Bitcoin Halving Just Occured
blockchain.com
blockchain.com
Traders value Bitcoin the same in USDT or USDC, and USDT / USDC trades at parity. That implies the market trusts USDT. It doesn't matter what people on HN say, as long as the market agrees.
1. ...that "the feds are debasing our currency through their relentless printing"
It is producing a measured, consistent, relatively small 2% rate of inflation over decades and decades. They are of course acting on behalf of an elected body, and ultimately accountable to that body. They're also audited.
2. ...that Tether's relentless, un-audited, 70%-at-most backed printing is fine because the "market trusts it" and "nobody's forcing you to use it."
The market trusts it because number go up, and it's in the interest of exactly zero market participants to show the world the emperor has no clothes.
It's also not fair to say that "nobody's forced to use it" when everyone is forced to use it. In 2018, 80% of all crypto exchange transactions were conducted in Tether. That makes USD transactions by far the minority. Since arbitrage bots keep the prices in sync, and the majority is USDT, even the USD exchanges follow the USDT prices so long as there exists sufficient liquidity to balance the books. [1]
[1] https://www.wsj.com/articles/the-mystery-behind-tether-the-c...
> The market trusts it because number go up, and it's in the interest of exactly zero market participants to show the world the emperor has no clothes.
Wouldn't work on extreme market fluctuations. Bitcoin dropped 50% and USDT still hold the peg. Bitcoin then almost tripled in a short period and USDT still hold the peg. I'm not sure if they have full reserves or running some magic; but whatever they are doing is working very well.
We know they don't have full reserves because we know 30% of them were seized. [1]
> ...but whatever they are doing is working very well.
Frauds work until they don't.
[1] https://cointelegraph.com/news/head-of-crypto-capital-arrest...
You suspect they don't have full reserves because you know 30% of them were seized. Presuming "full reserves" means 1:1 backing (what else could it mean, here?), your statement assumes they had exactly 1:1 reserves before the seizure. If they had more than that, your assumption could end up false.
So sure, you suspect. From what I've read in this thread, I tend to agree. But I fail to see how you know.
Presumably they buy tether when it's under $1 and sell it when it's over $1 to maintain the peg. Not magic.
That body being whom?
>They're also audited.
By whom?
[1] https://www.newyorkfed.org/aboutthefed/fedpoint/fed46.html
The idea is that you use it to invest: into real estate, into equities, into bonds, heck even a savings account collateralizes mortgages. Yes, even your magic beans represent the system working. The system is designed to encourage the continued survival of the most economically fit companies, etc, by your picking winners.
Don't hold money. Certainly not more than you need in the event of an emergency.
Yes, for very short periods of time, ideally. To the extent that remains true the effect of inflation is smoothed out. As at each stage in the transaction chain prices can adjust pricing to reflect inflation. Think of it like a continuously variable transmission. Yes, it has gears. But the effect is basically smoothed out if you do it quickly enough.
> Saying “don’t hold money” tells me everything I need to know about your understanding of economics.
It clearly doesn't.
In such an environment you want to get rid of your USD as fast as possible and turn them into something you value, whether it be land or whatever. The money itself is by design an inflationary currency. Most people don't understand this, which is just fine with the people who print the money and the ones who distribute and loan it out.
Now, having lots of liquid cash AKA liquidity is a good thing as long as you get rid of it soon by putting it in assets. Lots of people gladly go into debt taking out loans to buy productive assets and declare bankruptcy multiple times playing this kind of game. It's kind of insane in a way.
All of this information you can obtain via quick google.
Doesn't that auditor owe FRS $17T?
It is a fact that at present, you can't replace your entire life with cryptocurrency transactions, but the actions of the Federal Reserve over the last few months demonstrate how useful it is to have a parallel construct that actually represents an asset that isn't immediately able to be transmogrified by actions of a shadowy cabal (JPow in particular, who with his 50mm nest egg stuck in a hole at BlackRock, has a direct incentive to keep markets afloat)
Just my $0.02
"It doesn't matter what those crazy geologists say, as long volcano hasn't exploded yet."
The market can never overvalue or undervalue? Hmm...
- USDT is a fictional currency invented by Bitfinex to make up for the fact they don't actually have access to banking because they're unbelivably shady.
- They got many other exchanges onboard since it effectively allows you to skirt AML and KYC regulations.
- Bitfinex is a shadowy cabal of truly dreadful market participants who mess around under the covers with Tether and use it to effectively control pricing. They print Tether and use it to buy BTC to drive the price up. They then sell BTC for Tether if they want to drive the price down.
- They promised for 5+ years that they'd get Tether's bank account audited but instead auditors up and quit.
- They had 30% of their assets seized in a money laundering sting but of course, the exchange rate remained 1:1 instead of 1:0.7
- The NYAG is suing them.
The price you see of BTC doesn't really reflect anything other than Bitfinex' manipulation. The rate of BTC inflation falling from 12.5BTC/block to 6.25/block affects miners and their ability to be solvent. Not much else.
Thsi one I don't understand: A ton of MXN has been seized because El Chapo had been using it for shady stuff, but yet nobody expects the MXN/USD pair to suffer from that.
Why would it be different? The fact that someone takes the token "by force" won't suddenly decrease their value.
But they obviously don't, they hold, at most, 70 cents.
It'll be a bank run.
Is the exchange rate supposed to be related to the amount of assets they hold? If you go to exchange one currency for the other in either direction and that's the amount you can get, that's the exchange rate. If everybody tried to cash out all at once then they might not have enough, but neither would Bank of America. That doesn't mean the exchange rate between physical cash and Bank of America deposits isn't 1:1.
Meanwhile they presumably turn a profit, so just because they lost some of their assets, how do you even know they don't still have enough?
How do you know they have any? In order to have any semblance of legitimacy Tether needs to complete and publish the audit they promised every 6 months for 5 years.
Currently, based on their own website, the limiting factor is that their auditors only publish their reports in Mandarin, so there's literally nothing they could possibly do to release them. Even though those same auditors happily published attestations in English [1]. Before they were fired, and replaced with Friedman LLP, who quit.
All very cool, and very legal.
Tether works on explicitly the opposite principle. One banked dollar for every minted Tether. Since they have no government propping them up, the certainty of those dollars is the only thing you can hold onto as far as Tether’s reality. Once they’re gone, the music stops.
BoA doesn't claim to back every deposit 1:1 with physical cash. Far from it. The whole basis of fractional reserve banking is that they lend most of those deposits out to other customers. This is fine though, because the deposits are insured by a government-backed protection scheme.
Who are the the same people, don't forget, despite repeated denials thereof, even if the same executives signed contracts between the two, on both sides.
And even when you get beyond that, you run into the 'arms length' fiduciary issues.
[1] https://www.icij.org/investigations/paradise-papers/paradise...
I find the older comments really illustrate some of the cognitive dissonance Tether skeptics hold.
Keep doubling down I guess, might get lucky one day.
Like most cryptocurrency constructs, Tether is ridiculously shady, but that doesn't mean it's easy to predict when it will go out of business.
It's a link in the chain, which makes it fair game.
How is that relevant? If he's right, he's right.
The reality is that the market expects solvency for the foreseeable future, and tether solves a market problem (liquidity in environments that do not impose the KYC laws required by the US government to trade USD), thereby allowing Bitcoin users to achieve a level of anonymity while still having liquidity. It also, of course, allows a wider variety and leverage range of financial instruments.
Because betting either way in a manipulated market is a sucker's game. Bitfinex has their finger on the scales. Why on earth would I bet in their casino?
Does anyone other than Bitfinex even allow you to short USDT? Remember those two are one and the same, and Bitfinex doesn't even have banking. What are they going to pay my USDT short in? USDT?
> Matuszewski told On the Brink's Nic Carter that the idea of tethers driving the price of bitcoin significantly higher is "not true whatsoever."
> "I say this as someone who created and redeemed billions of tether over the course of my life and specifically created it in 2017," he said.
> In short, Matuszewski affirmed that there were incentivizing events for the generation of Tethers. Bitfinex didn't print Tether out of nowhere either, since Matuszewski said he himself was one of the drivers.
> “I can tell you that billions of dollars were sent in to make it like that," he said. "I can 100%, without question, verifiably guarantee it happened. I did it, I was there...That money wasn't just being hypothecated. It wasn't just coming out of thin air, that was happening."
I worked for Circle, I worked with Dan, and I can guarantee you that Dan (former head of Circle Trade, the second largest crypto OTC desk) knows his stuff, and Tether is nowhere near as sketchy as your posts and conspiracies would have you believe.
Great! Then an audit should be right around the corner, yeah? Or did we forget when their last auditor quit [1].
> "I say this as someone who created and redeemed billions of tether over the course of my life and specifically created it in 2017," he said.
Tether's terms of service: "The right to have Tether Tokens redeemed or issued is a contractual right personal to you. Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves." [2]
Translation: Redemptions not guaranteed.
> I worked for Circle, I worked with Dan, and I can guarantee you that Dan (former head of Circle Trade, the second largest crypto OTC desk) knows his stuff, and Tether is nowhere near as sketchy as your posts and conspiracies would have you believe.
I'm sure the NYAG disagrees. [3]
Likely in no small part because one large market participant doesn't validate a fraud. They would be hugely incentivized to provide Matuszewski service so that he could go on record and say exactly this kind of thing. I'm sure the same quotes could be attributed to big players in the Madoff case.
So, in short: [audit needed]
[1] https://markets.businessinsider.com/currencies/news/cryptocu...
[3] https://cointelegraph.com/news/new-york-ag-finds-it-perverse...
Is an audit for the thing that represents over 80% of the volume of all cryptocurrency exchanges that much to ask?
