Cryptocurrencies: looking beyond the hype
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it is hard to identify a specific economic
problem which they currently solve
Receiving money without being exposed to the danger of fraud. Receiving money via Credit Card is surprisingly risky for the merchant.
Transferring money internationally without additional costs.
Portfolio optimization. Crypto currencies are probably not perfectly correlated to other assets. So it stabilizes the portfolio to add some crypto.
All kinds of contractual setups. Example: "This accounts money can only be spend if 2 of the following 3 account holders agree: ..." .
We have this well established thing called a credit score which is handled by the credit card agency and resolves trust issues for the merchant entirely. If a person suspects identity theft, they can put a hold on a card, preventing further use. Cards have expiration dates and periodically cycle out. I'm sorry but when people explain to me that using a token they are personally responsible for encrypting is "safer" somehow, I raise my eyebrows.
https://hn.algolia.com/?query=credit%20card%20fraud&sort=byP...
We have this well established phenomenon called 'data breaches' which has compromised nearly everyone's credit/personal data.
Your info is on the dark web. Lots of databases that can be cross correlated. Banks increasingly don't know who they're dealing with, fraud is increasing.
I've had both credit and debit card fraud happen to my accounts: it is a pretty minor annoyance.
(A data breach of my Social Security Number would be a whole different story however!)
nope
> Portfolio optimization
nope. i still await an explanation using MPT that shows why someone should hold non-zero cryptoassets. It's like saying I should hold euros because it stabilizes my portfolio. Euros are not a productive asset dude.
if bitcoin is a store of value like gold then don't hold it in your portfolio for the same reasons you don't hold gold (it just sits there). if it's a currency then don't hold it for the same reason you don't hold cash (it just sits there).
It costs between $70 and $90 to send $1AUD from Australia to Iceland. Bitcoin transaction fees have _never_ been that high, and they're currently somewhere around $1AUD.
$50-$70 of that fee is taken out of the transaction instead of charged seperately, which means it may be impossible to pay a bill accurately via SWIFT.
I tried to pay for a tent via SWIFT from Iceland to the USA recently. Because the US bank used a customer support system that required you to log in via a wells fargo account that I didn't have, I was unable to ask whether they charged fees to receive swift transactions. I added $15 extra to the SWIFT payment as a hedge against any extra fees from wells fargo. I guess that was enough, because the merchant sent me the tent.
If you think that the SWIFT system is better than bitcoin you haven't used SWIFT much.
Australian banks don't handle Icelandic krona, and Icelandic banks don't handle Australian dollars. As a result, they pick a third bank that handles both to be the middle man. If there's no one bank that handle both then it becomes a 4-player game. Every bank involved charges fees. I don't know how many banks get involved in AU->IS, but since the fee per bank seems to be about $15-$20AU as a standard, I'm guessing at least 4.
Plus I don't know where you got that quote but most transfers are much cheaper than that a/i. That pairing must just be incredibly non-competitive since it's very low volume.
Why didn't you pay via a CC? Free foreign transaction fees is a common perk?
Credit cards generally don't allow bank-to-bank transfers.
If you're referring to the tent, the credit card processor choked on my Icelandic address and rejected it address as "not the address of the cardholder". It's a relatively common problem.
Most cryptocurrency isnt anonymous, and certainly Bitcoin isn’t. In fact it’s arguable that the public ledger nature makes it far less anonymous than almost anything else. What it is, is easier to launder, hence the extortionist wet dreams. Why is it a feature of a currency to have the most utility for thieves and other criminals?
Receiving money without being exposed to the danger of fraud.
Depends on the currency. There was a recent 51% attack, and the many many fraudulent ICO’s, exist scams, and exchange “robberies” to provide counterexamples. As a bonus, no insurance! Hooray...
Receiving money via Credit Card is surprisingly risky for the merchant.
It really isn’t.
Transferring money internationally without additional costs.
Transaction fees exist for crypto actually.
Let’s also remember that all of this “utility” comes at the low low cost of an ungodly amount of wasted energy.
> It really isn’t.
Nerdwallet article outlining the fraud risk:
https://www.nerdwallet.com/blog/credit-cards/merchants-victi...
> It really isn’t.
