The Ethereum Price Drop: A Fundamental Analysis | Hacker News Reader

The Ethereum Price Drop: A Fundamental Analysis

blog.sfox.com

67 pointsfiniteregress127 comments

I don't think the author understands what "fundamental analysis" is.

If you really wanted to do a fundamental analysis you could, for example, calculate the size of the services built on top of the Etherium blockchain, calculate the amount of gas required to execute those instructions, look at the total supply of Ether and thereby calculate some kind of intrinsic value.

I have not done this, but I'm pretty sure the results would not make crypto-bulls very happy.

Sadly, this article is the same kind of speculative storytelling that infects most of what is written about the blockchain. I like the idea of applying DCF, but using previous S&P returns as a proxy for ETH usage growth is nonsensical.

The math in this article suffers from GIGO.

Edit:

I found a much better attempt at analyzing fundamentals. I would quibble with the author's choice of fundamental -- I think more fundamental metrics are available, but his choices make sense and its an interesting read.

https://medium.com/@cburniske/bitcoin-ethereum-prices-are-do...

This is a fairly superficial article recapping what I would call "the naive narrative" about the crypto price drops. I.e. it's the information you would get if you asked a random person at a conference why they think the price is dropping: "ICOs are selling and retail investors are running away". Except ICOs haven't sold much [1] and retail investors amount to peanuts in the grand scheme of things. Who bought at $20K and is selling now? Likely almost nobody.

Any real analysis needs to talk about trading volumes, issuance rates and profitability of miners, and market depths. Those are the macro variables that are surely at play for a crash of this magnitude. But most of this information is hard to obtain from reliable sources (i.e. trading volumes on Coinmarketcap are usually assumed to be 97% wash trading bullshit, mining operations are fairly secretive, and large exchanges likely operate some sort of cartel).

So a more accurate answer to "why is crypto dropping" is "someone that has a lot is selling". More specific answers are, to the best of my knowledge, not out there yet.

If you have a better theory I'm intrigued to hear it.

[1] https://twitter.com/lawmaster/status/1039224845807116288?s=1...

There is great irony that a technology predicated on all transactions being public, has by far the most inscrutable, opaque, secretive market.

I know it's because almost all trading takes place off-chain on secretive unregulated or lightly-regulated exchanges, but I still find it a significant demonstration of the limited scope of the technologies basic tenets (see also my comment about how it's not "trustless" in a meaningful way).

That article has a lot of words in it. I feel like I could write an analysis of the fundamentals in one sentence. Let's try:

Ethereum doesn't have any fundamentals, as it's not a claim on productive assets, so its entire value to date has been as a medium for gambling.

Your comment is a nice summary of the vitriol surrounding crypto. I have never seen such an anger surrounding a technology since maybe printers or possibly whatever device Planned Parenthood uses to perform abortions.

While gambling is an extremely obvious one (secure and trust-less escrow certainly appeals to the black-market), you _must_ be being disingenuous to posit "Ethereum doesn't have any fundamentals".

The US Dollar is also no longer a "claim on a productive asset" - in your mind, do only stocks count as a claim on a productive asset? Because stocks (as well as mortgages and physical assets) can, have, and will continue to be represented by Ethereum contracts...

When you dress something up like a stock (ownership of a piece of a company) but there is nothing behind it, it really starts to look like a scam. That is where the hate comes from. There are no fundamentals to analyze.

For Ethereum, what do you propose? It is a way to buy incredibly inefficient computation. What are the killer smart contracts? How does the price reflect the price of computation? Has someone made a more efficient EVM? A less efficient one?

The US dollar is the currency that you need to use in order to participate in the largest world economy. No one claims it has a market cap. No one claims it is going to the moon. No one tries to analyze it's fundamentals. No one is pretending it's a stock.

No one tries to analyze the fundamentals of the US Dollar? I would argue the single most powerful agency of the Federal Government of the United States spends the majority of its time doing _exactly_ that...

As you say, people analyse the fundamentals of the US Dollar all the time. Currency markets are inherently speculative, but there are reasons that you must by US Dollars. For example, if you want to buy stocks on a US exchange, it eventually has to go into US dollars. If you want to buy real estate, or commodities for US companies, buy US government bonds, etc, etc, etc. Although the day to day price of the currency is speculative, there is are underlying fundamentals that will dictate a floor and ceiling to that price.

I don't know very much about Etherium, but I don't know of any fundamental reason why anyone must buy Etherium. At best it's an option among others. At worst it's simply a market based on speculation. This says nothing about the potential of Etherium or any other cyptocurrency. It's just saying that the current markets are completely speculative and it's not really an "investment" to buy it -- it's more of a bet.

Of all the things that TACIXAT said, that was the only sentence you found that you could argue with. That leaves the rest of his statements unchallenged.

That’s not his assertions work, nor refutations. Other posters replied to his other sentences... I’m not entering into an argument with someone who has very obviously made up their mind - rather trying to point out a basic logical flaw in their argument that, I would hope, causes readers to think critically about the other assertions. The worlds most relied upon currency is fiat - ethereum is not. Thus, the fundamentals argument ought to be closely examined.

> What are the killer smart contracts?

Security tokens (i.e. actual equities that happen to exist according to a blockchain rather than according to several stock exchanges, but which are still managed by government regulatory agencies, just through the regulator's presence as another smart contract on the same blockchain) seem fundamentally sound. Even governments are getting behind them.

Also, non-fungible asset tokens. Better known as "deeds." (Right now they're mostly used for virtual collectibles, but fundamentally they're the same "possession of X is ownership of the thing X represents" objects that fit the government's model for e.g. real-estate law. They're just digital instead of paper.)

> How does the price reflect the price of computation?

Nobody's claiming it does, I don't think. The price is definitely mostly speculative value.

