw suggested it would need a 133MB blocksize.

Blockstream struck down a modest increase to 2MB in November. They have devs who want to reduce the blocksize. I'm not sure where you're finding hope in LN.

Bitcoin Cash forked off to get back to scaling, and it's doing great. Check out how well the mempool stress test went this past week.

And Bitcoin Cash will need GB or even TB sized blocks to scale to the size of Visa. If scaling the network was as easy as changing 1 variable it wouldn't be that hard to get consensus on a scaling solution.

GB blocks are basically ready with today's hardware though the need is years out. It won't be long before TB blocks can say the same, testing is underway.

Current prevailing theory in BCH land is the block size is an unnecessary hinderance, and will likely be gone in the next 18 months.

Exciting times!

> GB blocks are basically ready with today's hardware

What are you smoking? Even 1GB blocks would be 144GB per day of blockchain growth. You can't expect people to tolerate that kind of disk usage, let alone bandwidth.

This breaks the HN guidelines. Commenters here aren't allowed to attack others no matter how wrong someone is. Please read https://news.ycombinator.com/newsguidelines.html and don't do this again.

7000 transactions per second is a lot of of data. If you're keeping history then you cannot store 4200000 transactions per 10 minutes in less than a 1GB block. The problem isn't the blocksize. The problem is that traditional blockchains grow indefinitively and keep onchain data forever.

It is possible today, thankfully not necessary.

By the time they're necessary, it'll be a lot less demanding, relatively speaking....

And what good is a store of value if it's not a medium of exchange and its value is incredibly volatile (and doesn't have some sort of intrinsic industrial value like a metal might)?

Like... stock in any company?

Companies usually have assets, like buildings, real estate, etc.

Arbitrage is not investment

If you earned Venezuelan currency you might consider buying USD with it an investment.

Might some argue that some of the capital being placed in these currencies, whether they're by clever millionaires who studied whitepapers, or Uber drivers (as the anecdote goes) who jumped in after taking out a line of credit on the house, is investment in some of the companies behind the tech? For example, BTC companies like Blockstream funded things like satellites, while the Ethereum founder has been donating money to companies that help the Ethereum future.

Perhaps it's 'accidental investing with a dose of roulette number thrown in'.

Perhaps it's a new type of investment/gambling hybrid that requires a new category.

No, by buying some cryptocurrency you're not investing in the company behind the tech (if there even is one) at all.

If the currency does well but the company does badly, you still win. If the currency does badly but the company does well, you still lose.

You're exposed to the fluctuations of the currency, and completely unexposed to the valuation of the company.

Sure, there's that aspect. But the angle here is that they can take some of the capital transferred to them via crypto currency purchases to then use to directly invest in, and one thinks that by doing so they could well choose to invest in the ventures or areas that might increase the likelihood of the potential success of the currency. Which theoretically goes back to you.

I'm not trying to sugar-coat or rationalize the mania, only trying to explore the idea that this is both and neither gambling and investing.

I think people object to the idea that money used to purchase crypto currency in the first place is capital.

It depends on the currency in question, but for most of them, specifically no: they aren't "issued" by the company in question or even really related to them in any way. They're only in a position to gain from a coin purchase if they happen to have done the mining themselves (which they generally don't). All these ICOs are just blockchains branded by a certain company.

I woould like people to start using the word 'currencies' because they are not.

Following Investopedia 'Currency is a generally accepted form of money, including coins and paper notes, which is issued by a government and circulated within an economy. Used as a medium of exchange for goods and services, currency is the basis for trade.'

crypto is not generally accepted form of money; not issued by a government; circulated within economy - somehow yes.

So they don't fulfill all the requirements.

I feel like the first two aspects - "generally accepted, issued by a government" are unnecessary. If someone will take it as a medium for exchange, then that's currency to me.

I always thought of it as "otherwise value-less representation of value." All the currency I can think of fits this definition - including gold! Gold is only really valuable recently for circuits and the like.