Also on that: receiving money via CC is not always straightfoward, you'd be suprised how much effort (not to mention money) merchants have to spend auditing and verifying that what they're supposed to get (what they sold) are actually being credited to their bank account.
I'm pretty sure cryptocurrencies just move the risks around, rather than eliminating them. Currently, the vendor is on the hook for stolen credit cards. With cryptocurrencies, the currency owner is on the hook. You could accomplish the same shift in the burden of risks with a legislative change if you wanted: it's just that credit card owners don't want that.
IE, if the merchant is more trustworthy, then we want that trust to be with the merchant, and on with the customer.
When the merchant is less trustworthy, well that's what credit cards are for.
Right. And the current system handles that just fine. It would be trivial to make a credit card system where charges were irreversible. There hasn't been enough demand for that (possibly because it's not actually useful in a non-ideal world).
The financial system can still censor and reverse your transactions if it wants to.
If the government comes knocking, then your transactions will be frozen, even if you have broken ZERO laws.
All they have to do is vaguely threaten a credit card company behind the scenes, and the credit card company will freeze your transactions, even if the vague threat was illegal, and what you are doing is legal. And you will have zero recourse.
Just go look at what happened to WikiLeaks back in 2010. WikiLeaks broke zero laws, and yet the financial system successfully censored donations to them, by blocking all credit card transactions.
The use case of crypto is to send difficult to reverse, censorship resistant, near instant (yes, 10 minutes is small when compared to credit card settlement, which takes days), electronic transactions.
And this worked great for WikiLeaks, as their crypto transactions were not censored, but their credit card transactions WERE.
In this aspect cryptocurrencies are surprisingly dangerous for the customer because there is no easy way to revert a transaction done by mistake or fraud (lets say someone cracked your wallet).
With credit cards in the worst case you just screw the merchant and I guess this is what marketplaces will end up doing instead of setting up their own escrow systems in order to protect both sides because handling disputes is hard work.
Credit cards/checks: Merchant trusts user, user doesn't trust merchant
Wire-transfers/Cashiers Checks/Cash/Bitcoin: User trusts merchant, merchant doesn't trust user
But that just puts the risk back with the other party. We're just back to the credit card scenario like you mentioned.
The point is that crypto can't get rid of the issue of trust. At some level, there has to be some level of trust in order to perform a transaction.
No matter what we do, all we're doing is pushing the trust somewhere else.
This is generally true however there are some exceptions. You can trustlessly trade Bitcoins for solutions to particular problems e.g. the preimage of a particular hash. This can be extended to a much larger class of problems with Zero Knowledge Contingent Payment (ZKCP).
If people want the option where you trust the customer, that's what credit cards are for.
And if people make the opposite choice, that is ALSO ok, and is what crypto is for.
It is still very valuable to be able to move that trust somewhere else.
To give a concrete example, what if the merchant is inherently more trust worth in a specific market? Then, it is BETTER to put that trust on the merchant.
Considering cryptocurrencies have only come to prominence during a bull market and unusual macroeconomic conditions I don't think you can conclude this. I would bet they're strongly correlated with the stock market. And because of lack of liquidity are likely to crash harder than other, more liquid assets.
> Receiving, owning and spending money anonymously. Remember when extortionists had to be paid with a suitcase full of banknotes?
As stated in other comments, Bitcoin is hardly anonymous anymore. There's a much greater ability to trace wallet addresses back to individuals or groups than there used to be.
> Receiving money without being exposed to the danger of fraud. Receiving money via Credit Card is surprisingly risky for the merchant.
Fraud was (and likely still is) rampant in the digital currency community when Bitcoin hit its peak. Plenty of it was going on in direct relation to the system and we've also seen the 51% attacks plus price manipulation.
Also, at least with credit there's legal recourse. It's at least something compared to nothing with digital currencies.
> Transferring money internationally without additional costs.
At Bitcoin's peak there was a significant cost to doing any transfers. This is now admittedly lower but to the average person I don't think this is a strong enough argument alone.
> Portfolio optimization. Crypto currencies are probably not perfectly correlated to other assets. So it stabilizes the portfolio to add some crypto.
This is where I start to think you're joking. The volatility of digital currencies doesn't stabilize any portfolio. At best it contributes to a diversified portfolio. At worst, you're correct, it doesn't really correlate to any asset. It is tied to nothing tangible.