What I would assert is that it's not 100% speculative value. Even with every single speculator out of the system, the value of ETH would not crash to zero; it would crash to some very small nonzero amount.

And that would be just fine, as long as the value stabilized there, since you can still use an ETH that's worth pennies in USD—but is stable there—as a medium of exchange for buying and selling these other digital financial instruments. (And, in fact, an ETH that's worth only pennies is much better from the perspective of actually being able to deploy and run novel smart contracts.)

> Has someone made a more efficient EVM? A less efficient one?

There are quite a few such projects. Pretty much everyone building "a new blockchain" these days is doing so by forking the Ethereum codebase and adding their own features (e.g. Hyperledger Burrow), or by building something that's "heavily inspired" by Ethereum (e.g. Neo.)

There are also Ethereum side-chains aiming to optimize Ethereum computation by moving most of the non-trust-requiring parts of a computation to infrastructure that's not quite so decentralized—Golem (https://golem.network/), for example, which is something you interact with on the Ethereum blockchain itself, but where the resulting computations from this interaction happen partially off of Ethereum, and therefore are cheaper than an entirely on-chain transaction.

Of course, most people don't really need that inversion; they just build their product so most of it happens centralized anyway, and only the part that needs to be mass-auditable and not under single-party control gets put on Ethereum. This is, for example, how CryptoKitties is built: it's a regular web-app, where the only thing about it that's on a blockchain is the record of what user owns what kitty-UUID. Every fact about that UUID is just on CryptoKitties' servers, but those facts aren't really under contention—only the ownership is. That's the idiomatic way to build an app that stores data on a blockchain at this point.

> Also, non-fungible asset tokens. Better known as "deeds." (Right now they're mostly used for virtual collectibles, but fundamentally they're the same "possession of X is ownership of the thing X represents" objects that fit the government's model for e.g. real-estate law. They're just digital instead of paper.)

I don't believe one would want physical assets, especially real estate, to be managed on the blockchain -- I certainly won't. Hackers steal private keys, courts can transfer ownership or invalidate the sale. So one need government backdoor to asset database. And if you have a backdoor, you might as well use centralized system -- it is cheaper, faster and more reliable.

(And if you want to ensure there are no hidden, retroactive changes, you may want to use systems like certificate transparency [0] which provide log proofs without all the mining overhead)

[0] http://www.certificate-transparency.org/log-proofs-work

> Hackers steal private keys

Yes, just as they can steal bearer bonds or cash (or deeds, back when deeds were bearer instruments) from the safe in your house. That's why you don't (usually) keep physical deeds in personal safes, but rather give them over to a custodian, e.g. a bank, who will secure access to them much more effectively than you can. A "Custodian"-role smart-contract, likely maintained by a company like a bank, is a part of the proposed model for both security tokens and NFTs.

> courts can transfer ownership or invalidate the sale

A "Regulator" contract [likely maintained by an actual government agency like the SEC, or a subcontractor thereof] that can both force and prevent transfers, is also part of the model of security tokens.

> And if you have a backdoor, you might as well use centralized system -- it is cheaper, faster and more reliable.

No. The point of having the blockchain here is that everything—including the actions of the regulator itself—is auditable. In a centralized system, you can't detect regulatory capture. If the logic the regulator used to determine the validity of a transfer is built into an (immutable, versioned) smart contract, however, then it's very simple to detect when that logic has any special cases.

The point of creating these financial instruments as Ethereum-substrate token contracts, isn't just to prove what transactions happened; if that were all you wanted, you could indeed just use log proofs. Ethereum is used here because you don't just want to prove what each agent did, you want to be able to audit exactly the logic they used to do it. You want a verifiable why, not just a verifiable what.

A plain-old "blockchain" (or a distributed log-proof store) is like a video of a poker game where you can see everyone's hands and decks. Add smart-contracts, and you've instead got a video of a poker game where the players are 1960s robots and the video has captured all the movements of their computational relays and valves.

Let's talk about house buying because this information is publicly available and somewhat well known.

Here is a sample house contract: https://www.forsalebyowner.com/pdf/agrmttosell.pdf

Notice that many of these clauses are not representable on blockchain at all (for example clauses 9, which allows buyer to adjust price down if the house has any defects), and some could only be represented if entire industries are 100% on block (7, 8, 10, 14, 15, 16, probably many others). Since this is unlikely to happen, at least initially, they are not representable either.

As a result, the smart contract cannot be more complex than "start with this amount, adjust price either way if both parties agree, accept if both parties and regulator agree, regulator can override anything"

The smart contract won't make seller publicly explain why she want to decrease the amount by $12,345. There will be no explanation why both parties or regulator decided to cancel contract either. All of these decision happen off-blockchain, in the courtrooms, lawyer's offices, or just in private conversations.

Also, since there is a "Custodian" maintaining your smart contract, and "Regulator" approving the deals, you won't be able to avoid regulatory capture either. If you try to go against government's interests, then your private keys would get "accidentally" revoked, your smart contract would get "accidentally" invalidated and so on.

And of course, there are lots of other reasons. What if of one of the parties committed fraud, but this was not discovered until after contract completed? What if Ethereum community decides to fork again? And so on.

This adds nothing useful to the existing systems we already have for tracking ownership of actual assets.

Just so you know, your entire description of how ownership of stocks is tracked is completely incorrect. I would think one has to first properly understand the existing financial system before proposing an overhaul that is supposedly an improvement.

To be clear, first, I should mention that the "security tokens" that everyone cares about, are meant to be a ledger for tracking the cap-table equity issuances and modifications for private companies; they aren't the equivalent of common-class stock of publicly-held companies.

The key advantage of them over the current model is that they make it much easier for an accredited investor (probably a partner at a PE or VC firm) to invest in a private company.

