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Comment by moccachino | Hacker News Reader

Of all the bizarre phenomenons in the world, I think the Bitcoin-as-an-investment takes the cake.

People spend a ton of energy (that could otherwise to actual useful things) on shifting around bits that they then claim are very valuable.

You could make a similar claim about fiat money except that actually makes commerce easier. Bitcoin is not a good way to transfer value since like you said it's too volatile for a currency.

So it's built on nothing, it does nothing and underpins nothing, it wastes huge amounts of otherwise useful energy and that makes it a good investment?

Maybe I'm just too dumb to see the genius of it.

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You know, I too really dislike the investment focus of most people. If it's not usable, it's just a bigger-fools-game. And price volatility is a definite concern.

Yet many do use it as a currency, volatility isn't a showstopper. Just look at the use in darknet markets, most serious VPNs and VPS services offer it and you can buy all sorts of stuff on for example Webhallen or Inet (two of the biggest Swedish online computer stores).

> So it's built on nothing, it does nothing and underpins nothing

And this is wrong. It's secured by cryptography and game theory.

The big thing it does is fairly simple: It enables digital payments without a trusted third party. It's relevant for businesses who cannot accept credit cards and there are thousands of stories where startups gets their accounts frozen, for arbitrary reasons, which may tank their business.

I wrote about this and more here: https://whycryptocurrencies.com/

> it wastes huge amounts of otherwise useful energy

Actually most of the energy comes from renewable sources, which would be wasted otherwise. The Bitcoin mining industry is so competitive, it wouldn't be profitable otherwise.

I don't want to wave away the concerns as nothing, because it is a valid concern, but there are tons of other things we waste much more energy on.

I guess you are right that it's useful for black-market commerce and I suspect that's probably the only reason it has value.

Regarding this:

>Actually most of the energy comes from renewable sources, which would be wasted otherwise. The Bitcoin mining industry is so competitive, it wouldn't be profitable otherwise.

Geothermal energy isn't renewable unless it's used sparingly. Hydro-power requires huge sacrifices of land, usually fertile valleys, in the reservoir lakes. Windmills are loud, huge and ugly. Power lines require sacrifices of land. And everything needs to be produced, with the environmental impact that brings.

I'm not saying renewables are bad, they're not, but they are not so pristine that using them for bitcoins isn't a sad thing.

> it's useful for black-market commerce

It's not only black-market commerce though. Porn, legal marijuana, gambling, auctions are for example considered off limits by most payment processors and in some cases even banks. PayPal even froze Minecraft's account (but it was quickly reinstated due to it's popularity, many others have not been so lucky).

Excellent point about renewable energy.

Yeah, but no one is flooding valleys to power mining operations. They use already existing hydro power plants like those China built in the middle of nowhere and didn't have use for because of poor planning. You can also turn on the miners only for periods of lower demand (e.g. at night).

I'm not saying renewables are bad, they're not

And they can be used for more sensible things than mining crypto.

But that's an argument, which never can be won in discussions with crypto enthusiasts.

An enthusiasm, which, to me, has almost cultish qualities.

Actually most of the energy comes from renewable sources, which would be wasted otherwise.

That argument is just silly. I don't think that miners give a flying fuck where the energy is coming from as long as it's cheap.

His point is some of the cheapest energy in the world is renewable (like hydroelectric energy in China), which is what Bitcoin is using. Bitcoin mining can take place virtually anywhere in the world so it can be done where energy is already abundant.

Value and it's underpinnings act in very bizzare ways, and people might assign value to something just because other people do as well. Regarding Bitcoin, one of the reasons people assign value to it is because it offeres a way to keep track of value in a way that is almost impossible to manipulate. Cyclical reasoning right there. That property is not unlike gold, but besides gold also offeres some extra advantages (and disadvantages) like being able to transfer it across the world in 10 minutes or pass it across borders without any hassle.

Except cryptocurrency has been exploited to invalidate it’s recorded value.

Indeed they have. They are far from perfect. But the top few cryptocurrencies have a decent track record.