You can argue that something is worth whatever someone is willing to pay for it but that's such a terrible argument when the few businesses who tried accepting it are moving away from that, volatility again being one of the major issues. At a certain point there's nothing to be gained other than 'street cred' for having more of these coins attributed to an address that you claim to own.
Blockchain technology will stick around, digital currencies, at least those supposedly worth thousands, will not. I'm sure by now readers can tell I'm very against this. The people riding the digital currency hype train sound no different to me than those involved in pyramid and/or ponzi schemes.
The fact that Bitcoin is consuming so much electricity and takes so much computing power to confirm a transaction should be enough of an argument against it.
Also, what do you propose when quantum becomes mainstream? Every wallet in existing currencies will be cracked in mere seconds and investors will lose all of the coin they will have amassed. I'm sure someone will try to create a quantum digital currency but by then the opportunists that make up most of this market will hopefully realize how overhyped this was.
The 'airdrop' idea is a scam to get around the problem of the ICO - just magic these new fakecoins into existence and avoid any regulatory problems.
Point being that bitcoin is unique among the crypto-coins in that it is actually not centralized in any way, all the others pretend to be that but there is some fat controller hoping to profit from the uptake of the things.
That said, although bitcoin is legit compared to all the rest, there is a problem when it is no longer economic to mine. If the mining won't pay for the electricity bills then there is nobody around to take those exorbitant transaction fees. Of course these problems can be solved with more centralisation and control - lightning networks and the like.
Traditional payment systems are safer, cheaper and more efficient than crypto.
Traditional payment systems are actually quite expensive, you just don't see it since the merchant pays. Typically 2.5% + $.10 for most credit cards. That cost is still baked into prices & goods.
Safer is definitely true though, it's just too hard for the average person to properly secure cryptocurrencies.
Well, no - the problem of micropayments is that users consistently hate them. Users only put up with micropayments when there's literally no other option.
Vendors keep bringing up the idea of micropayments entirely on the basis of "it would be cool for us if they worked." This is not enough - because the problem is social, not technical.
Tell that to the 3B people in the world who live on less than $2/day and banks will not deal with them.
You make claims that traditional payment systems are more efficient.... but did not include an energy calculation to maintain those banks, armoured cars, and infrastructure as compared to bitcoin energy consumption.
People living on $2 a day generally don't have reliable access to computers, electricity, internet or the technical literacy necessary to navigate the cryptocurrency minefield.
https://www.google.com/amp/amp.timeinc.net/fortune/2016/01/1...
The fact is that 20% of the world's poorest has a smartphone and is in many cases more valuable than running water or sanitation.
Within 10-20 years we will have 50km range wifi, with solar powered batteries and ultra low cost computing power and many more of the poor will be brought into the connected economica world via smartphones, long range power and internet tech and micro transactions with ultra low fees powered by tech like bitcoin (cash).
The last startup I worked at 3 years ago sold Android smartphones for $5 USD.
Unbelievable that I get called out of touch when the author is a couple years behind the curve. Nice vision and imagination, man.
My apologies for bringing up facts when parent brought a personal attack.
The idea here is thoughtful conversation. You're welcome to participate in that, but not to turn it into something different, which is what flamebait and flamewars do.
Cryptocurrencies ≠ Bitcoin. There are quite a few cryptocurrencies that provide full anonymity (eg. Zcash with its zk-SNARKs.) Besides, Bitcoin is sufficiently anonymous for most.
«Fraud was (and likely still is) rampant in the digital currency community when Bitcoin hit its peak»
Still, for the recipient of an online payment, receiving cryptocurrencies (specifically Bitcoin, Ethereum, etc: the big ones that can't easily be 51%-attacked) are the less risky option that exists for them.
«Also, at least with credit there's legal recourse. It's at least something compared to nothing with digital currencies.»
False. There is legal recourse for cryptocurrencies. Governments have and will continue to legally prosecute cases of crypto theft. It might be harder to recover the money, but there definitely is legal recourse.
«At Bitcoin's peak there was a significant cost to doing any transfers. This is now admittedly lower but to the average person I don't think this is a strong enough argument alone.»
Global remittance fees cost an average of 7.13% (https://remittanceprices.worldbank.org/en) which is terribly high. The crypto tx fee is typically much smaller. This is still a strong argument in their favor.