But, let's ignore that distinction and talk about "security tokens" generally, because they theoretically can be used as an equivalent of public-issue stock certificates (even if nobody really cares or is excited about using them this way, right now.)

I compared security tokens to "equities", and that word has a set meaning in finance: the equity class of investments—i.e. shares of companies. But really, there is no precise concept that is a 1:1 mapping for the thing that a security token translates to, which is probably why you're upset about my description of "how equities work."

You can loosely compare a security token ledger-entry account balance to a physical stock certificate held by a person. But when you want to be precise, you have to get into the fact that security tokens are multi-jurisdictional—since they represent the cap table of a company or SPV directly, and because regulators of security tokens require full KYC to apply, both domestic and foreign investors must appear directly on the table, without proxy representation.

Which is to say, if you want to sell your security token in the foreign market (i.e. on a securities exchange that operates under foreign regulation), then you must list the very same security token, rather than creating a jurisdictional proxy token, as one would if they wanted to list e.g. a public American company on the Canadian TSX.

From this perspective, the concept of "how is equity ownership currently tracked" looks a lot less like a centralized regulatory scheme per equity, and a lot more like a distributed system where {exchange, regulator} pairs reach eventual consensus over ownership.

(And this distributed paradigm has real consequences, both today and historically, despite law using the simpler single-regulatory-regime-per-equity model. For example, multinational corporations have shareholder meetings where they vote on things. How are these votes counted? Well, mostly, you have to let the state of the trades keep on marching on a bit after the vote, and then look at the historical ownership according to each exchange at the moment of the vote, and use that to weight each vote. The "preliminary" results of a shareholder vote can—and sometimes have been!—"rolled back" because the eventual consensus of the exchanges as to the ownership-at-point-of-vote was different than what the company thought it was when running the vote.)

If new dollars were created at a fixed rate rather than an accelerating one, the purchasing power of dollars would tend to go up over time.

World spends about $2t on moving money around. The fee that you pay to transfer wealth on ethereum isnt compeating with AWS, it’s compeating with the banks computer that moves a few digits around when you make a transfer.

The world doesn't spend $2t on moving money around, it spends it on moving money around, and a slate of other financial services (Mostly to do with issuing loans.)

https://www.mckinsey.com/~/media/McKinsey/Industries/Financi...

From what I can tell in the report 16% is account liquidity. The rest is actually transfers and maintenance

If you think Ethereum is a way to buy (inefficient) computation, you have completely misunderstood what it is.

As for fundamentals, it is obviously a technological product, with people working on improving it and building services based on it.

It's also trying to solve a rather hard problem, as it turns out. It's possible that it simply isn't good enough at solving that problem yet (too many bugs or whatever).

Ethereum isn't a "product" yet since it doesn't have any real uses. It's more of a tech demo right now which could possibly evolve into a product later.

Arguably ICOs were a use case that was popular at least for a while.

Saying it doesn't have any real uses sounds like the IBM guy who estimated the demand for computers to be about two or three globally.

ICOs were never a real use case, just a way for scammers to cheat greedy and ignorant people out of their money.

Yeah whatever - you have it all figured out, right?

You seem to trust the government. Are you a Trump fan? Not saying it would be a bad thing. Just pointing out that governments aren't perfect.

I don't trust the government much. I trust cryptocurrency suckers and scammers even less.

And you're correct: I do have it all figured out! Thanks for noticing.

The entire point of cryptocurrency is to eliminate the need for trust. You can verify the source code of Ethereum implementations for yourself.

The only problem here is that they may have taken upon too much complexity, making it again hard to verify. It might still be better than closed systems with no option to appeal.

That would be a valid opinion (imo) - saying they failed to deliver. But accusing them of being scammers is off the mark.

The implementors of Ethereum are not the scammers. You can have scammers with every product. A salesman can sell you a used car that is broken. That doesn't imply cars are scams.

If somebody sells you Ethereum for 1 Million Dollars, they might be a scammer. That doesn't imply Ethereum is a scam.

I love gambling. When I was in college I learned how to beat single-deck blackjack by counting cards, which I was very proud of at the time, and I've played tons of poker in my adult life. I enjoy a trip to Las Vegas from time to time.

So note that there's not a hint of anger when I point out that the fundamental use case of Ethereum is and has always been speculation.

If the only point of Ethereum is to speculate then the only point of angel investing is to speculate.

Or perhaps you also invest for reasons not entirely based on making money?

there's a difference between investing and speculation. angel investors should "invest"

It’s possible that some or many of the people who bought into the original Ethereum ICO did so because they liked the idea and wanted to support development. It’s not always a pure cash grab. If the only definition of speculation is buying and selling an asset in the same day (the government’s definition of a day trader) then most are investors.

That's not the distinction between investing and speculation.

BitCoin was backed by heroin. Ethereum is backed by something you can readily buy with a credit card. The value in crypto was initially 100% about black market liquidity among parties that could not trust one another. The second wave was speculation. Now, we're in the phase where the speculators took a bath, or even worse: they saw no movement at all. Now they're out, and we're back to buying drugs with crypto, and there are newer, better cryptos for this purpose.

Dollar was originally backed by gold. BitCoin was originally backed by Heroin.

Why would you say bitcoin was backed by herion and why was that word capitalized?

Heroin is a commodity drug. Unlike pot, LSD, and shrooms, heroin and other opiates are must-haves because they are so addictive. There is literally a steady pace at which the users require it, different though it may be per user. Without heroin, the user is in serious pain and suffering. This basically means there is tremendous and steady demand for heroin, and thus suppliers have the upper hand.