Should we just have faith that the lord Satoshi is come?
[1] https://www.circle.com/blog/usdc-reserve-attestation-report-...
You saw somebody providing guarantees despite illiquidity?
It's popular to shit on cryptocurrencies these days, and they certainly have their shortcomings, but they are still fascinating systems and the markets are even more interesting. Instead of intellectual discussion, people seem to flood the comments with hate and jealousy, presumably because some people made more money than them due to presumed luck.
Is it possible that somebody will make money speculating on cryptocurrencies? Sure. Some people make money from MLM schemes too. But ultimately these are negative-sum activities: more money goes in than comes out. And a lot of the money going in is from suckers being taken for a ride. I think there's nothing wrong with people being negative about that.
Like most, you have trivialized the use cases in places like Venezuela and Zimbabwe where the state backed financial system has failed. With the current state of technology, Bitcoin has no ability to replace the global payment network. Claiming that means it's a failure that hasn't lived up to anything is hyperbole. The system's very existence and self maintenance after over a decade is impressive enough to me. I also believe the financial utility of a new asset class with new properties is interesting and useful on its own, although I doubt the layman would agree.
Those are utterly irrelevant until you solve the initial distribution problem. Ready for it?
- Those people don't have money.
- The only way to purchase a meaningful quantity of BTC is through purchase on an exchange. After all, it's twice as hard to mine today as it was yesterday, and in Venezuela you'll just get your mining rig socialized (this has happened a few times).
- If you exchange within the country, then you're just moving the poops around. It's zero sum. Steve has a bunch of Bolivars. He exchanges with Alice for BTC. Now Alice has a bunch of Bolivars, and Steve has BTC. The net worth of the system was preserved perfectly. BTC did nothing for the union of Alice and Bob -- except they lost a ~$0.50 transaction fee, which is a few days wages.
- If you exchange outside the country, who on earth outside the country wants your Bolivars?! If you can exchange outside you may as well buy Gold or Dollars. Those haven't dropped 50% in the last 3 years. Even if you did buy BTC, it's still a zero net sum situation -- except they lost a ~$0.50 transaction fee, which is a few days wages.
Bitcoin is meaningless for third-world countries in aggregate until the initial distribution problem is solved.
The problem in Venezuela isn't a piss-poor currency, that's a symptom of a piss-poor government. No amount of magic beans will change that, until the people solve the problem.
Yes, you can buy things with BTC.
https://reason.com/2016/11/28/the-secret-dangerous-world-of/
> that's a symptom of a piss-poor government. No amount of magic beans will change that,
Did it solve their government problem? No. But it resulted in a little more food in the country then there would otherwise be by allowing citizens to subvert their government's financial controls. BTC provides a base level quality of money, that basically acts as an insurance system against the worst governments. Does it have a huge use case in a country with a healthy and functional financial system? No. But if things go to shit in a country, people can still use Bitcoin and safely transfer value online instead of reverting to trading gold coins in person.
I know you want all things BTC to be bad. But try to keep it intellectual, not emotional. What about the technology -- do you think it's fascinating that a relatively simple and elegant protocol of incentives and cryptography can result in a self sustaining financial system still running a decade after its release?
> But if things go to shit in a country, people can still use Bitcoin and safely transfer value online instead of reverting to trading gold coins in person.
For a small handful of people. That doesn't address the problem on a broad scale. The bar isn't "can Bitcoin address the needs of a small handful of people in Venezuela." Of course it can.
> What about the technology -- do you think it's fascinating that a relatively simple and elegant protocol of incentives and cryptography can result in a self sustaining financial system still running a decade after its release?
I think it's fascinating a single transaction expends 700kWh (enough to drive a Model S from SF to New York) and produces 87 grams of e-waste -- and yet somehow costs less than $0.50, which is due to the socialization of costs in the form of block rewards, aka inflation. Each BTC transaction actually costs about $70.
I think it's fascinating a system brought in to free us from the tyranny of a single entity's ability to freely print currency has had it's pricing entirely subsumed by an entity with the ability to freely print a currency who's symbol is just one character off.
Just because something's simple doesn't make it good.
A transaction expends 700kWh of energy? Source?
Nobody. So you don't buy BTC with Bolivars, you sell art commissions or do some work on Mechanical Turk or grind for online game currency with a real market value, and arrange to receive payment in BTC. Then you buy stuff with BTC.
Meanwhile if there isn't that much BTC in the country, that doesn't matter -- currencies can have a different value in different places when arbitrage is restricted. So maybe BTC is worth more there. Or maybe arbitrage isn't really that restricted in practice and if it started to be more expensive there somebody would make a profit by supplying BTC in exchange for exporting boatloads of oil or coffee beans or whatever people in those countries produce.
Huh? The Bitcoin price on 2017-05-12 was $1686. It did hit $19345 on 2017-12-16, however.
If they have use for them, why not? Also money are indeed a zero sum tool designed solely for moving poops around, shouldn't be a problem, and yes, BTC is money.
So people will take 99.99999999% losses and not 60-80%.
Real dollars go in.... IOUs out of a bull's behind come out.
The short term solution to "everything's fucked" is to stop making it even more fucked.
That's not a solution, that's a vague sentiment.
Regulation can be good, regulation can be bad, how you do it matters far more.
"USDC IS NOT LEGAL TENDER. USDC IS A DIGITAL CURRENCY AND COINBASE HAS NO RIGHT TO USE ANY USDC YOU HOLD ON COINBASE. COINBASE IS NOT A DEPOSITORY INSTITUTION, AND YOUR USDC WALLET IS NOT A DEPOSIT ACCOUNT. YOUR USDC WALLET IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) OR THE SECURITIES INVESTOR PROTECTION CORPORATION (SIPC)."
(https://help.coinbase.com/en/coinbase/getting-started/genera...)
https://help.coinbase.com/en/coinbase/getting-started/genera...
But every line in the disclaimer are probably applicable to bond/USD ETFs as well, but people aren't exactly fleeing from those.
But either way, I think most people would not tend to view something like USDC as a bond (in which the bond holder is a creditor to the bond-issuing organization, with the associated risk-adjusted return on capital), but more like cash.
1. Criminals don't want their activities to be tracked on a public ledger. Cash is anonymous. Bitcoin is not.
2. Criminals already have money laundering systems in-place, and relationships with corrupt bankers.
3. Cash is accepted at more places. So it's more useful to have.
We're talking trillions of dollars in USD crime here. It's not even close.
That's a massively higher share for cryptocurrencies than in legitimate transactions, isn't it?
While BTC is tracked between wallets and that's easily measured, it's unclear how to measure wallets being transferred between people.
There's a non zero chance that your criminal extortion scheme won't end up with bill serial numbers tracked by federal authorities. Hence that's probably why 97% of ransomware uses BTC.
Before Bitcoin, they were using stuff like Walmart giftcards.
What payment processor would ransomware use? Credit card processors would close their account. Nobody can close your Bitcoin account. That can be used for crime, but also is a legitimate protection against the abuses of governments and banks.
That's awkward, given that:
* "All the bitcoins in the world [are] worth roughly $160.4 billion" - Investopedia
* USD M2 (2018): $16.1T - https://tradingeconomics.com/united-states/money-supply-m2
So really, BTC is used at least as much, relatively speaking, for crime, as USD.
[1] https://www.wired.com/story/was-bitcoin-created-by-this-inte...
"Stablecoins" are not stable. How many times do we have to learn this lesson in finance? The probability distribution underlying this stuff is not what stability proponents think it is. They will be stable until they aren't, and then they will blow up. Chasing stability in inherently unstable systems is a fool's game.
1. Pegged value currencies are subject to Soros-breaking-the-Pound style attacks.
2. USDC is based on Ethereum, a first-generation cryptocurrency with numerous design flaws, at both the protocol and scripting language level. On top of that is an increasingly complex network of DeFi apps which can be exploited in sophisticated ways, as we saw with recent multi-part hack across several DeFi apps.
3. The US Dollar itself may be heading into a period of instability, given the massive US Govt debt and Federal Reserve operations.
You can stick your head in the sand and pretend stablecoins are stable, or you can acknowledge they’re more likely one more in a long history of financial folly.
(Their governments finally put an end to it. But I'm not sure you want to include that in the 'system'?)
There's no good reason to encourage value generation through inaction. That's one of the many good reasons to have abandoned deflationary currencies.
From the banks point of view, funds in checking accounts and funds issued as cash were pretty much the same. Just that the cash didn't pay interest, and you didn't know who had it. And it could get lost and never come back to you. (Though perhaps similar to people abandoning accounts sometimes?)
Holding the notes issued by a bank was equivalent to giving the bank a no interest loan. The bank itself invested the funds in loans to other companies. You forewent consumption and took on some risk.
Nominal GDP was remarkably stable over that time in Scotland. In reverse that means that one pound represented about the same share of total economic activity year after year. (The absolute, real amount of economic activity increased a lot.)
Pricing a "market cap" for a crypto when only a tiny percentage of it is trading in the market is not a realistic measure of value.
I'm not aware of any reason why the Bitcoin network couldn't switch to VPN-level overlay networks. Using Tor would be somewhat problematic, given the limited bandwidth. But I'm pretty sure that it'd be doable. Other options include Orchid and Loki.
Mining could be an interesting issue. Government pressure could render large-scale mining operations unworkable. But as I understand it, the Bitcoin network could function just as well with far^N less mining capacity. Difficulty would just decrease with less mining competition. And that would mitigate the key negative impact of electricity usage.
Not too many years ago, there were trusted services that sold Bitcoin (and Liberty Reserve and Pecunix) for cash sent anonymously through the mail. I haven't needed that for years, but I'm pretty sure that such services still exist. And given the escrow sector that's developed to serve dark marketplaces, trust is likely far more verifiable.