People spend a ton of energy, that could otherwise have been put to better use, to extracting small fragments of yellowish metal from beneath the ground, cleaning it up only to put it in another cave behind bars and locks. Then they go around loudly proclaiming how valuable it is.

A lot of work was spent moving it only to never use it. Value is a strange thing, I guess. One would think they could skip that massively expensive and somewhat dangerous unnecessary part and just count large numbers instead, or something.

That's a valid point, but the removal of the physical step only serves to make the whole process even more absurd.

With gold bars at the very least you have in your hands a concentrated lump of actual material that will survive a power outage or a lost password or something.

But of course that whole process is as absurd as you point out today because gold holds residual value from when it actually was a convenient universally recognized store of value.

> So it's built on nothing, it does nothing and underpins nothing, it wastes huge amounts of otherwise useful energy and that makes it a good investment?

Just an armchair hypothesis, but perhaps given it's lack of underlying utility (vs gold for example) Bitcoins "value" is mostly just a measurement of the level of distrust in fiat currencies and the institutions and governments that back them.

There are a subset of people who by nature will never trust fiat currencies, or govts and institutions that back them, and the "floor" of Bitcoin is defined by their participation, as well as those with a vested interest (i.e. a large early stake) in Bitcoin. As the distrusting population expands and contracts, Bitcoin will vary in value.

I do wonder whether rising energy costs will take a bite out of the value proposition for it, though.

The carbon price of cryptocurrency damns it enough. If it weren’t for the lucky happenstance of fossil fuels we probably wouldn’t have had the energy Infrastructure around to develop computers to crunch numbers for this sort of moonshot.

Maybe I'm just too dumb to see the genius of it.

You're very welcome to add me to the dumb club too.

In addition I'm a smidgeon confused about how the bitcoin exchange rate is determined. It seems to be whatever exchanges say it is. There must be some metrics to determine that, but overall the market seems so illiquid and some of those exchanges seem a bit like easily hacked two bit shysters with some PHP scripts and a snazzy whitepaper.

But again, that's maybe just us in the dumb club.

I suspect that volatility may be a feature to money launders - not as ransomware transmissions or anything like that but justifying balance transfers. Not saying that was even an intention as opposed to ideology but to paraphrase cyberpunk the street finds its own uses. The fact there are innocent users is what makes the conspiratorial useful.

This is all read and theoretical - I certainly don't have any practical experience with either combatting or committing money laundering.

Anyway fine art and wines are infamous as pretextual transfer vehicles because the values are often so subjective - bitcoin swinginess serves the same purpose, especially if the hypothetical enterprises control enough to manipulate the market. Big assumptions of course that such a thing exists but it highlights who it could be useful to (intelligence agencies and organized crime - which are arguably largely the same thing to the host country - both break the law in pursuit of their agenda).

Anyway that form of laundering involves buy something at a lower/normal price and selling high. The selling high can be from having a contact buy it for higher with your dirty money. Of course open sales would be preferrable - not only because deals only between connections are obvious but some bonus profit. If someone not involved outbids or provides enough of a margin to be worth backing off all the better - you can move the dirty money another day.

If one needs to funnel clean into dirty do it in reverse order essentially.

It's based on what people are willing to buy or sell it at. Like anything else...

Obviously, I'm not disagreeing per se.

What I'm arguing, though, is that the market making "algorithm" is highly intransparent.

The market making algorithm for Bitcoin is: the highest bid and the lowest ask.

Personally I have more trust into established banks as market makers than into unregulated crypto exchanges, when it comes to market making.

But we probably have to agree to disagree here.

The exchanges aren't market makers, they're exchanges. Totally separate concept. The NYSE isn't a market maker for stocks, for example.

Your confusion seems to be that the exchanges are coming up with the prices, which is not at all how it works. Again, the price is set exactly the same way as it is on the NYSE, by matching bids and asks.

You can just go to any online exchange and check the order books and history. How much more transparent can it be?

Bitcoin's price is governed only by market forces. There's no single algorithm setup by an exchange to determine it.

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