On the black market Tor sites, a lot of the forum transcripts you read insinuate that, while initial contacts may be made on these markets, some people were and are moving very large quantities of drugs through outside agreements. I've seen forum threads describing transactions between two parties that grew up to the $100k range, but of course, the side that money was transferred to vanished immediately.

That means the black market sites and escrow systems are basically mandatory for these transactions to take place reliably, and thus, the market for them is out in the open, with visible pricing.

In the end, the one thing that was lacking in this market was the BitCoin. High demand, low supply. Thus, the market cap of BitCoin quickly rose toward being an equivalent for the entire black market worldwide, but a better proxy for that, with a steadier definition and a fairly tight correlation to the whole shebang that is illegal commerce, is heroin.

So while black market transactions in general are what really made BitCoin what it was, heroin was the only real commodity being traded that could be considered to be something similar to gold, oil, or pork bellies: more traditional goods for which the market has steady demand.

I capitalized for emphasis. I consider Heroin to be sort of a synecdoche for the pricing of the black market. Heroin is the S&P 500 of the black market.

My impression always was that the heroin market on the darknet markets is rather small.

The best i could find is this: https://www.economist.com/international/2016/07/16/shedding-... which pretty much reflects my own impression. I've been curiously following this stuff since early on and the first markets were even primarly focused on stuff like psychodelics and weed.

It surely had an impact but putting it like you did sounds like stretch as well.

Personally i dont think that drugs alone backed Bitcoin. From a outside perspective there seems to be a lot more money in speculation than drugs. In fact its likely that "drug bitcoin" rather fast got turned into $ again, so bringing the actual bitcoins back to investors/platforms/the next buyer/whatever.

Plus a lot of bigger drug trade these days is professional on a level where Bitcoin isnt even necessary. I mean you basically can order all you need for XTC from Alibaba and pay with your credit card, cheap, clean & legal pre-processor products.

mdma/analogues and lsd/rc analogues are mainly what dnm are used

I've noticed an area of the internet where there are prolific opium growers (and would say some are into synthesizing other schedule 1s) but they mostly use eth

btc, eth and xmr are all predominantly used on dnms

Cash is definitely a claim on a productive asset. It is used to buy food, shelter, and pay taxes.

Perhaps you're referring to the USD no longer being redeemable for gold? Ironic considering I cannot eat gold or use it for shelter.

Any portfolio manager of stocks and bonds will tell you cash is a powerful asset because of its general state of constant value.

Stocks and mortgages are not represented by the blockchain, their legal ownership is represented by titles given to their owners by government institutions.

Your response would be more adequate if you disproved the previous comment by actually listing a fundamental of Ethereum instead of claiming vitriol.

> I have never seen such an anger surrounding a technology

IMO, there is nothing emotional about stating the fact that ether&bitcoin have no fundamental value. It's as anry as "Autumn is rainy" statement.

And I get that bitcoin could be the best way for me to send 10K to, say, China. I don't even dispute it. I just want to note that I can do it with bitcoin or ether priced at $10K, $1K, $1 or $0.1. It's just bits and bytes.

>Your comment is a nice summary of the vitriol surrounding crypto. I have never seen such an anger surrounding a technology since maybe printers or possibly whatever device Planned Parenthood uses to perform abortions.

Because people are losing immense amounts of money to these scams. It's causing real harm.

The value proposition of bitcoin was a mathematical limit of supply in a decentralized currency.

A million currencies per day popping up essentially kills the supply limit which causes rapid, catastrophic inflation.

It’s exactly the same thing as printing money with a whole lot of people trying their hardest to convince that it’s not.

And most people will tell you that holding lots of US dollars and expecting to get rich is a bad idea.

Stocks, bonds, land, housing, etc are all productive assets. Even if you hold these via a contract, that has precisely zero impact on the price of Ether and does not mean that holding Ether is a good investment.

> The US Dollar is also no longer a "claim on a productive asset"

I never really saw bitcoin as a "currency" as it was designed to appreciate and consequently become an asset.

USD also backed by fiat, so you don't have to trust it, just that the US Government will be solvent by the time you divest of the currency.

Nobody gives a shit about crypto currency. In contrast every government will perform blood magic to save the US dollar.

Betting against the USD is betting against human civilization itself.

I hate proof-of-work cryptocurrencies because they're literally killing the great barrier reef to run an extremely slow database.

https://www.nature.com/articles/s41558-018-0321-8

https://www.npr.org/sections/thetwo-way/2018/04/18/602995137...

As far as I'm concerned, the vitriol is more than justified. If I had my way, PoW cryptocurrencies would be illegal.

That nature article is not great. It just assumes a straight line growth of energy usage. But proof of work, interestingly, could incentivize green energy development —- unlike other forms of energy production which generally need to be near the site of consumption, you could have a solar farm in the middle of nowhere and still mine bitcoin.

Give me a fucking break, man. The “green energy” argument is a pack of crap. All that “green energy” could be going to something actually useful (say, aluminum production) instead of being literally pissed away on a “currency” that can only pull off 4 transactions a second.

Just admit bitcoin and all other crypto’s waste energy by design. You can’t argue any other way and have people take you serious.

Try baking with tezos liquid democracy

The US Dollar is a commodity with a semi-guaranteed demand, barring no radical changes in monetary policy. That's what gives it a relatively stable value.

The same cannot be said for cryptocurrencies. Demand for them is speculative, and fickle.

USD is fiat money. It's value is only as good as people's faith in the US government.

Commodity money still has worth from what it's made from (e.g. gold) even if it's no longer used as money.

I'm not sure what Ethereum is.

USD's value is only as good as the US government demanding that its citizens pay it ~3 trillion dollars by April of next year.

I, and the rest of the world have pretty good faith that this will happen in April 2019, and pretty good faith that it will also happen in April 2020. I have pretty good faith that if it will not happen in April 2021, I'm more likely to be scavenging for bottle caps, canned beans, and ammunition[1], then I am to be be using eth.

