Comment by EthanHeilman | Hacker News Reader

Comment by EthanHeilman | Hacker News Reader

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>The biggest problem is that blockchains are inherently not scalable.

Blockchains can be made extremely scalable. You can break the problem into transaction volume (how many transactions can be processed on average per sec) and transaction velocity (how fast a particular transaction can be approved).

Transaction volume scalability results almost entirely from checking that the rules of the system have been followed i.e. that each block in the chain is valid. We now have very fast systems for recursively proving the validity of blockchains. For instance coda [0] requires very little space or computation (constant in the number of transactions) for a party to be convinced the blockchain is valid. Under such a system you could increase transaction volume by orders of magnitude.

Layer two protocols, such as the lightning network [1], offer near instant transaction velocity.

We can solve the scalability problems of blockchain. The thing that keeps me up at night is not scalability, it is user adoption beyond the use cases which Bitcoin already successfully fulfills.

[0]: https://codaprotocol.com/ [1]: https://lightning.network/

> The thing that keeps me up at night is not scalability, it is user adoption beyond the use cases which Bitcoin already successfully fulfills.

This felt like the canary in the coal mine that the anarchist crowd has wholesale ignored for years. Joe and Jane LIKE that the dollar is backed by the full faith and credit of USG. From the POV of the average person, crypto is fairy dust next to a currency endorsed by what is perceived to be the most economically stable nation on the planet.

Joe and Jane don't understand nearly enough about economics or technology to really care about crypto or to ever be capable of using it securely independent of a third-party facilitator like Coinbase. They want cheap, fast transactions with guarantees, insured bank accounts, and a human being they can call for support when something goes wrong. Visa and JPM already give them that. Coinbase is a total reinvention of a system with no marginal benefit. Bitcoin doesn't solve a problem Joe and Jane will ever care about. About the only thing is does solve, at least in the short-term, is their FOMO about living analog in a world beset by runaway digital progress.

What do Joe and Jane think about the mountain of debt they’ve had to pile up? What do they think about the bankers who decide what happens to their money, and the politicians who decided to bail them out? Do they really have abs much faith in USG as you say? By the last election, largely seen as a middle finger to governing elites, I’d say probably not.

Yes, they like the convenience of the dollar but they are also suffering from the consequences of fiat money. You might say they’re too stupid to understand that, but there are many Joes and Janes who understand gold and may even want to go back to a gold standard. If they can understand gold, they can understand the value of Bitcoin.

I totally agree with your sentiment, but I will say one thing. If there is some shock in the world economy crypto could be a way out.

Imagine

- A bank run where every bank goes under and it is not possible to easily bail them out

- The government has to increase inflation and we far exceed the 2% target

- The existing financial system gets hacked and records get destroyed

Not saying any of this is likely, but it could happen.

The US dollar has only been backed by nothing since 1971. That is a very short amount of time in the history of the world. You can see that in that same period of time debt has skyrocketed and production output vs. wages have diverged significantly. It would be somewhat presumptuous to assume that the existing system is going to last forever.

That said, it doesn’t mean that crypto currencies are THE answer, but they are a possible answer.

Finally “the most economically stable nation on the planet” is $21 trillion in debt.

I think if something like Bitcoin does end up reaching mass adoption it won’t be because people CHOOSE to use it, it will be because they are FORCED to use it because no one wants to accept dollars anymore.

That's not how economics or the banking system actually work. The Federal Reserve can issue effectively unlimited credit to solvent banks in case of runs. The government has no way to directly "increase inflation". Generally when bank runs occur it's because the bank has a lot of bad loans; when loans go bad it effectively removes money from circulation thus decreasing monetary inflation.

There is no single central "financial system". Individual financial institutions get hacked all the time. It's not a major problem.

Ultimately the US dollar (and other fiat currencies) are backed by something: a government with an effective monopoly on violence over a particular territory including all the people and assets therein. In the real world that's a lot more powerful than any cryptocurrency fantasies.

Those were three separate ideas. A bank run would most likely be a result of deflation, yes, but it is not guaranteed that if that were to occur that the bank would be able to stay solvent.

The inflation example can already be seen in Venezuela, where the people there have been using cryptocurrencies as a way to survive.

> Ultimately the US dollar (and other fiat currencies) are backed by something: a government with an effective monopoly on violence over a particular territory including all the people and assets therein.

Are you suggesting that the US military will use force to ensure that people use the dollar and that is its backing? I am not saying you are wrong, but that is not exactly a friendly thought. Sounds more like a dictatorship than a free market economy.

>Are you suggesting that the US military will use force to ensure that people use the dollar and that is its backing?

Not the OP, but the governments' 'monopoly on violence' usually refers to the fact that they hold position as the sole enforcement authority. Dollar is 'backed' by a reputation/record of US government fulfilling it's debt obligations. As the enforcement authority, they can/will use force to secure an operating revenue via tax collection. The specifics of what people use to transact, is more flexible. So the dollar is backed by US Government's ability to fulfill it's future debts. The method it uses to extract (something of value, payment is currently required in $ format) from it's citizenry to pay them is less important, but a 'monopoly on violence' sure helps with collection efforts ;-)

This is exactly the point: the fed can conjure unlimited credit out of thin air. Cryptocurrencies can't.

The limitation becomes a feature: debt can't be inflated way.

We are one major crisis away from people preferring an asset that can't be inflated, or forcefully converted by executive order, under threat of confiscation.

When that happens, you will be right: by Gresham law, people will prefer paying for stuff (including taxes) in fiat currency.

Of course cryptocurrency debt can be inflated away. Fork the blockchain, or switch to another one entirely. Who's going to force me to pay? It's just bits.

you assume people care about the fork. if people dont and only want the original, or if the smartcontract is not updated to allow the fork at a lesser rate, you're stuck

But nobody ever forces you to pay- the goods and services just stop coming your way, or you lose your collateral.

Inflating the debt is not a problem because of the small consumers, but the government. Seignorage tax affects the small consumers.

> We can solve the scalability problems of blockchain. The thing that keeps me up at night is not scalability, it is user adoption beyond the use cases which Bitcoin already successfully fulfills.

Fair point. But none of the biggest chains right now are nearly as scalable as using something like AWS or Azure or Google Cloud. Unless they are able to handle the same amount of traffic, there is no reason for someone to use them for typical applications.

On the development side it will be more cumbersome to develop for, and on the user side it will be slower and/or more costly to use.

>But none of the biggest chains right now are nearly as scalable as using something like AWS or Azure or Google Cloud.

I agree, just because we can scale them doesn't mean we will invest the time and energy to do it. Lots of solvable problems in cryptography but very few people working on them.

User adoption is the toughest nut to crack. Right now the two largest use cases of cryptocurrencies are financial speculation and illegal activity. Both are huge turn-offs for the average prospective user.

What’s the value proposition for an average Joe to use bitcoin over fiat currency?

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