Cryptocurrency and meatspace money are now entirely separate for me. I earn all the cryptocurrency that I need anonymously online. And I don't risk manifesting it as meatspace cash. While that's not currently workable for most people, I don't see why it couldn't become so.
How do you buy things in real life?
The point is that my online anonymous coward personas and my meatspace identity are as isolated as I can manage.
i.e., you cannot fulfil your meatspace needs using cryptocurrency as of yet. It doesn't matter that you are able to isolate your identity online from your meatspace identity.
And this is what gov't can easily enforce - through money laundering laws. If ever cryptocurrency becomes prevalent enough to offer meatspace usage directly, you can bet your bottom dollar that gov't will regulate, and prevent anonymous spending (at least, for any large-ish amounts).
For example, cryptocurrencies could displace cash for gig economy tips. Maybe they already have, for all I know. Also for online porn and gambling.
Now, most people I know who hold Bitcoin are motivated primarily by other reasons. But still, I can cut down my cash spending/donations by a few $1000/yr just by doing those things above — which have fairly loose ties to my physical person — with Bitcoin.
I've also done some privacy-related development. For example, a client wanted a private IKEv2 server with a nested VPN chain backend. To provide iOS devices with anonymity that was stronger than VPN services provide, but also easy to use.
Also, oil has large carry costs. Many things with large carry costs are called toxic garbage and have negative value. Oil is just a useful so it mostly has positive value, but the moment you can’t use it, it joins in valuations other toxic garbage.
https://cointelegraph.com/news/trueusd-audit-shows-full-us-d...
Not only are many of them full backed, but they all trade extremely close to parity with one another. Which means that they are all considered relatively safe by the people actually holding them.
trading rather than holding. The people doing the trades are the ones determining the pricing. The people holding are reducing the supply of the asset in the market, but they're not actively participating in pricing of trades.
It would be amusing to go through all the posts from 2017 on the subject.
It was still a scam.
I think in the context here, "pricing with gold" would mean you need to find someone who will actually give you that price in gold.
Tether is a fly-by-night con job that, to disburse USD redemptions, wires hundreds of millions of dollars to money launderers in the Carribean, who then go ahead and steal most of it.
And when law enforcement starts digging through their books, we discover that a third of Tether's 'reserves' consist of a "I'll pay you guys a few billion dollars, pinky swear", scrawled on a napkin.
It's not fractional reserve. It's straight-up fraud.
Not anymore, the Fed lowered them to 0%.
Tether is bad. Where it intersects is it can create the impression people think Bitcoin is worth something in dollars.
ok
> Bitcoin is bad because...
??
> The irony of talking about auditing in fiat as stock prices soar despite 20 million unemployed.
Stock are not a proxy for the economy, as you're discovering. They're a forward-looking price discovery mechanism. The market sees an end to this, and they're pricing it in. There's no reason a stock's ticker should fluctuate day by day to reflect the current sales. That's not how stocks are priced.
> Enjoy exponential exacerbation of income disparity so you can keep your BigMac at a "stable" price.
Stock prices have nothing to do with Big Mac prices. In general Big Mac pricing is an excellent metric when estimating purchasing power parity [1].
Income / wealth disparity is a real problem, and I guarantee you, bitcoin is not the solution to that. It's got worse wealth inequality than any banana republic. "The top 2.8 percent of wallet addresses control 95 percent of the supply of bitcoin, according to statistics." [2] Income inequality isn't relevant here since income tends to follow inflation.
That's a social problem that needs a social solution.
> NOTHING is valued correctly, RN.
Things are valued according to what people are willing to pay.
> Bitcoin is the metric system for money.
In a way it's closer to the imperial system: a slow, old, backwards, deflationary when the whole world is inflationary, system. Economically speaking of course.
In general though that's a meaningless statement.
[1] https://en.wikipedia.org/wiki/Big_Mac_Index
[2] https://finance.yahoo.com/news/five-reasons-why-bitcoin-weal...
https://news.bitcoin.com/wp-content/uploads/2019/01/0Td4BmI0...
And yes the website has changed the title.
> The Times 03/Jan/2009 Chancellor on brink of second bailout for banks
Back then it was a response to the 2008/9 financial crisis, which is what makes this new message relevant.
The subsidy then was 50 BTC
Proposed by PlanB [1] it is a source of constant derision/hope/skepticism/dismissal by the Bitcoin community, and the halving of the reward gives it its first non-backtested novel prediction.
Roughly it predicts [2] that the price will settle into a band around 30,000 USD sometime next year.
[1] https://twitter.com/100trillionUSD
[2] https://cointelegraph.com/news/bitcoin-halving-will-be-make-...
https://share.cryptowat.ch/charts/bqsr58eein8u9uevh370-krake...
Basically it is a way to show that there is similar movements in the value even when the ranges they move in are completely in different scales.
After all the last halving was in July 9 2016. Since then the production has been reasonably constant while the price has been a complete rollercoaster.
With logarithmic scales and big enough error bars you can fit anything into anything.
>If you're wondering why your friends who are into cryptocurrency are in a tizzy
Being into cryptocurrency is reason enough to be honest.
Miners engaged in mining before I arrived would have the same costs they had before, but now with fewer BTC to cover them, this would force them to sell at a higher price or operate at a loss until they drown the competition.
There are two ways to look at it.
Nope.
Miners have costs to cover, mining unprofitably and holding makes no sense whatsoever (you're literally better off turning off your rig, buying on the market and holding at that point)
You're better off buying them from others at that point.
My dreams of being a millionaire are forcing me to sell this orange for a million dollars. Ergo, oranges will now retail for a million dollars.
Bitcoin production is perfectly inelastic, and Bitcoin itself has no consumption value. You need a different analogy.
If there were only 12 oranges produced on all the trees in the world every hour & it cost $500 an hour to operate your orange farm. You therefore have to sell your oranges for at least $42 to cover costs and make a small income
However now there are only 6 oranges produced every hour (not 12), what can you do to maintain profitability?
(Or we are both wrong)
They can be mined at a loss temporarily, in order to drive out competition, but at some point, a miner operating at a loss will go bankrupt. This is no different from the oil industry, where capital outlays so high that most players continue to produce at a loss, temporarily. But long-term, the price must at least match costs of production.
Bitcoin is minted at a predefined global rate; the amount minted doesn't depend on the number of miners. Miners compete with each other for a share of the predefined minting action, so some dropping out does not decrease the minting rate of Bitcoin, but instead makes it more profitable for the remaining miners.
Given this feedback loop, how do you establish what's the proper equilibrium? What's the total amount of hardware bitcoin is supposed to stabilize on? As a thought experiment, if BTC stabilizes at $30k, that means that the total value of all bitcoins will be about half a trillion dollars. How can that work if Bitcoin becomes the new dollar? Clearly the entire world ecomony is more than that.
Normally I'd assume that I'm missing something and the people who came up with that model know more than I do, but then again we're talking about cryptocurrencies so...
If the price were somehow fixed at $1000, the difficulty would eventually be adjusted so that miners would barely break even.
Same if the price were somehow fixed at $100,000.
If people overall wanted to purchase enough Bitcoin to have more than half a trillion dollars in Bitcoin, then demand would outpace the supply and the price of Bitcoin would go up, making it possible to have whatever amount of value in Bitcoin. It's nonsense to presuppose the price of Bitcoin staying still while demand outpaces the supply. No one sets the price of Bitcoin but supply and demand.
Edit: it’s literally the second sentence in the Wikipedia article:
> LTV is usually associated with Marxian economics
The irony is in a Bitcoin investor and Marxists sharing some economic common ground for their beliefs, since otherwise those groups rarely have much in common.
There's a Reddit comment here[0] with links to them, but it's up to you to decide if they're worthwhile or not. I have some doubts, but I would not go as far as to throw the word "discredited" in so casually. The comment also includes links to research against the "LTV".
[0] https://www.reddit.com/r/badeconomics/comments/fht0ti/marxs_...
It's fairly trivial to reason from any given intrinsic value theory to absurdities, this is basically the foundation of marginalism and the last 150-odd years of economics.
The fact that products have prices is an empirical fact; Marx's argument is that this fact is only one premise in his 'proof' (using the term loosely) of the "LTV". According to Marx, a good does not have "intrinsic value" any more than it has "intrinsic price". We still say that price determines what goods sell for (even if that sounds tautological).
It's exactly that products do not have prices that is the problem. The apparent 'price' of a product is an epiphenomenon of a particular market, a side effect of the unequal subjective values of the participants (and it's trivial to observe that these clearing prices are determined at the margin, not on average, which makes aggregate LTV even wronger than the regular kind)
In a well-functioning market all products have clearing prices that are easily measured and compared to one another, but this is a mirage that requires constant arbitrage to maintain. The slightest change in unrelated market conditions turns dirt into ore or crude oil into toxic waste, with no objective change in the material itself, only changes in the subjective needs of the participants.
Remember, production is built right into the protocol. 10 miners could keep the network going at the same pace.
A network with only 10 miners could easily be attacked with minimal effort. The only thing stopping the attacker would be the fact that it's a waste of time, because a cryptocurrency with only 10 miners is worthless.
Wiping out too many miners at once is dangerous business.
First of all, you regularly consume items where the price is determined by demand, not production cost. Cars, housing, and premium products regularly sell for multiples of what they cost to produce.
Secondly, just because something’s expensive to produce doesn’t mean that it’s valuable to anyone else. This is a common problem in customized products, but also happens when market demand either fails to materialize or collapses. Your ultra premium buggy whip might be incredibly expensive to produce, but if nobody wants buggy whips you can’t sell it high enough to make a profit.
many multiples! this is incorrect. the luxury versions of those products you listed certainly have higher margins, but id be surpised if you could find anything with 100% proft margin, much less 3x and beyond.