[1] Actually, it's more likely I'd be dead, but the point would still stand.

Point taken. I too would be one of the first casualties as I try to pay for my plane ticket to Canada with Ethereum.

Hmmm... I wonder what would happen if everyone tried to pay their taxes with Ethereum?

the price of eth would plummet as people trying to convert eth to dollars for tax day (because you can't pay your taxes in eth at all)

The same thing that would happen if everyone tried to pay your taxes with turnips, of if "What if they started a war, but nobody came?"

The government would, quickly, and decisively increase punishments for non-compliance, print or borrow a wagon-full of money to make payroll, and send the police, and army in.

Nah. If everyone is demanding it then the laws can be updated. If you had just 10% of the population loudly demanding such a payment method, and 90% generally ambivalent, you could probably make it happen.

The US government can back the USD with naked force. No faith is required.

Recently asset-backed stablecoins like USDC from highly regulated US organizations (Circle, Coinbase) have emerged that allow stable asset transfer over Ethereum[0]. If ETH is seen only as an asset to pay for computation, then other assets like USDC can be used as value transfer.

[0] https://www.circle.com/en/usdc

Even though they are highly regulated, you're still taking a credit risk against the organization, not the US Government. The government can create new money to service its debts, where Circle/Coinbase might go out of business.

If I want to buy computation, I can buy compute time on AWS/GCE/Azure for orders of magnitude cheaper then I can on the ETH network.

Asset transfer is a better case, but why not use quite literally any other cryptocurrency for that, instead?

I think it's the echo chamber of big tech: they don't like crypto. Probably because they want to align themselves with the regulators rather than with the anarchists. HN comments have become increasingly dominated by Google/FB employees and mid management.

Not quite. It's a claim on a distributed processing infrastructure. Where every node processes every instruction. So not worthless. But not very efficient.

Very inefficient things tend towards worthlessness. For instance, I could open a business where u send me source code via mail and I will compile and run it for you and fax you the output... my business would effectively be worthless, unless I convince some gullible people that I’m revolutionizing the computer industry, in which case there may be some temporary positive worth to my company’s stock...

> Where every node processes every instruction.

I first read their wp when it already got hype and thought I misunderstood that part. Nope - it’s actually that bad.

HN community definitely is an echo chamber when it comes to cryptocurrencies and its a shame. My question to my fellow HNers is do we see no merit in a censorship resistant framework which builds a trustless execution environment. I dont think any legitimate crypto dev pushes a narrative to move all cloud services to ETH

As internet served as a conduit to open and accessible knowledge to the world, crypto has the potential to open value exchange globally without the need for trusted entities.

Granted there are fast and established solutions available today for money transfer, however, they all rely on a trusted entity that under the right political pressure will compromise a user and thus is not censorship resistant.

> do we see no merit in a censorship resistant framework

This is a loaded question... Cryptocurrencies are not "censorship resistant". If they were, maybe your complaint about HN's "echo chamber" would be warranted.

Here are some censorship examples:

1. BTC: OFAC has listed Bitcoin addresses that you cannot legally send money to. If you do, expect fines/jail/interrogation/etc.

2. ETH: If you exploit a vulnerability in a contract, your transaction will be invalidated.

3. BTC: If the devs decide to abandon the longest chain like they did in 2013, any transaction on the forgotten chain will be effectively erased from history.

There are more, but admittedly they require a bit of thinking to realize that they are in fact censorship. Everything is obfuscated when it comes to blockchain, which is why it's managed to fool so many smart people into taking its claims as granted.

1) OFAC can say what they want, no one is technically barred from sending funds to that account (albeit it may not be in the best interest of the party)

2) Just as a logical proposition is written in law and exploited by persons (Check how often tax laws are updated), unaudited smart contracts will pose a risk. The state of auditing is improving daily

3) This is a disingenuous comparison; in 2018 One ASIC has a mining power of approximately 12 tera-hashes per second. For comparison, in 2013, the total hash rate of the Bitcoin network on April 29, 2013, was 79.02 Th/s.

> OFAC can say what they want, no one is technically barred from sending funds to that account

Are you saying there is a difference between "censorship" and "technical censorship"? You are demonstrating the obfuscation I called out in my post. Suppressing content is suppressing content. If you believe that Bitcoin will allow you to freely send money to OFAC-sanctioned addresses, please prove it by sending a transaction there and providing us with a verified signature. Until then, my point stands.

There are big differences: how easy is it to censor a transaction, who can censor the transaction, on what basis, how far does the censor's power go, etc.

If you rely on VISA/Mastercard, you could be "censored" for any number of arbitrary reasons -- go google the number of legitimate businesses that have had issues using those platforms.

With Bitcoin, sure, a government can use its criminal laws to ban certain transactions, but keep in mind that: (1) they need to use valid legal process, (2) the reach of their laws only go so far, etc.

Also, the OFAC banned addresses were easily tracked since they re-used addresses. Today, best practices dictate a new address for each transaction. You also have Monero, Zcash and others working on further privacy enhancements, as well as wallets like Wasabi that mix Bitcoin transactions.

> 1. BTC: OFAC has listed Bitcoin addresses that you cannot legally send money to. If you do, expect fines/jail/interrogation/etc.

But can they stop you from sending money there? Can they reverse your transaction later? That's what they mean when they say it's censorship resistant.

> But can they stop you from sending money there?

It's an easy to verify claim, and as far as I'm concerned it's the people making extraordinary claims that have to provide proof. If you want to prove this "censorship resistance" that you claim, please sign a transaction to an OFAC-sanctioned address and let's see how many confirmations it gets.