Point taken. However, another important aspect is that currencies around the wolrd fulfill the same functions whereas when it comes to crypto - each token will represent anything that the creator intended it to be PLUS what the community uses it for (e.g. store of value). And each token will have a different 'design', different functions - from being tokens to enter the platform (e.g. Ethereuem itself) to tokens representing fractual ownership in assets (e.g. Maecenas art tokens or our RAT tokens representing a rat mascot, more about it here: https://medium.com/@katdum/what-did-i-learn-from-tokenizing-...). So there will be coins that will be fulfilling the descirption of a currency (apart from the government requirement) but there will be only a few ones compared to the vast amount of tokens with different functions.

I don't convert my USD to Yen and call it an "investment." As stated below, some people do treat it as an investment to some extent. The other thing is, in my opinion more interesting, how you define crypto. They aren't really currencies even though people call them this way. They are a different kind of asset. Sometimes compared to gold, sometimes to stocks but it might be that they are just a new type and we just don't know how to value them. And by supporting them people support the technology behind.

Well you might not call converting USD to yen an investment, there are some people that do. That is some people's job. It isn't that much didn't than investing in the stock market

That is because those currencies are inflationary. Without a moderate interest rate, putting it in the bank wouldn't even be considered "saving".

Some people do though (forex traders), but that is not the primary use-case

No honest forex trader would call his trading an investment, though. They/we know exactly that it's just gambling based on very limited data. Also, traders are extremely careful to limit their risk. No sane trader would hold bitcoin for extend lengths of time. Yet hodling is exactly what bitcoin "investors" advocate.

it's useless as a currency while speculators are making its value so volatile. The sooner this bubble pops and the get rich people go away, the better.

Once the current batch of speculators cash out, volatility settles and it starts getting used as a currency then its price will start to edge up again, bringing in a new wave of speculators who drive up volatility making it less useful as a currency and loop starts over.

Well, the circulation limit/deflationary part is pretty key to that. How many dollars/yen/what-have-you are printed every year leaving your existing dollars/yen/what-have-you with less buying power?

Thinking the world will flock to a fixed pool of frictionless digital exchange does not seem insane to me. I'm talking about the ones you can transact for less than a penny (BCH), not the old guard (BTC).

But what makes you think BCH is the one? You might like my soon to be released coin Bitcoin Cash Cash. Fees will be 0!

It's a collection of everybody who made Bitcoin great to begin with. Great community. I believe it's a bunch of doers and not talkers.

Fees are less than a penny. System works great, like Bitcoin used to.

I'm curious, and I haven't found the answer yet - what's the scaling plan if Bitcoin Cash runs out of block room? Just keep increasing the size? Is there an upper limit before the chain increases in size too quickly to be sustainable?

It's the usual combination.

Block size as much as makes sense, optimizations where possible, if lightning works (it won't) - use it.

Gavin Andresen has published about his latest work 'Graphene' which shrinks block sizes dramatically.

They'll take/use any good ideas so long as it doesn't cripple basic onchain functionality.

The reason is simple.

Blocksize and fees are a tradeoff.

1 cent fees are a significant advantage over 20$ fees.

But 0.0001 cent fees aren't really that much more useful for your coffee transactions.

Sure, maybe someone will come up with another chain that is used for true micro transactions.

But what we are saying is, that each of these fee levels are good for different use cases.

Bitcoin's high fees and high security are great for a digital gold product that isn't traded much.

Bitcoin Cash made a different tradeoff in the attempt to go after the daily spending market.

Pros and cons.

What’s also different is few individuals/entities in South Korea and elsewhere are responsible for driving the value upstream. Anything that is manipulated does not last long. As somebody wise (Buffet) once said this will have a bad ending.

This is naive of Buffet when his only evidence of a "bad ending" is the existence of a massive rally. The entire near-future automated economy depends on programmable money. There is literally nothing interesting happening in FinTech right now apart from the crypto space.

Why should Bitcoin cost so much just because the future may depend on it? That's a good case for why it will continue to exist, but it could also exist and do it's job at $1.00 / btc.

I think it's a couple of things that Buffett is looking at. First, like gold, Bitcoin is not a business and does not produce earnings. Second, people seem to be buying it for no other reason than that they think it'll keep going up. That's usually a good argument for the asset not being a bargain. Third, Buffett is self admittedly not an expert when it comes to tech.