«takes so much computing power to confirm a transaction»
Transactions don't consume energy. The transaction rate could increase without necessarily increasing the energy consumption. This is a big misconception floating around cryptocurrencies.
«Also, what do you propose when quantum becomes mainstream? Every wallet in existing currencies will be cracked in mere seconds»
And legacy banking will break too (VPNs, IPsec, encryption at rest, TLS shopping sessions, and so on.)
Even if you strictly “invest” with cryptocurrencies you’re moving money in via fiat, so whomever you do that through also ties you to an address (or omnibus pool while you’re on an exchange).
It is hard to identify such a problem till you believe you can withdraw your money from a bank anytime. Visiting a bank and getting an answer "please come tomorrow" for several weeks changes a person's view on cryptocurrencies and problems they could solve, imo.
If anything, people will revert to cash or tangible assets if the federal government fails. No way crypto or technology in general is going to fill that gap.
Now tell me, what institution is going to make a holder of cryptocurrency 'whole' again if something goes wrong with their wallet or the block-chain itself?
This is a quite rare use case, talking worldwide scale.
> If the federal government is insolvent your cryptocurrency will be useless because you won't have reliable Internet access
There is an option you missed - when a bank is insolvent and the government doesn't care.
> people will revert to cash or tangible assets if the federal government fails
Why not get abroad and spend there dark ages, caching out your X-coins?
> what institution is going to make a holder of cryptocurrency 'whole' again if something goes wrong with their wallet or the block-chain itself?
Valid point. But sometimes these risks are smaller comparing to unavoidable perspective of being robbed by government which is trying to escape default.
It's not rare:
"as of 31 January 2014, 113 countries have instituted some form of explicit deposit insurance up from 12 in 1974."
It is not a hypothetical situation. It is happening right now in Venezuela.
All you have to do is look how Venezuelans are using Bitcoin right NOW to understand it's value.
I don't think this is a good argument.
The Venezuelan dollar would have lost much more in value during that time period.
Volatility doesn't matter when your nation's currency is way way worse.
A mere 30% loss in a single month is an amazing deal, compared to what they have to deal with.
There will be crypto lending banks and multi-sig custodial services to fill that use case.
The code and math is open source and has been available for a decade.
Unbelievable how HN has tech dinosaurs that can't be bothered to check all the open source implementations available for the particular problem/use csse they are seeking to solve. That is so 2009.
You are absolutely allowed to put up a sign are your store that says "we only accept bottle caps as payment".
Legal tender is only regarding DEBTS. It does not force you to accept pennies at your grocery store.
You can turn down USD for payment all you like.
People seem to forget that cryptocurrencies emerged from a culture of cryptoanarchy, not from economists or governments.
Anarchists generally don't want to help the government solve problems, they view the government as the very problem to solve. (I'm speaking very broadly here.)
Most damning to me is that the case against cryptocurrency takes two sentences to clearly outline, while the case for them is yet to even emerge.
Transactions are slow and costly, prone to congestion, and cannot scale with demand. The decentralised consensus behind the technology is also fragile and consumes vast amounts of energy.
Nailed it.
They don't care for certain aspects of the social contract and want to be able to flaunt it at will with no repercussions. Or they don't want to pay taxes or some other thing. Whatever, they feel that society at large is what's holding them back, not simply a lack of ability or drive.
At least with religious fundamentalists or whatever flavor of totalitarianism you're comfortable with, it's clear what their answer to the problem of force is: be the force.
Anarchists have no answer to that. They want to "be free to do whatever" but when confronted with the question of what happens when I want their shit, they invariably create government. Oh, I can't take their shit because there will be rules. In the community they live, you can't live there if you take other people's shit.
Yeah. That's just government. That's politics. That's the social contract. We all agree not to do shit in order for us to live relatively peaceful, chill lives.
Government, in the broad sense, is not the problem. The problem is that governments are still run by people. And we're kind of fucked up. And we often make mistakes.
Like, less "make the government not exist", and more "make it so goverments are unable to control things like communication, and some sorts of commerce"?
I don't know that self-described cryptoanarchists almost always have much opposition to the requirement of a drivers license in order to drive on the public roads.
I suspect that a non-negligible portion does really object to that requirement, but I'm not confident that the majority of them do.