Wait, is your claim that:

1) Any sensible HN-reader is not going to want to personally send money to an OFAC-sanctioned address; or

2) That if someone were to send money to it, the network would fail to confirm the transaction?

I don't have a claim. I'm waiting for proof. Someone claimed that with Bitcoin, transactions cannot be suppressed or prohibited. That sounds like an extraordinary claim, don't you think? So we should require proof! Let's see if someone can actually use Bitcoin to bypass OFAC sanctions. Or is science immoral?

Well, you implied the network wouldn't confirm the transactions. I don't think that's accurate. Here's your proof:

November 28 press release announcing the two addresses added to the OFAC list: https://home.treasury.gov/news/press-releases/sm556

Blockexplorer for address 1: https://www.blockchain.com/btc/address/1AjZPMsnmpdK2Rv9KQNfM...

Blockexplorer for address 2: https://www.blockchain.com/btc/address/149w62rY42aZBox8fGcmq...

Note that both have confirmed transactions occurring after November 28.

Now, I of course have no interested in sending a transaction myself since that's illegal under U.S. law, but that does not mean the network itself can be censored.

(On a side note: how did you go from working at Coinbase to being such a crypto hater? I understand if you don't want to answer that, I was just genuinely curious.)

If you’re not willing to send money to an address because you’re afraid of the repercussions, you’re being censored.

I worked on crypto for many years and over time I realized meaningful problems were better solved by building trust, not running away from it. Further, tech can’t replace trust: humans own the network, not the other way around.

3. the btc devs did not decide to abandon the longest chain, the miners voluntarily chose to stop mining the chain they were working on and begin building on a different chain.

And, it's significantly less likely that this would happen again today. Bitcoin has matured a lot and the types of pressures that existed in 2013 to push changes onto the network have largely been eliminated today.

> 3. the btc devs did not decide to abandon the longest chain

See, now you're trying to censor history. Here's a refresher of what happened:

>>> from https://freedom-to-tinker.com/2015/07/28/analyzing-the-2013-...

Right away, developers start giving out advice to downgrade:

  23:49  Luke Dashjr		surge_: downgrade to 0.7 if you mine, or just wait

  23:50  Pieter Wuille		doublec: do you operate a pool?

  23:50  doublec		yes

  23:50  Pieter Wuille		doublec: then please downgrade now

BTC Guild gets going immediately…

  23:51  BTC Guild		BTC Guild is going back to full default block settings and 0.7 soon.

  00:01  BTC Guild		Almost got one stratum node moved

… even at significant monetary cost.

  23:57  BTC Guild		I've lost way too much money in the last 24 hours
				from 0.8

Yes, this was done with the consent of the miners, and not by pushing out a hardfork onto the network. The miners could have easily refused to perform the downgrade.

The majority of nodes on the network stuck to following the longest chain rule and noticed nothing out of the ordinary.

At least crypto is way more censorship resistant than oldschool money. That's why it is called "censorship resistant" not "censorship proof". Claim stands.

Make a Jewish joke and Paypal will not be your friend. Piss of governments and Visa and Mastercard will make it impossible to donate to your cause.

I appreciate the nuance. "Today, Bitcoin censors less than PayPal" seems closer to the truth.

Would you then agree with "Cryptocurrencies in 2010 censored less than cryptocurrencies in 2018"?

Yes. Cryptocurrency will eventually have to bite the bullet and become legit: KYC/AML, deanonymizing bad actors, defunding terrorists, hitting ICO's with laws, exchanges who cooperate with the IRS. It is getting there whether its users want to or not.

Right, and this is the contention: I'm pretty sure when bitcoiners say "censorship resistant", they believe that Bitcoin will be resistant to any future law enforcement. I used to believe this, which is why I'm assuming it's what they believe... Your position that "you can buy drugs today with Bitcoin but probably not in the future" seems much more reasonable, but I'd call this "regulatory arbitrage" (like Uber), not "censorship resistance".

Ah bitcoin, standing up and providing a platform for all the racists, antisemites and bigots of the world. Don’t forget all the drug kingpins, terrorists, child pornographer peddlers, and crypto-ransomware makers too!

Please don't post unsubstantive comments here.

Yup, that is a hairy decision to make if you advocate for privacy and anonymity, and against censorship: What to do with the bad actors who will make use of it?

From the Tor FAQ:

> Some advocates of anonymity explain that it's just a tradeoff — accepting the bad uses for the good ones — but there's more to it than that. Criminals and other bad people have the motivation to learn how to get good anonymity, and many have the motivation to pay well to achieve it. Being able to steal and reuse the identities of innocent victims (identity theft) makes it even easier. Normal people, on the other hand, don't have the time or money to spend figuring out how to get privacy online. This is the worst of all possible worlds.

> So yes, criminals can use Tor, but they already have better options, and it seems unlikely that taking Tor away from the world will stop them from doing their bad things. At the same time, Tor and other privacy measures can fight identity theft, physical crimes like stalking, and so on.

BTW: Those examples I gave are for Milo Yiannopoulos and WikiLeaks. I am not sure they fit into any category you mentioned.

> If when you say whiskey you mean the devil's brew, the poison scourge, the bloody monster, that defiles innocence, dethrones reason, destroys the home, creates misery and poverty, yea, literally takes the bread from the mouths of little children; if you mean the evil drink that topples the Christian man and woman from the pinnacle of righteous, gracious living into the bottomless pit of degradation, and despair, and shame and helplessness, and hopelessness, then certainly I am against it.

Anarchists. But with computers now.

Early adopters are silent, because they have nothing to prove and are too busy enjoying their wealth.

Holders are positive, partly because they have financial motive to do so.