Price is a function of supply and demand and because most markets are fairly competitive, the market-clearing price can be predicted roughly from the cost of production.
'Cars' do not sell at multiples they cost to produce, once you factor in all of the overhead of sales and distribution, margins are fairly thin. Those are 'real costs'.
Almost every single good ever produced is commoditized on some level, and therefore market prices are predictable from the cost of production.
BTC is no exception: if it costs $1 to make $2 in BTC, you can be sure a lot of people will be 'making' BTC until the cost of making BTC and it's market value start to merge.
The remaining demand for BTC ... given the fact it has no use, it's not a currency or a generally accepted store of value ... is speculative in the purest sense. It's whatever a bunch of dudes holding it want to buy and sell them as. Like baseball cards.
Bitcoin is weird though because no matter how many miners there are, it's still minted at the same rate globally. If it cost a miner $1 to make $2 in Bitcoin, what would not happen is new miners joining and flooding the market with more Bitcoins until the price of Bitcoin falls. Instead, new miners would keep joining and the miners would be cutting into each other's profits until it cost them all approximately $2 to make $2 in Bitcoin.
But that's not really the point.
Let me put it differently: if it costs $1 to mine $1000 worth of BTC ... then, new miners will flood the market until the cost of mining reaches parity with price. This is not a BTC specific or controversial statement here.
I think this is what you meant, but just to clarify: the cost of mining will go up, not the cost of Bitcoin. (Miners joining or leaving shouldn't directly affect the price of Bitcoin. The same number of Bitcoins exist and get minted regardless of the number or activity of miners, as long as it's nonzero anyway, so miner activity doesn't directly affect the supply and demand of Bitcoin.)
What’s interesting is that you reinforced my point at the very end. Baseball cards are a fantastic example of a product that’s sold in a way that’s completely disassociated from the cost of production.
Mining is public evidence that someone is willing to burn $X in electricity to acquire a Bitcoin. For an intrinsically worthless monetary asset with no government support, social proof is the only real source of data on possible valuations. See also: Mises’ regression theorem.
- George Box
-- Anyone who has watched people apply technical analysis to Bitcoin charts as a source of amusement over the last decade
I think just properly accounting for wins and losses can be good at instilling a sense of humility; I'd recommend he calculate his track record if he hasn't already. I enjoyed the book Thinking in Bets by Annie Duke, which is about the psychology of developing some habits around making bets and the cognitive biases we have. A Random Walk Down Wall St. is also a classic that is good at instilling a sense of humility in you as an individual investor.
- John von Neumann
I'm not here to argue that the model is good or bad, but I will say that it's surprising, and interesting.
Think of it like a differential equation where a steady state is changed... like a spring that has been held in a certain position is released. There will be a shock as the system seeks to find a new equilibrium.
The fact that the system has been shocked means that there is some predictable craziness that will happen soon. It is basically guaranteed fun no matter how it turns out.
I've been following bitcoin a long time, and was excited for the halving. But I'd never heard of the model you described and could care less about it.
https://m.youtube.com/watch?v=64R918K-3L8
With the extreme uncertainty globally, this model cannot be reliable.
> Between January 1, 1963 and December 31, 2014, 1,186 index components were replaced by other components.
You can know an index of 500 large companies will go up but not know what companies will be on that index in the future.
https://contrarianoutlook.com/wp-content/uploads/2018/02/SPY...
Also, there are different risks than equities. Equities have the risk of the company failing or being significantly impacted by many different things happening, while there are existential risks with BTC I feel these are often ignored or accepted as not applicable to most BTC investors.
This is a pretty good visualization: https://i.redd.it/qfekfq88qwp31.png
Keep in mind that this is logarithmic and error bars are generally .1 to 10x the actual price.
I'm not wondering that, because none of my friends are in a tizzy. Are your friends in a tizzy? Am I just outside the social connections to the tizzy club?
My own prediction is to observe that the price has been in a wide band around $10k for the past year, so will continue to hover around that, with gradual upslopes and sudden dropoffs of 5-30% for no apparent reason that cannot easily be post-hoc linked to events.
No, it predicts it will be at $30k at the end of this year, and $100k this time next year [0]. I'm pretty comfortable saying that no, it wont. If I though there was a reasonable, legitimate way to trade against that outcome occuring, I absolutely would. For reference, in the past year, BTC has increased in price by ~$1450 or 20% - getting to $100k would be over 1000% increase.
https://docs.google.com/spreadsheets/d/1qgqvFR6HeVNkw2fxLgdr...
I usually just go long on stocks, securities.
Apple stock has increased 100x in the past 15 years, but that doesn't mean it will increase 100x in the next 15 years (which would put its market cap at approximately 5x US GDP).
2) I'm forced to cut my security budget in half.
3) ??????
4) I'm now twice as secure.
You have my curiosity. What is the prediction that Stock-To-Flow made about the effect of the halving?
Imagine if a publicly traded company announced that in 1 years time, they would buy back half of their outstanding shares (not a great analogy but its the best I can think of). What would happen to the stock price?
All securities prices in publicly traded markets are essentially priced as discounted cash flows over the next 20-30 years. The current price reflects all available public information about those cash flows.
I'm not saying efficient markets is 100% true all of the time, of course the world demonstrates that it isn't, but the level of disbelief you have to have in the hypothesis to believe that a well-known public event affecting Bitcoin will result in a 3x price increase is lunacy, IMO.
"Imagine if a publicly traded company announced that in 1 years time, they would buy back half of their outstanding shares (not a great analogy but its the best I can think of). What would happen to the stock price?"
The irony is that a bunch of companies are and did do EXACTLY this with trillions of dollars designed to bail out the economy.
Orthogonal, but I do enjoy how every time I see a statement like this, it comes with a different year set of years. This one is 20-30 years, saw one yesterday at 50 years, Investopedia will tell you 5-10 years is the standard [1].
[1] https://www.investopedia.com/investing/pitfalls-of-discounte...
For example, a cash flow with a 10% discount rate will return about 90% of all it's discounted future cash flow by year 20.
The discount rate depends on the investor, and as for when you stop counting cash flow on the way to infinity, I guess that's up to you.
You can see that it's BS by just looking at Warren Buffett's investment returns, all collected from exploiting long term market inefficiencies.
What is the halving or halvening?
The event is known as the “halving” or “halvening,” and occurs every four years, where the rewards for those who support bitcoin are slashed, quite literally, in half.
So-called bitcoin miners expend tremendous amounts of computing power to verify transactions and link them, digitally into a block, hence the term blockchain. Miners on the blockchain — the digital ledger technology that underpins the currency — receive a precise number of bitcoins for their efforts in solving a complex puzzle.
That computing effort is at the very heart of the digital currency that was created 11 years ago by a person, or persons, identifying themselves as Satoshi Nakamoto.
Is Bitcoin now half as valuable? Did mining it get easier/harder? Less profitable to mine, but existing Bitcoins still have same value as before?
Does this mean the end of businesses that seemed to exist only to mine using custom computers and GPUs? Because their revenue stream has been cut in half?
If it means the end of their business, it means their planning was fairly poor.
> Is Bitcoin now half as valuable?
Bitcoin's value, like any currency, is dictated by the market.
> Did mining it get easier/harder?
The difficulty hasn't changed (although it might if this causes a significant drop in the number of miners).
> Less profitable to mine, but existing Bitcoins still have same value as before?
It is less profitable to mine bitcoin. The impact this will have on the value of Bitcoin remains to be seen.
... is dictated by the whims of Bitfinex and Tether
It's an important distinction to make, because the statment "Oil's value is controlled by the market" isn't very true.
Yeah, no. It's not a currency.
https://medium.com/s/the-crypto-collection/play-bitcoin-reme...
> Bitcoin lies in the same economic category as financial games like poker, roulette, and the lottery. These are all zero-sum games. The property binding all zero-sum games together is that the amount of resources contributed to the pot is precisely equal to the amount that is paid out. Because nothing additional is created in a zero-sum game, for every player who wins something from the pot, there must be a loser.
I think you're wrong.
An illustration could be McDonald's offering of a burger for $1, where you'd prefer burger and McDonald's would prefer $1. If you give them $1 and McDonald's give you the burger, both of you would be better off.
With bitcoin, it's a speculative trade. Everybody is "equally" good at making a coin. So the trade is happening purely due to an expectation of future utility, which may or may not come.
So therefore, speculation is zero sum.
It's been 11 years and there's not an even idea of what legit utility it might have that existing tools and protocols do not fulfill. A significant proportion of suggestions could be done much better with git of all things...
A couple years back, an NYT writer tried living on Bitcoin: https://www.nytimes.com/2018/04/16/nyregion/new-york-today-l...
It didn't work. It doesn't function as a currency. Whatever the intention, it's a speculative, high-volatility commodity with no use value traded in an unregulated market.
The most persuasive defense of Bitcoin as a store of value is that the world needs precisely one digital store of value, and game theory may dictate that it will end up being Bitcoin.
But yes, Bitcoin is obviously ridiculously volatile. I tell friends that there is money to be made, but you need to have a very strong stomach for it.
that's an assumption, not a fact. The existence of an object doesn't automatically prove that the world needs that object's existence.
May be the world _never_ needs such a method, given existing mechanisms already fullfill such a need (e.g., a bank account/credit card).
If something is volatile and great for speculation, it's a bad store of value. So I don't think Bitcoin qualifies as that either.
1) Whether or not it meets the (or someone’s preferred) definition of currency is wholly incidental to the answerer’s explanation, so even if correct, this is not the place to make the point.