What people are overlooking is that it's really easy to start a new cryptocurrency. There's no reason why the first mover should remain dominant for ever, or even that there needs to be a single dominant global cryptocurrency for all purposes.

This is only a valid argument if it is hard or too expensive to exchange between first and nth mover.

Because the price of any currency is proportional to GDP/velocity, and since it's costly to exchange cryptocurrency with fiat, there's a limit to how high the velocity can go.

The quantity of money is proportional to nominal GDP/velocity (in the quantity theory of money). This doesn't tell you anything about the "price of a currency" in another currency, ie the exchange rate.

So you're claiming that if Bitcoin did $1 trillion dollars worth of transactions in a year, and people held it for a year on average, that wouldn't necessarily imply a total value for all bitcoins of $1 trillion?

The quantity theory of money is concerned with one currency at a time.

The trick in your paragraph above is that you introduced “$1 trillion dollar”. Of course, if you say that the sum of all transactions (in BTC) has a certain USD value, then you’ve brought the exchange rate in (through the back door).

The total value of all bitcoins could still be $10 trillion or $100 billion.

I'm curious how you think that could actually happen. If the value is $100 billion and it changes hands once per year, then that's $100 billion that changed hands, and the GDP is $100 billion. If it changed hands twice, that's a GDP of $200 billion.

Note that I'm not making a price prediction; I'm just saying that if the price is low, and the velocity isn't unrealistically high, then that necessarily means that Bitcoin is playing a minor role in the economy because it trivially implies a low aggregate value of transactions.

Conversely if the price is high, Bitcoin still might be playing a minor role, if the average velocity is very low because lots of people are holding coins for a long time. But for Bitcoin to play a major role in the economy, it would need either a high price or a high velocity, so the aggregate value of transactions is a major portion of GDP.

A really high velocity would require fast and extremely cheap conversions with fiat, so you can hold fiat and convert to/from bitcoin at transaction time.

> Because the price of any currency is proportional to GDP/velocity

wat

> but it could also exist and do it's job at $1.00 / btc.

Probably one of the stupidest comments I've read on here. You display not even a basic understanding of how Bitcoin or economics work.

If I have a successful company with 100 shares. People will want those shares which will drive the price up. To fix the price at $1.00, or to dilute shares to keep the price at $1.00 is just ridiculous.

Who's saying anything about "fixing" a price or diluting shares?

Bitcoin's exchange rate is a function of supply in demand. It could exist and do its job with low demand (e.g. $1.00 / btc) or high demand (today's price). What is the reason for the high demand? The answer is speculation that the price will continue to rise.

The point I was making is that if people were using it only as a only as a currency, then the price very well could be $1.00 / btc. The reason it's so high is because people in large numbers are buying and holding it as an investment, reducing the supply.

Fiat currency is already programmable.

How so?

In various ways. ACH is essentially FTP. Traders execute trades programatically. There's no one standard API, but there are many programmatic ways to move money.

“entire near-future automated economy depends on programmable money”

It also depends on banks and states signing up to that vision. We have seen zero adoption on that front. On top of that, it still does not explain the hundreds of alt coins.

Hundreds of coins and hundreds of tokens. This is the growth phase for crypto, people are trying out new things. Some of these coins and tokens will not be here in 5 - 10 years and some will be used every day by all of us.

Uber would probably disagree that you need permission for anything.

"it still doesn't explain the hundreds of alt coins"

It's open source. How many Linux distros are there?

Isn't there some adoption of ripple among banks? Then again ripple isn't decentralized like Bitcoin.

Banks are rapidly trying to adopt the use of blockchain.

Successful use of blockchain is not the same as successful cryptocurrency.

Agree. Just because banks are using ripple blockchain and ethereum blockchain is being used by apps does not mean their currencies are useful. Nothing explains why Ether is so expensive.

No way. Some of them did the smart thing BTFD.

https://www.youtube.com/watch?v=l4v8rLEI4Pg

Yes, big drops like this is how the cryptocurrency internet continuously rids itself of infidels and discourages people from investing too large amounts and risking too much - By encouraging people to only invest small amounts, it helps with decentralization.

Just like with dot com burst, it doesnt mean someone will turn the lights off forever. Just like the internet eventually got mainstream and websites are being bought and sold for billions these days, same way BitCoin will never be at 0,001 cent with nobody touch it with a long stick.