It varies from person to person. I happen to like the message in A Cipherpunk's Manifesto, but I also happen to dislike blockchain mania.
it's no long about the 1% it's more about the .0001%.
How many women have crypto? How many colored folks have crypto? How many people in all of Africa have crypto?
I've had conversations where some don't believe this is a problem. I'm not convinced. You can come up with a new XYZ crypto and the issue is that the distribution never gets to be fair. The haves end up always having much more than the havenots.
There is absolutely zero guarantee that the mining cartels won't print more bitcoin; the final decision on whether or not to do so rests with them and it is in their direct financial interest to do so even if it may not be in their political interest. Even then, it is very possible that the impact of high fees might make the idea of printing more bitcoins politically palatable.
Either way, the bottom line is that it is a political issue, just like the current system.
The fact that there is 10,000 public bitcoin nodes (and probably x10 private ones) keeps the system honest.
Same thing will happen for the miners eventually.
CommunismCoin?
Nano was distributed via captcha and went long under the radar.
Hence also pretty nice distributed.
I still can't believe the term colored people has made a comeback in both academic and colloquial circles. Are chinese people considered people of color? Seems like they are doing well at mining.
I’ve seen folks go so far as to accuse Bitcoin of being sexist. I just don’t understand how that’s a fair thing to say given that anyone with an internet connection and an appetite for risk could have bought BTC anytime since 2009
Problem: a handful of private companies could exert monetary censorship.
World changing organizations like Wikileaks are possible because of cryptocurrencies, when Visa/Mastercard/etc began blocking donations. Cryptocurrencies enable anyone to take online payments. [1]
> Transactions are slow and costly, prone to congestion, and cannot scale with demand
Lightning Network has found a very promising solution to these issues. Off-chain transactions can be completed in under a second, without the scalability concerns of on-chain transactions. I highly recommend checking this out if you're unfamiliar [2]
[1] https://www.forbes.com/sites/jonmatonis/2012/08/20/wikileaks...
You can make your own mind up on whether this would make them biased or not.
Policy responses need to prevent abuses while allowing further experimentation.
Combine the feeling of missing out on 10,000% financial gains and you have a case for thr worst kind of disgust and cognitive dissonance.
The truth is that most of the people in this space who "know crypto/blockchain" are clueless and missing the point.
If you refer to cryptocurrency or blockchain as a concept instead of just saying POW or bitcoin (cash), then you missed the point from the beginning and you are blind to what is coming next.
We mined some, we bought some, we dealt with technological issues, we were ecstatic for a while.
Yet the big crypto promise is to be fulfilled and we are now on 3rd or 4th big hype/decline cycle.
We see the big negatives of various cryptocurrencies(energy usage, affecting various hardware markets, supporting fraud on massive scale, insecurity for normal folks, etc. etc.) but do not see any big positive developments.
Sure, if you are able to be paid in crypto in some country with a lousy banking system that's great but you are in a tiny minority then.
All those tales of normal non-tech people using crypto for every day tasks are closer to fairy tales.
The worst is the tendency for various cryptosolutions to tend back to centralized PRIVATE control. Tether is the worst offender in this regard. The cognitive dissonance is fantastic here.
I have no doubts that there will be another hype cycle attracting new followers with blinders.
For a brief moment in 2013 crypto(Bitcoin especially) actually seemed useful as a currency.
To conclude, maybe in 2023 someone will come up with a killer app for crypto but crypto kitties is not the answer.
"What has been will be again, what has been done will be done again; there is nothing new under the sun."
Laws. In the Western world, something is legal unless explicitly forbidden by laws.
Countries which don't care very much about freedom explicitly banned Bitcoin more or less (China, Russia, India, Indonesia, Venezuela, ...)
Credit is a really tough problem for bitcoin to solve, since banks can create currency.
Not real problems in most countries.
>Debt slavery for all mankind?
How does crypto stop people from borrowing lots of money?
But that is probably largely because there isn't a good enough reputation system or other way to encourage the payment of debts that is compatible with the cryptocurrency ecosystem yet, I think.
Or, alternatively, they exist and are used, but I haven't noticed them yet.
Pretty much the most active users of cryptocurrencies so far are different kinds of investors who use it to avoid taxes and exposure of their assets to government and such?
If data is so fucking valuable.