Nocoiners are negative, partly because they are kicking themselves for not cashing in on one of the biggest opportunities of the last decade. They like to see crypto fail so they can say: See, I told you so! and feel better about missing out.

Then there is the perversion of the cryptopunk community, where it became all about greed and hype, and much less about the technology and vision. I wouldn't mind if the greedy folk dropped crypto and it became more about sticking it to the man (because I already largely cashed out, and kinda feel bad for the environment and taking last year's mom-pops Christmas money).

It pays to revisit the very first post on Bitcoin on HN and maybe realize that what HN thinks about crypto is not so relevant as it may seem:

https://news.ycombinator.com/item?id=599852

> Well this is an exceptionally cute idea, but there is absolutely no way that anyone is going to have any faith in this currency. - May 2009

> It pays to revisit the very first post on Bitcoin on HN and maybe realize that what HN thinks about crypto is not so relevant as it may seem:

HN can be wrong at times. The canonical example is "Show HN, Dropbox". Time will tell if HN was wrong about cryptocurrencies as well.

We are still way too early to pass final judgement. The combined market cap of the cryptocurrencies didn't even reach dotcom niveau.

Looking at cryptocurrencies I have a feeling like looking at something from the future out of the corner of my eyes but not completely being able to grasp it. There is a gut feeling about a tremendous potential to change the direction of the future but I don't know what exactly.

I haven't had that feeling in decades. But I do know that if there is a killer app for cryptocurrencies it is not currency.

Most people actually like their money to be handled by a trusted entity. That trust is a feature.

And some don't like their money being handled by a trusted entity at all, and others don't want it handled by a trusted entity in some cases.

None of those people are wrong, they just want different things and luckily they have solutions that can all coexist happily.

But it's pretty obvious that the value in that is waay lower than what crypto proponents claim.

That's a pretty empty argument, what makes it obvious that cryptocurrencies are not as valuable as many people believe?

The dramatic drop in market value and paltry transaction volumes for starters.

That doesn't mean it has poor fundamentals, the internet also had paltry usage in the bbs days, and cryptocurrencies technologically are even earlier than that.

A lot of people think 10 years is long enough but the road from arpanet to the www was multiple decades. Just because the hype hit faster doesn't mean we won't get as far as the internet did.

> crypto has the potential to open value exchange globally without the need for trusted entities

While the protocols and algorithms may be trustless, there is a huge amount of trust inherent in performing financial transactions between two parties even when using cryptocurrencies:

1a. At least the sender must trust an exchange to purchase crypto

1b. At least the sender must trust mining software and/or hardware to create crypto

2a. You must trust wallet software to hold and transfer crypto

2b. You must trust an exchange to hold and transfer crypto

3. You must trust nodes to forward transactions in a timely manner

4. You must trust miners to include your transaction in a block in a timely manner

5. You must trust the receiver to acknowledge the receipt of the transaction

#3 has historically been fairly reliable, but there's no intrinsic reason nodes couldn't collaborate to censor addresses.

#4 can at least be accomplished by more or less increasing the fee sent.

#5 may be secured through traditional means (law enforcement) if both addresses are provably tied to external entities (eg humans, corps, orgs, etc) and the transaction follows relevant laws and regulations in both parties' jurisdictions. Obviously this introduces a huge amount of trust.

#5 isn't a concern for donations which is partially why cryptocurrencies have seen some success at funding terrorist organizations (eg altright and isis).

#5 isn't a concern for transactions fully handled by smart contracts, although then you must audit or trust the smart contract code. Also many contracts are mutable by an administrator which may introduce additional trust requirements.

ETH is just an oligarchy. It is run based on the consensus of the biggest miners. They can decide to ignore what the smart contracts say at a whim. This has already happened, which is why ETC exists.

It's not magic God-math free of all human imperfections. It's just another government, and not a terribly good one.

Further to this, I question how many persons commenting actually understand the underlying principles of each of the so called blockchain offerings.

EOS relies on 11 elected validator nodes who have been shown to try to buy votes

ETH is the only platform IMO that truly captures consensus and its move towards proof of stake will improve transaction throughput.

All in all, the fact that I can complete a 1k transfer in 5mins for under 10 cents is unheard of in any banking workflow.

I would say the people shilling out crypto offerings are the ones who don't understand what their product offers.

Almost every single positive feature to bitcoin or ethereum has proven to be bunk. It isn't trustless, it isn't censorship resistant, it gobbles massive amounts of electricy, it can't scale, it isn't anonymous, it isn't a good store of value, it isn't instant, it isn't free, it isn't immutable. Its advocates don't understand finance, business, government, politics, computer science, math, sociology, monetary policy, macro or micro economics, or human psychology.

There is nothing left to pick apart. Bitcoin, Ethereum and the all mighty Blockchain are completely useless. The entire space is lead by some of the scummiest scum bags around and from top to bottom the only true motive for the technology is to Get Rich Quick.

It is scams on top of scams on top of scams. The whole space is a joke. Except instead of being funny it is busy pissing away small nations worth of energy to enrich a few scummy people who got lucky and bought into the pyramid early.

I am someone who spends a great deal of my time reading about blockchain and attempting to separate hype from fundamentals.

There is a growing body of nuanced evidence that it's not the case that "it is scams on top of scams" and "the whole space is a joke".

(This isn't the same thing as saying "the price is going to the moon".)

I'm involved with https://augur.net. In a few years time, Augur will be the backbone of a new generation of entertainment, trading, and forecasting products. These products will have lower capital requirements as they effectively outsource the financial bits to Augur. Users of these products have self-sovereign control of their assets (ie. private keys; the emerging phrase for this is "non-custodial") which is a benefit over centralized alternatives.

Most products built on Augur will constitute a form of gambling, but unlike gambling on a dice roll, this gambling is more akin to trading stocks, with randomness and strategy.