2) Bizarre non-sequitur that equates finiteness of currency with zero sum utility which is a real stretch and easy to find counterexamples for (eg chore tokens).
For the cherry on top, it links Medium as a main source.
Is that a good enough justification to downvote?
Sure, everything can be used as a currency. Gold, bitcoins, fiat cash, snackpack puddings at lunch, seashells, etc.
Then there are qualities that make something a good currency, by modern standards. As others have pointed out with links to examples, being deflationary, irreversible, volatile, and having low coverage with unpredictable fees are traits that make Bitcoin not a very good currency. Yes you can hand wave about future promises to be a great currency or chore tokens, but that does not reflect the utility of Bitcoin right now as a good currency.
Are you saying that every comment whose conclusion happens to right should be upvoted (or at least not downvoted)? If so, that would be a mistake. If you present bad reasons to believe correct conclusion X, you are hurting the discussion just as much as if you argued for not-X. And the reasons given in that comment (fixed quantity implies zero-sum utility over such transactions) are bad reasons to believe bitcoin is not a currency.
Furthermore, there's still the fact that the commenter was latching onto a minor, tangential point and blowing it up to be the focus of the discussion. That's also an anti-pattern.
If you want to argue that bitcoin makes for a bad currency, great! I would just encourage you to bring it up in a place where it's actually relevant to the article or comment it replies to, and do so with reasons that pass simple sanity checks.
No, I'm saying that if the bit about it being a currency was incidental to the core point, then you shouldn't turn the thread into a debate about whether it is a currency; you should use replies there to address what was the commenter's core point, which began as explanation of the mechanics of the halving.
Are you seriously saying that that there are no other comments on this discussion where it's actually relevant that Bitcoin is a currency and you can't bear to take those discussions there?
>Further, the entire downvote system harms the conversation more as people leave or sit out conversations due to their voice being stifled by some random(s) on the internet
The comment also gave a very bad reason to believe that bitcoin isn't a currency, and yes, that was polluting the discussion. No one has yet stood up to defend that argument, so I think I was on the right track.
>Lastly why is medium a bad choice?
Because it's an annoying site with every UX and privacy anti-pattern. ("Excuse the interruption...") But again, that was just on top of the two worse sins -- changing the core discussion, and presenting a poorly thought reason.
No, I link Medium as a good explanation. Is there a reason an easy to understand explanation can't be on Medium?
And if you were correctly representing the Medium article, then it's still a bad argument for the reason I gave. I would recommend using a different argument, or finding a more correct point to draw from that article.
But then, as mentioned before, you were still blowing up a tangential, non-central point (whether bitcoin is "a currency"), and that still makes it an unhelpful comment, for making the point there. The comment would have communicated just about the same thing if it said, "bitcoin's value, like any financial asset, is determined by the market"; nothing in the comment was making major inferences specifically from bitcoin's status as a currency.
It has always had potential to be a currency, but it requires a context of use in order to actually function as a currency. That context is still being established, and until it is, any basic evaluation of "is bitcoin a currency" will result in a "no".
Also, it may help to think about it this way: you don't mine the subsidy, you mine the transactions and reap the transaction fees. The subsidy, which halves ever 210000 blocks, is just that, a subsidy.
Imagine if more subsidies (like the US subsidy for corn that still exists since the first great depression) had been hard coded to expire?
It's been a slippery slope. Now the FED has to directly purchase ETFs to "rescue the market" from itself: https://twitter.com/boes_/status/1260029253145378818?s=20
easy to understand right?
But in any case, BTC does get burned in a variety of ways - immovable unable to be spent - in predictable ways based on the poor but improving user experiences. When it isn't burned, people look at the days destroyed metric to understand the actual supply.
It makes mining less rewarding. It's not ½ because miners also get transaction fees.
Whomever solves it get's a reward + whatever transaction fees happened since the last solution. That reward was initially 50 BTC, it has halved 4 times now, 50,25,12.5, now 6.25.
Something like a lottery that gets drawn every ten minutes, but instead of somebody rewarding you, you just have to show the network that you found the solution.
After the halving, the reward per round is... well cut in half.
This affects mining profitability. Puts lots of hardware in locations at negative profitability so they'll have to shut down and buy new hardware, find cheaper electricity, etc.
Whatever happens, difficulty will be adjusted so the same 10ish minute block reward time is maintained.
What does this do to value? Eh, the bitcoin market isn't very rational or consistent. Miners will have less to sell, certainly, but people will have all sorts of ideas of what it will do to the price of bitcoin and since so much of bitcoin is speculation and so little is using it for any real transactional purpose, who knows?
How is this calculation distributed and agreed upon?
Is there really some constant "10 minutes" hard-coded into all mining clients, who then must all compute the difficulty based on how long the previous block took?
Or is the "10 minutes" an emergent property of some other calculation?
If, in the previous 2016 blocks, the average block took less than ten minutes to mine then the difficulty increases and vice-versa.
Good read about it.
"So-called bitcoin miners expend tremendous amounts of computing power to verify transactions and link them"
If this is true, shouldn't the ability to mine be limited by the computational resources needed to perform these tasks? Instead, it seems people increase computing power with no apparent limit in order to mine, and the "demand" for that power is never met.
What matters to an individual is their percentage of the overall mining power, not their computing power in absolute terms.
Bitcoin's security relies on the true blockchain having more Proof of Work in it than any attacker could create. A Proof of Work value is a proof that you had a computer spend about a certain amount of processing time tied to a specific input value. Someone with one computer can't produce Proof of Works as fast as someone with multiple comparable computers. Someone trying to take-back a Bitcoin transaction and create an alternate blockchain with their transaction removed can't create Proof of Works as fast all of the world's Bitcoin miners working together (unless they have a secret god-tier supercomputer, or somehow convinced most of the world's existing Bitcoin miners to work for them instead).
the top comment on the 2012 one was about someone seriously concerned about the 2.8GB blockchain download to get started, and a debate about the scalability of bitcoin.
since then:
- light clients have been created. no mobile or desktop user worries about blocks, keeping only references to a few prior blocks.
- merchant services which are full nodes use pruned clients, which mean their servers only use 25gb or so. (while the blockchain is 10 times larger)
- compression of transactions have improved, so each tx takes up less space on the blockchain.
- validation time of the blockchain is much faster, even if you have to download the whole thing from scratch
- there is still a large and growing community of actually full nodes that do invest in the appropriate hardware for decentralization.
- and mining full nodes and their pools have fierce competition to keep their constituent miners, continually distributing transaction validation even if the pool operator is just a centralized single full node.
- Bitcoin continues to improve.
On a serious note, that's a good summary, thank you!
People get seem that it is an asset, but confuse themselves over its monetary branding instead of what people can and do with it.
Many do then move the goal post to "there is no demand or intrinsic value", which may more easily retain durable consensus with them, even though most of the criticisms elevate this asset class to a standard higher than any individual asset class in existence. But still related to the exchange rate, instead of what people can and do with it.
Or is it like gold reserves, people just hoard these digital numbers until they are ready to cash out.
I'm really curious for the hoarders, if they're doing it as a hedge against global financial collapse, how exactly do they expect to redeem their bitcoin for anything tangible?
These are serious questions, I've given bitcoin only a minimum of thought. It seems a great way to move value out of a closed economy like China, or for drug dealers to move cash across borders, but who else uses it?
But out of all the people I know with crypto, they treat them like potions in Skyrim. One day, I'll need all of these different coins. Until then I'll just hold them in my wallet.
And I'll note that there are other ways to accept bitcoin payments without high fees or long wait times (lightning).
2. Chargebacks are disputed, and as a storefront you can prove that you are not liable. Merchants can review the identifying documents of the cardholder for legitimacy and take other security steps, like using a chip-enabled card terminal, to further confirm the validity of the purchase. If they follow the process correctly, they are not liable for fraudulent purchases, the cardholder’s issuing bank is. Visa and MasterCard’s contracts generally put the burden of fraud reimbursement onto the bank.
https://bitinfocharts.com/comparison/bitcoin-transactionfees...
or use any other blockchain?
there are equivalent costs in dollars to perform this action, which I thought we were talking about here.
lightning has limited utility though! does have lower tail end costs
I'm pretty sure that if you set a fee of $0.10, your transaction will be verified much sooner than you might think. It would be interesting to quantify, at least.
If there was money less trusted than the US dollar that was widely accepted, and US citizens had it, they would choose to spend that money before US dollars.
In countries with very poor fiat currencies, people will hoard USD and spend their local fiat currency where ever they can, only spending their USD when they are forced to, because it's better money.
Governments still demand payment in hard money. Venezuela has been raiding their gold reserves to pay Iran for gasoline https://www.aljazeera.com/ajimpact/maduro-tap-dealmaker-sanc...
This is true in more than one way. with a 350k daily transaction limit, the more people that try to use it as money, the harder it is to use as money.
One might suspect that if there is enough demand for the spending use case, then some other solutions might develop to increase the transaction throughput for that use case.
The only valid solution is to increase the block size limit, as stated in the conclusion of the lightning network whitepaper. A layer 2 is still constrained by layer 1.
I don't like the idea of undermining the latter to promote the former, when it's not obvious the former is even in high enough demand, and when it can be done in alternative ways (L2 solutions, sidechains, custodians etc).
Increasing the block size limit is not a solution to anything.
As for fees, however, Bitcoin does not care how much BTC you're sending in a single transaction, whereas VISA charges 1-2% as a fee. So, if you want to transact in large amounts (tens of thousands to millions of dollars) across borders, it's hard to beat Bitcoin.