Bitcoin isn't the Internet in that example. Blockchain is. Bitcoin may be DrKoop.com or it may be AOL or Cisco, of the dotcom bubble.

Wealth is created primarily from productivity gains. Bitcoin generates very little in the way of productivity gains. Services built on top of blockchain or similar tech, will be where most of the wealth will be generated, because those services / products will or might spur productivity gains.

The internet had a significant use. Bitcoin hasn't really found one yet.

And I would say that the proper comparison would be to a company during the .Com bust.

Sure, if you cherry pick. What ever happened to the supposed value of "hot" domain names? Right, we got search, and got used to typing in weird strings, and stopped caring about owning car.com or whatever.

> What ever happened to the supposed value of "hot" domain names?

Skyrocketed in value from hundreds of dollars in the mid-late 90's to tens/hundreds of thousands of dollars today?

Not sure that's the point you were trying to make though :)

There are a lot of very generic domain names out there that were worth millions in the late 90s and never got used, and sit parked today.

Businesses are more willing to spend to have "their" domain name, perhaps, but the overall value of a "hot" domain name seems lower.

How much do you think car.com is worth?

I'm still kicking myself for getting out of the domain market in 2008. The aftermarket prices crashed following the recession.

I remember at one point, I bought out all the remaining 5 number .com names (like 78542.com). Must have been close to 400.

I let them all expire since they were worthless a year later.

Fast forward to 2015 and they're all selling for a minimum of $200+.

If you own car.com i would gladly pay $500,000, maybe more. Please DM me.

the internet is far more useful than an alternative currency

As the blockchain grows ever larger the thing gets more and more useless as a currency. Just look at how long it takes a transaction to confirm.* It's digital Beanie Babies.

*https://blockchain.info/charts/avg-confirmation-time?timespa...

Yep, these comparisons between Bitcoin and other successful technologies are like a new type of fallacy (techno-fallacy?) where people assume that because it's technically-complex it is somehow destined to succeed like other technically-complex successes.

It's a form of survivor bias because you never see or think about the technically-complex failures, or "not-successes", like the Tamagatchi, Laser disc, WebTV, Webvan, etc. I mean, how come none of it's proponents compare Bitcoin to the Segway? Sure, you can say we have hoverboards now but those are not Segway, the same way Eth and Monero are not Bitcoin.

The self balancing technology in the Segway, revolutionary at the time, paved the way for hoverboards. The forms are changed but the underlying technology is the same.

In the same way, Eth and Monero are further iterations of Bitcoin.

No, Segway didn't. Hoverboards are specifically based off of a patent made by some guy living in Oregon, and are actually ingenuitive in their own right. There's a good planet money podcast about it: https://www.npr.org/sections/money/2015/11/27/457404184/epis...

Bitcoin, Eth, and Monero are all implementations of blockchain. Bitcoin is technically inferior to Eth, Monero, even Dogecoin, but that doesn't stop GP and others from comparing it to the internet's success in saying that Bitcoin is destined for similar success.

Tamagotchi were actually a success that has rescued Bandai. Millions were sold. Tiny numbers are still sold to this day which is quite a longevity for a fad toy.

>As the blockchain grows ever larger the thing gets more and more useless as a currency. Just look at how long it takes a transaction to confirm.

Blockchain size and confirmation times are two entirely different things.

Good to know, what is it based upon? I know you can spend coin to prioritize a transaction, is it formulaic?

No, why are you making claims such as Bitcoin is the new Beanie Babies when you have literally no idea how any of it works?

You don't have to be a carpenter to know if a house is built poorly, just if you try to describe the cause. They were right in their criticism of transaction fees, but were off in what was causing it.

Block size is limited by bytes allowed in the block, usually about 7 transactions a second (on average) for Bitcoin. Increased demand for transactions increased tx fees.

The length of the chain can affect processing power and bandwidth, as each block contains all previous blocks.

The blockchain is only growing linearly isn't it? I just downloaded almost the entire blockchain the other day. It was a struggle, but it was also a struggle years ago. It hasn't become impossibly difficult or started to require fancy computers or internet connections.

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