Also, Vitalik Buterin tweeted yesterday on non-financial applications of blockchains https://twitter.com/VitalikButerin/status/107215895799977164...

There is no such thing as "self sovereign".

I agree with you on the personalities surrounding crypto in the mainstream, they dont do it any favors. However, I disagree that the industry is led by just scumbags; the aforementioned are merely the ones that jump at the opportunity at the spotlight. As we know, sensationalism sells.

There are in fact some very reputable persons in the space:Tim Berners Lee, Andreessen Horowitz, Tim Draper to name a few. More so, to get a real feeling of the development community behind eth I say check out https://ethresear.ch/. The devs on the project are very dedicated, transparent and post nearly daily updates on progress.

> Its advocates don't understand finance, business, government, politics, computer science, math, sociology, monetary policy, macro or micro economics, or human psychology.

Weird, I must work with a bunch of dunces who turned millionaire by sheer luck.

That's not the criticism from HN.

The technology itself is perhaps sound.

It's the greed, 'high-horse' thinking that is of primary concern...

I agree with the greed, but any and all emerging markets will have opportunist attempt to capitalize on the asymmetry of information available to the average joe.

Ask crypto devs (myself included) I welcome regulatory oversight. I also believe in working along side the banking industry to develop appropriate interfaces and adopting KYC/AML process where appropriate.

ETH is controlled by vitalik

It’s been 10 years. When do we stop taking about potential and start talking about failure.

Remind me again when the internet first started?

And how long after that did Facebook / Google / Amazon become some of the most valuable companies on earth?

Internet was invented in 1983. Even before that, newsgroups already existed as UUCP. When internet appeared, UUCP was adapted to the internet right away.

So on year 1, internet provided unique and useful functionality -- one could exchange information with thousands of people all around the world very quickly. This was pretty revolutionary, there really was no similar services.

(fun sample articles: http://www.eightyeightynine.com/culture/80susenet.html )

It was obvious the internet had value and potential. It took a while for technology and society to catch up but the use cases were pretty clear.

What are the use cases for a data-structure like the blockchain? I can't name a single one.

Clear to who? Not world renowned economists!

P. Krugman 1998, “The growth of the Internet will slow drastically, as the flaw in ‘Metcalfe’s law' becomes apparent: most people have nothing to say to each other! By 2005, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s”

I personally say it's too early to tell. And anyone who says yes or not to potential value doesn't actually have a clue.

Give me something. Anything. Surely you can name a single use for The Blockchain.

Its had 10 years. Its had enough time.

  "It was obvious that the internet had great potential from the start"

  > Actually, many people thought the internet had very limited potential

  "PROVE THAT BLOCKCHAIN HAS POTENTIAL."

Seems like your argument is a bit inconsistent. But I can give you a handful of hugely interesting applications for blockchain technology off the top of my head.

- Borderless currency that relies on no nation-state.

- Complex financial instruments which require no 3rd party to make them possible (the MakerDAO project is very interesting, for example).

- Storing any type of record where it is important to have an immutable log of those records. Property ownership is a big one, as is any other kind of title (cars, boats, etc). Another good one is transparent supply chains that can be fudged for one reason or another.

- Censorship-resistant web applications (social media, news, forums).

- Provably fair gambling

- Interesting gaming applications, such as in-game merchandise that can be used across different games created by different people / companies without needing to rely on the solvency of a particular provider.

  I can't think of good uses for blockchain technology therefore there aren't any.

Yeahhh, pretty sure that's not how it works.

It’s 1988. When will these personal computers do anything useful? It’s been a decade!

Oh please. In 1988, "Battle Chess", "King's Quest IV" and "Dangerous Dave" were released. For us kids it was a lot of usefulness.

In 1978, people predicted personal computers would take over the world. By 1988 they clearly were.

I believe all the bitcoin and eth are down because the commoners/speculators stepped out. It's only used currently for black market stuff. And that is also moving to other coins with better cloakabilities. Bitcoin and ether will slowly come to an end. Maybe it will one day be seen as ancient crypto relics and therefore still have some value. But not anytime soon

I’ve always been concerned the majority of trading was done by large players manipulating the markets through churning and pump and dump.

With truly anonymous participants, what’s stopping someone from trading with himself over and over again, creating the illusion of trading volume and price appreciation?

In trustworthy exchanges, trading fees.

On Binance or the like, nothing, or market risk (i.e. other market actors profiting from your wash trading), depending on the level of cartelization you assume in the crypto whale demographic.

Great article. It's so difficult to find writing on the space that isn't cryptomaximalist, completely dismissive, or technical analysis mumbo jumbo.

Ethereum is intriguing to me. Since it's not designed to be a deflationary ponzi scheme, it's not clear to me what its value will be over time. It appears to have more ways to win than Bitcoin, but also more ways to lose. I think the answer is: don't buy it to speculate; treat it as a means to an end when the need actually arises. That's almost rational.

They didn’t explain how the run up in all crypto currencies was driven by bitfinex’s unprecedented counterfeiting operation.

Analysis: It's tech beanie babies.

Incorrect. CryptoKitties, not beanie babies.

Digital pokemon cards.

I think that in a general macro downturn, cryptocurrencies fall further than other asset classes:

In a macro downturn, cash becomes more valuable, and, ceteris paribus, this decreases the cash price of all assets, including crypto.

The popular expectation of above-market returns in crypto is sufficient to create price volatility. A segment of crypto holders will sell when they believe above-market returns won't happen in the short to medium term.

Obviously, downward spirals of selling occur in all/many asset classes. I think the expectation of above-market returns in crypto makes these spirals stronger.

> a macro downturn

> segment of crypto holders

> spirals of selling

Time of transition

The more timid element

Will run for cover

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