Personally I have more faith in Ethereum community to solve the scalability problem with blockchain vis-a-vis zkRollups, Optimistic Rollups, and Sharding. Ethereum already scales to 2,000 TPS and after ETH2 is launched, will exceed 100K transactions per second.
No, it's actually very easy. Moving 100k across borders with a SWIFT transfer would cost me $20-30 (and I'm a nobody, someone doing that a lot would switch to a business account and pay maybe half of that). And if you time it well (i.e. during office hours for the emitting, intermediary and receiving banks) it shouldn't take more than a couple hours.
And that's using USD. Switch to Euro as your medium and now it's costing you literally nothing or a few cents.
For day-to-day expenses for us common folk that's not really a concern but for big sums of money the recipient will want a little more certainty of the transaction having completed.
This can take weeks with some banks too.
(Source: I work for a major bank)
Bitcoin was designed to have lower fees than traditional payment processors. From the introduction of the Bitcoin whitepaper:
> The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions, and there is a broader cost in the loss of ability to make non-reversible payments for non-reversible services.
The current narrative of BTC being "digital gold" and "only for big transactions" is not what it was originally designed as. In this sense Bitcoin Cash (BCH) [1] split from BTC to follow the original plan of electronic P2P cash that works for transactions of any size, including cents.
The big question for me is where would we be today if Bitcoin BTC hadn't sidetracked the original scaling plan and its adoption hadn't stopped in its tracks 3 years ago. Remember when Steam accepted Bitcoin? Microsoft Xbox Online? Dell? NewEgg? It was almost every week I read about some big company starting to accept Bitcoin. Then when they realized people were not using it because of the raising transaction fees and long confirmation times they dropped it.
Nope he was right about that. What changed is blockstream took control of bitcoin development. They dont agree that on chain scaling is possible, and instead push proprietary alternatives to scale bitcoin where they can extract fees.
>Does anybody actually use gold? And by use I mean transact actual business, and not just speculate.
The question about gold is more fair. There have been times when actual gold coins were used as currency, and until 1971 the dollar was on a gold standard, meaning dollars gained at least some of their credibility from the fact they could be traded for a fixed amount of gold; i.e. paying in dollars was in effect paying in gold.
But now, no, gold's status as a "currency" is mostly from tradition. Still, it's relatively easy to use and its value is comparatively stable. And people can't just up and make a new one at any time.
Well, in some parts of the world (most notably South Asia, but elsewhere too), gold is used to varying degrees to "transact" marriages, so there's that. I've never seen a wedding ring made of BTC, but that would be an interesting bit of performance art ;)
There is not much actual legitimate usage. It is pretty bad for privacy as the whole idea is that the entire transaction history is public and permanent.
To make an definitive statement like this, with no sources, shows the inherent bias you have.
In reality, apparently a lot of people use BTC for quite a bit of actual business.[1][2]
[1]: https://bitpay.com/blog/bitpay-growth-2017/ [2]: https://news.bitcoin.com/bitpay-reports-processing-over-1-bi....
The trading volume yesterday on the other hand was nearly $2 billion.
So that would mean that the demand for bitcoin in bitcoin markets for actual usage of bitcoin is one part in 700?
I think that counts as not much actual usage.
Anyone saying it was just porn and drugs would just be disingenuous.
But Bitcoin, I'm not sure I've encountered a single "Pay with Bitcoin" option in any online shopping I've done. So where are the legit use cases hiding?
More recently (last year) I came across a VPS provider accepting BTC. I think there are VPN providers accepting BTC, but I'm not familiar with that market space.
That's just what I've stumbled across. Google searches seem to bring up more, but... yeah. Seems to me to be a pretty large chicken-and-egg problem. Something that could take off, but needs a substantial catalyst.
[1] https://blog.dell.com/en-us/we-re-now-accepting-bitcoin-on-d...
you are thinking of the US Dollar :)
Yeah, I get that there aren't a lot of options besides Bitcoin for unbanked transactions, but there are a lot of potential ramifications around the radical publicity inherent in blockchain-based currency.
If whoever held the coins 3 transactions ago ends up getting in big-time hot water, should I expect the feds to try to confiscate them? I would at least be under additional scrutiny in order to determine what association I had with the illegal enterprise, being so close in the chain. Bitcoin tumblers and mixers only do so much to prevent this, especially as people have started discriminating against "tumbled" btc.
So, to answer your question, yes, apparently a lot of people use BTC for conducting actual business.
[1]: https://bitpay.com/blog/bitpay-growth-2017/ [2]: https://news.bitcoin.com/bitpay-reports-processing-over-1-bi...
1. This is all 100% speculative at the moment. Anyone who tells you otherwise is a charlatan. You may make someone money if you're patient, but the point is acquiring a decent stake while it's still affordable on the off (IMO, not 0%) chance that Bitcoin or one of its derivatives become a secondary and then primary spending currency. Realistically, I see a boondoggled attempt by governments to create their own digital currencies with Bitcoin being used primarily as a store of value, a la gold.
2. Technologically, Bitcoin is an intelligent solution to the financial problems created by government mismanagement and greed. It's not perfect, but it's pretty damn creative. With time, most of the major issues seem to be fixable.
3. Also technologically, Bitcoin is not ready for the prime time. The lightning network being implemented at a large scale would be the first warning shot that Bitcoin could see massive, stable use. Until you match transaction volume of Visa, Amex, etc., it's not going to take.
4. The likely timeline this plays out will be loosely correlated with the government's intervention negatively impacting the purchasing power of the dollar (speaking relative to the U.S.). The current situation is actually surprising; I didn't expect anything like this to happen for at least another 2-3 years.
5. Due to the way that humans tend to overestimate change in the short-term, the likely timeline for this to all play out is throughout the 2020's and early 30's, with the mid-to-late 2030's being the "even grandma pays with Bitcoin" moment. I'd say right now is the 97'-98' era for Bitcoin if we're using the internet as a parallel.
6. The current marketing and messaging of Bitcoin is, to be blunt, a freakshow. Painful as it may be, normal folks don't want to be associated with things that seem grimy, shifty, or subversive. The only way to overcome this is to demonstrate that using Bitcoin is easier than the current payment options, or, not having it would mean seeing all of your financial assets rapidly devalue downward toward 0 (which means the U.S. is collapsing and is a whole other bag of chips).
> Technologically, Bitcoin is an intelligent solution to the financial problems created by government mismanagement and greed.
That is complete nonsense. Bitcoin solves no actual problems, and instead tries to revert back to a previous monetary system that was abandoned because it was failing. The consensus among economists is that a deflationary currency is a terrible idea. This is the equivalent of medicine going back to routinely performing lobotomies: it doesn't solve anything, but causes a huge amount of harm.
Zero downtime since 2013. Visa has ten hour outages across entire continents.
> Bitcoin solves no actual problems
It's been moving billions of USD daily without fail for years. That's a non-trivial amount to anywhere on Earth. Try transferring money from say former Soviet bloc countries to Africa.
> The consensus among economists is that a deflationary currency is a terrible idea.
Bitcoin is inflationary until 2140 and then stops inflating. It's not a deflationary currency. Perhaps you meant to word this differently?
Diffuse benefits, concentrated costs, and a set of governments which gain much of their power through monetary policy blows this assertion out of the water.
>The consensus among economists is that a deflationary currency is a terrible idea.
There are a few fiat currencies that have negative interest rates. They are not going anywhere. Most notably the European central bank.
How many currencies have failed due to deflation over the last <pick your time period> years?
Now how many currencies have failed due to inflation?
Look, economists know a thing or two that I don’t, I’m sure. But for all they claim to know, it sure does feel like they get things wrong on a pretty regular basis.
There are economists I respect that hold cryptocurrencies in good regard. Exhibit A: Jeffrey Tucker.
Why Bitcoin is not performing as it should in the current economic crisis: https://youtu.be/RD08_5UO1k4?t=1211
Explains blockchain from an economic perspective: https://www.youtube.com/watch?v=PUqe2sLT9X8
Bitcoin scaling and Bitcoin Cash: https://youtu.be/fsLuC0Bl1-o?t=91
Much like how usury (aka interest) is such a great idea? It's no wonder those economists will say that, in order to push a corrupt and parasitic economic system which religions have warned about for thousands of years now. Building an economic system on usury is not sustainable, and we're seeing it today.
The previous monetary system worked just fine, it's just that it didn't sit well with the greedy who need interest to live and profit off of people's hard work.
Also, see valiu.co
I leave it to you to guess what those things are. BTC is about spending freedom. It and cousins like XMR, etc. are becoming better at it every day.
and I only know, because I use bitcoin!
does dude expect an article every time someone does?
Ease of use for Lightning is not to the point where I think it is good enough for the average user. However, in the early days getting on the Internet was also not easy (remember dialup, PPP and SLIP? I do). I think Lightning is interesting because anyone has the ability to set themselves up as a merchant and receive payments. Right now it is complicated and a bit clunky but it is actually possible.
Bitcoin itself is obviously unsuitable to replace cash (or banks, etc) in general, but I've been fascinated by cryptocurrencies since the David Chaum days, so I like to play with it. Speculating on it is more effort than it's worth, to me.
My USD$25 in bitcoin holdings did require me to check a box on my tax forms this year, though...
Personally I think Bitcoin has great historic value and may become a collector's item similar to how a denarius still has value now, but its properties make it pretty bad for everything you would want a currency to be, except that it's deflationary and well-known. For anything you would want to do with it other than speculate, there is probably a better cryptocurrency (based on the actual tech/design of the currency) or non-crypto tool - it's like the Model T of crypto.
Modern portfolio theory says you can’t predict the market; however, you can be absolutely certain people in a group will overreact and over buy or sell an asset group. This is a well studied fact. You can capitalize on this. It’s called volatility harvesting. Look into risk parity portfolios. That said if everyone did this, the hard stance on modern portfolio theory would hold true. At this time humans aren’t capable of acting rationally as a total group.
But over the last few years, bitcoin has gotten _harder_ to use for transactions, as the blockchain has gotten more crowded. In theory, the "lightning network" is fixing that problem, but at this point I usually transact in other cryptocurrencies - there are plenty of them that have stable enough prices for that! But I still own bitcoin as speculation and as a sort of savings account :shrug: It's been a good investment so far
Purchasing Bitcoin legally is a pain. If you have an online bank account, most of them do not allow cryptocurrency purchases via debit or credit. Even some traditional banks will not allow cryptocurrency purchases via debit or credit. If you have to go the route of bank transfers, you'll have to pay transfer fees and sit through 1 - 3 days of BTC price fluctuations. If you want to use cash or bank deposits via LocalBitcoins, you'll be paying a significant markup over Bitcoin's trading price, and most sellers have a KYC policy that would allow them to easily steal your identity.
Say you have a credit or debit card that can be used to buy cryptocurrency. Registering with an exchange is a hassle requiring a camera, a phone and multiple forms of photo ID. There is a waiting period before being allowed to purchase cryptocurrency. Exchange fees are high, as are transaction costs. I bought a small amount of BTC and wasn't allowed to transfer it from the exchange for 24 hours because of fraud protection.
I did the math and I would lose more than the 15% discount would have saved me just by buying and transacting with Bitcoin. On top of that, the entire process was unpleasant.
Also, the idea is that you get Bitcoin before you need it.
I agree with you that the on-ramp can be a pretty unpleasant experience.
I was unable to buy the pixel in bitcoin, I wish I had been able to. The fragments left behind I donated to charities online (the FreeBSD foundation)
The value of gold, bitcoin, land, etc is simply there is a stable amount of it. The price may jump wildly due to speculation but it's more likely to go up than down over the long term just because the amount of fiat in circulation is constantly increasing.
I saw vendors actually removing Bitcoin support.
You can sell and buy in OpenBazaar [1] or Purse.io [2] for example. In my opinion growing the native cryptocurrency economy and decoupling it from fiat currencies is the most important step to take for their adoption.
In any case, there is a number of ways to spend cryptocurrencies without having to go through exchanging them into fiat, which was the point I wanted to make to OP.
There is a distinction between HODLing and merely speculating, although there is overlap in these uses. A speculator is typically somebody who wishes to see their USD holdings increase in the short to mid term as a result of exchanging bitcoin on the market at the right time. A HODLer is somebody who expects their 1BTC to still be 1BTC in 1 year, 4 years, 40 years, ...
There is no implication that there needs to be a financial collapse. There is only the implication that fiat money is guaranteed to be devalued through inflation, which is decided upon by self-interested, unelected, unaccountable men in the shadows, who benefit from being the issuers of new money at the expense of the later recipients of the new money (The Cantillon Effect).
If $1 now is worth more than $1 in 1 year, or 4 years, or 40 years, then anybody of sound mind is not going to save in dollars because their purchasing power when they come to spend the money will not be worth the effort they underwent to earn it. One option for people wishing to save over a long period is to invest in risky enterprises - which is speculation, as much as any investment in bitcoin is. Those other markets are also subject to manipulation, insider-trading and other ill-doings which don't benefit regular savers.
But bitcoin presents an option which is intrinsically different from all of the others: it has an absolute maximum supply which is directly measurable by anybody, which means that its value is subject only to the subjective opinions of market participants trading bitcoin for other commodities and any shadow bankers are absolutely powerless to change this.
The BTC/USD exchange rate is not what is interesting. There are potentially infinite dollars, but there are potentially only a maximum of ~21M bitcoin and no more, ever (but possibly less). There has never been such a hard form of money in history, and even the closest analogue, gold, has been subject to inflation on the discovery of new gold mines, or even through manipulation of the matter (fools gold, coin clipping, etc). Unlike gold, Bitcoin is also easy and cheap to verify for anybody.
It gets more difficult to release new bitcoin with time due to this block subsidy decrease. There is a race to accumulate as much as possible as early as possible under the concern that it will cost you much more later (either in money, or in labour) to obtain the same amount. You're effectively bidding for a share of the potential maximum of 21M, and those shares are getting harder to obtain. To give a historical account: if you had purchased 1 BTC in dollars 10 years ago, it would've only cost you 1/8000 the amount now. Translate that into labour, and it means you'd be working for several months to years to obtain the same share which could've been obtained for 5 minutes of work if you'd done it sooner.
There's still ample possibility that Bitcoin could see 10x, 100x or even 1000x gains over the next years/decades. If you hold fiat money in a bank account, you are risking missing out on all of that. Are you willing to take such risks? How is holding dollars no less of a risk than holding bitcoin?
It continues to amaze me that I struggle to set up a 5-node database cluster without one going out-of-sync or split-braining every few weeks, yet the bitcoin network manages to keep thousands of miners in-sync. This has to be the best example of eventual consistency in a production network.
I prefer calling it a distributed mechanism for emergent consensus. Consensus is not achieved explicitly - there is no election or fixed moment when consensus occurs. Instead, consensus is an emergent product of the asynchronous interaction of thousands of independent nodes, all following protocol rules.
Gold may have a finite supply, but it's been mined for millenia and has slowly increased its supply rate over time, and will likely continue to do so in our lifetime.
In contrast, Bitcoin's emission which ranges from 2009 through 2140 is heavily tilted to the first few years.
Its final century from 2040 through 2140 accounts for only about 0.5% of emission.
The only point of the halvings is to be able to claim "finite supply". A constant reward would still have the yearly supply inflation rate (stock to flow ratio) going to 0, albeit more slowly. So crucially, supply would still be scarce, would be more predictable (time independent), more fair to late adopters, and be much closer to Gold's emission over our lifetime.
It would also avoid the inherent instability [1] of mining rewards dominated by transaction fees, and avoid lengthening confirmation times to maintain security against doublespending [2].
If we further consider the fact that coins inevitably get lost, then even a constant reward will yield a softcap of supply, where yearly emission merely serves to balance the yearly losses.
Unfortunately, practically all cryptocurrencies subscribe to the notion that early miners must receive greater rewards, even when they often already enjoy lower difficulty.
[1] https://www.cs.princeton.edu/~arvindn/publications/mining_CC...
[2] https://www.coindesk.com/the-halving-exposes-bitcoin-to-51-a...
The irony is that no matter what you do there will only ever be a finite supply of any currency, fiat or otherwise. It's a finite universe, so "finite supply" is inherently imposed by the laws of physics.
> practically all cryptocurrencies subscribe to the notion that early miners must receive greater rewards
That's the real objective. Like all startups, cryptocurrencies want to encourage early adoption by, among other things, FOMO. If there is no benefit to being an early adopter, no one will adopt early, and if no one adopts early, you will never get to critical mass.
I'm not so certain that holds true. You could, in theory, either in a game or in real life, create a currency item that represents infinite currency. There would a finite number of physical representation of such items (if done is real life), and people would only place a finite value on it, but it would still representing an infinite number of whatever currency. You could even digitally create an infinite number of such infinite currencies.
Depending upon exactly how they behave, it would quickly make the currency worthless about as fast as people conceptualized what infinite means, but at the core there would be an infinite amount of money.
Well, it's a great way to get people to be invested in your new cryptocurrency.
Atleast what the designer intended/predicted if I remember correctly, is for the reward value over time to be the same. This is of course not backed by mathematical equation of sort. I would way super early mining is more similar to being the first employee of a startup that pays you in equity only.
We could call the entity that adjusts the rate of issue a "central bank" and they could perform this "inflation targeting" to keep the value of the currency stable through economic shocks.
On a secondary note, who can claim that it is a good thing that money can't be printed if necessary? The crisis of 2008 was a liquidity crisis, without the ability to print money it could've turned into a great depression. Making the money supply fixed is just throwing out one tool out of the toolbox.
But there is a limited supply of user attention to be divided up between all available cryptocurrencies and it's not divided equally by any measure; so cryptocurrencies are constantly competing with each other for that attention and this is where they derive essentially all of their value. Underlying technology at this stage has almost no value.
In our economy, even an untalented fool speculating on random projects can generate a profit if they have capital; this fact makes talent worthless and means that capital and network effects are EVERYTHING.
I'm saying that the official Bitcoin blockchain is going to get rid of the block halving, the minority fork will keep the limit "as a feature" and will be called "Bitcoin Classic" or something.
Conversely, lets say I put out a proposal to tighten the limit, increase the rate of disinflation and reduce the maximum total supply that could ever be mined to 20M rather than 21M. This proposal might actually gain some interest among bitcoiners because if price speculation so far has been under the assumption that there will be an eventual ~21M bitcoins issued, and this gets scaled back to ~20M, then the 5% reduction in overall supply, without corresponding 5% reduction in demand, would cause all existing bitcoin to gain value.
This could also be implemented as a soft-fork and be compatible with all existing software - because the software checks that the amount paid in a coinbase is less than or equal to the subsidy plus fees. It is technically possible to mine blocks which don't release all of the available bitcoin for that block. (This has been done, and such bitcoin are permanently unavailable and reduce the theoretical maximum 21M supply).
To relax or remove the block subsidy, one would need to hard fork the protocol in order to defeat the "less than or equal" check. You would have to convince the vast majority of bitcoin users that they aught to download and install alternative software which may cause inflation and devalue their holdings. Keep kidding yourself that this will happen.
Let's just say there is consensus over what the Bitcoin blockchain is, versus whatever the "Bitcoin Cash" or "Bitcoin ABC" blockchain is.
> There is only the chain with the most accumulated work, and orphan chains. Anybody attempting to remove a limit which may cause the holdings of all bitcoin users to be devalued will simply be ignored by all other users.
Most users of Bitcoin perform no work whatsoever. Miners perform the work. Users can't ignore the interest of miners, even if miners are a tiny minority. Miners may not even have any holdings.
A core value proposition of Bitcoin is that it's the "most secure" network. If a majority of hashing power is priced out of operation because of low block rewards and low fees, that security flies right out of the window. This situation would have a far more significant impact on price than a little bit of controlled inflation.
> To relax or remove the block subsidy, one would need to hard fork the protocol in order to defeat the "less than or equal" check. You would have to convince the vast majority of bitcoin users that they aught to download and install alternative software which may cause inflation and devalue their holdings.
It's not going to be alternative software, it's going to be a software update, through the official channels. It also likely would only affect full nodes, and the majority of Bitcoin users haven't been running full nodes for a while.
It's really up to a few key stakeholders, not Bitcoin users in general. When faced with the decision of giving up network security versus maybe losing a little bit of value to inflation, they will choose the former, because they're not that stupid.
> Keep kidding yourself that this will happen.
A similar thing already happened with Ethereum, the rules were changed mid-game in the official client, the loser fork (Ethereum Classic) was the one that kept the old rules intact.
The consensus is the chain which has the most accumulated work. And also, the one which is backward compatible with the one which previously had the most accumulated work. A backward incompatible fork is a shitcoin.
> Users can't ignore the interest of miners, even if miners are a tiny minority. Miners may not even have any holdings.
You have this backwards. It is miners who cannot ignore the interest of the users. Miners can only profit by selling the bitcoin that people want to buy, and the bitcoin people want to buy is the one which is inflation-free. The market decides the correct chain and the miners follow it.
Miners can't orchestrate a fork because they need consent from the users, and they won't get it. If a majority attempted to mine a forked chain, the minority chain would just become unfairly cheap to mine (due to difficulty reduction), and cause more people to mine it again. In the mean time, the miners who forked away would be making nothing, as they have no market to sell their shitcoins into.
> A core value proposition of Bitcoin is that it's the "most secure" network. If a majority of hashing power is priced out of operation because of low block rewards and low fees, that security flies right out of the window. This situation would have a far more significant impact on price than a little bit of controlled inflation.
If bitcoin cannot be sustained by fees alone, the experiment is a failure. There is little advantage to "digital fiat" which cannot be done in other ways without the inefficient blockchain.
However, there is also the acute possibility that mining is not profitable, but still performed. The reason is simply that it is a way to recover some money from energy which would otherwise be completely wasted. Consider production flaring in the extraction of crude oil. Energy companies can recover some of the loss by deploying mobile bitcoin miners, which already exist on the market today. There is also the potential for miners to be data furnaces, whose electricity costs can be partially recovered through fees, which may be utilized anywhere that heating is required.
> It's not going to be alternative software, it's going to be a software update, through the official channels. It also likely would only affect full nodes, and the majority of Bitcoin users haven't been running full nodes for a while.
The majority of users don't need to run full nodes, but there are sufficient full nodes that they don't have to. It also happens that the people running full nodes are the bitcoin maximalists who understand bitcoin and are even less likely to accept any inflation attempts than those who are running SPV nodes.
> It's really up to a few key stakeholders, not Bitcoin users in general. When faced with the decision of giving up network security versus maybe losing a little bit of value to inflation, they will choose the former, because they're not that stupid.
If multiple software clients are running on the network, then none of them will have an absolute majority. It is questionable whether developers of Bitcoin Core will roll an auto update feature into the software, which means there will always, very likely, be a majority of users running old software. The new software can only introduce backward compatible features or it will fork the minority of users who upgrade away from the network. Auto-update is an implicit backdoor and unlikely to be installed by competent users, especially where significant amounts of money are concerned.
> A similar thing already happened with Ethereum, the rules were changed mid-game in the official client, the loser fork (Ethereum Classic) was the one that kept the old rules intact.
That's because Ethereum is a personality cult and not an experiment in sound money.
Bitcoin maximalists have developed a culture of weeding out such personalities.
It is unlikely that a hard-forked bitcoin will ever gain traction. The SegWit rollout demonstrated that it is possible to perform sophisticated upgrades without breaking backward compatibility, and this mindset is now the default for all developers left on Bitcoin. Those with the mindset that they are in charge, rather than the market, have all left.
The Bitcoin people will want to buy is the one with a network that hasn't collapsed. That's far more important than a little bit of inflation. Other cryptocurrencies without a fixed supply are successful as well, it's not the most important factor.
> If a majority attempted to mine a forked chain, the minority chain would just become unfairly cheap to mine (due to difficulty reduction), and cause more people to mine it again.
If a majority is priced out of mining, the network would be vulnerable to a 51% attack and blocks would take long time to mine until difficulty adjusts. What's that going to do to the value of Bitcoin, the "most secure" of all the networks?
> If bitcoin cannot be sustained by fees alone, the experiment is a failure.
If Bitcoin cannot be sustained by fees alone, block reward will return. What else do you think is going to happen, everyone will just give up on Bitcoin and make it become worthless, rather than accept inflation?
> That's because Ethereum is a personality cult and not an experiment in sound money.
The market has decided Ethereum Classic is not the way to go. I don't think that's down to a personality cult. The "code is law" attitude on the other hand is pure ideology.
> It is unlikely that a hard-forked bitcoin will ever gain traction. [..] Those with the mindset that they are in charge, rather than the market, have all left.
It will gain traction through the market if the situation that I described should arise.
Precisely. Bitcoin with inflation is just fiat money, but less efficient. If there is a cabal which can set an inflation policy, then it would be more efficient to just let them run the show and do away with the mining process. Would be kinda like what we have today.
Bitcoin will only succeed if it is superior money to fiat, and the way that it is superior money is its hardness to inflate.
In fact, if a policy of inflation were to be necessary, then better than what we have today would be one where people can vote on the policy, or at least, elect those who decide it. What we have today is a system where the people making the decisions are unelected and unaccountable. Bitcoin with a cabal of miners deciding the policy would be no improvement whatsoever.
Currency that can't be inflated in times of a liquidity crisis is inferior. That's exactly what happened during the great depression - the gold standard only exacerbated the problem.
Sure, some Bitcoiners have such a narrow understanding of economics that they think the permanently fixed supply is somehow really important. It's not.
Think about it, why would you not want inflation? Because you want a stable currency! There's no other reason. Yet, for cryptocurrencies, the amount of inflation barely affects price at all.
What affects the price is mainly speculation. It's far more important that the system be stable than the fact that maybe over 10 years the supply of Bitcoin grows by another 10% or 20%. It's far more important that people actually use the system to conduct trade, creating actual demand for Bitcoin. Long-term inflation just doesn't matter for trade. It may matter for investors, but investing long-term in a currency is total nonsense.
I think your definition of failure is "people who believe in certain things abandon it". Sure, maybe that'll happen, but that doesn't mean the network is going to disappear or that Bitcoin will become worthless. It's going to adapt against beliefs that threaten its survival.
Inferior to whom?
The problem of MMT is it thinks that the collective is more important than the individual.
Individuals who save money for a rainy day don't need inflation - they've already accounted for potential liquidity crises. The fact that the rest of you can't save is not my problem, it is yours. Please deal with it without devaluing my savings, thanks.
> Sure, some Bitcoiners have such a narrow understanding of economics that they think the permanently fixed supply is somehow really important. It's not.
It's not important to you. What you lack in understanding of economics is the most basic tenet - that value is subjective. The entire field of Austrian economics, which largely gets ignored by mainstream "economists", is based upon this.
Fixed supply is important to savers of money, who don't want to see their savings devalued. Instead of their savings decaying with time, there's fair chance that they'll appreciate in value due to increased demand and deflation due to lost wallets.
> What affects the price is mainly speculation. It's far more important that the system be stable than the fact that maybe over 10 years the supply of Bitcoin grows by another 10% or 20%. It's far more important that people actually use the system to conduct trade, creating actual demand for Bitcoin.
You're still ignoring that saving is a valid use of money. Demand for bitcoin is almost entirely driven by people wanting to save and/or profit from the market for exchange. The "spending" use case just doesn't really exist yet - there's little demand because people can already do this with fiat money. Bitcoin just doesn't bring big enough benefits for spending yet, and people don't want to spend it because it is harder money and they'd rather spend the softer money first (Gresham's Law).
> Long-term inflation just doesn't matter for trade. It may matter for investors, but investing long-term in a currency is total nonsense.
Saving is investing. You are investing in the medium of storage retaining its purchasing power over time. When you hold a stack of USD, you are investing in the dollar. If you suspected that the dollar was not going to retain its purchasing power, then you would certainly not invest in it. The dollar is just a commodity like any other.
Saving in BTC and saving in dollars are the same kind of "investment", except one of them is very likely to always lose some purchasing power over time and makes a poor investment. The other one is risky for now, but it's purchasing power is subject only to conditions of the market and not the decisions of unelected bureaucrats.
> I think your definition of failure is "people who believe in certain things abandon it". Sure, maybe that'll happen, but that doesn't mean the network is going to disappear or that Bitcoin will become worthless. It's going to adapt against beliefs that threaten its survival.
The issue is, as you've suggested yourself, that bitcoin just isn't used that much for spending. It is not going to survive as a medium for exchange if people aren't using it as such. Bitcoin would become worthless because it no longer offers the benefits over fiat money. The "programmable money" thing is complete hogwash that doesn't need an expensive and inefficient blockchain to perform - it can be done with centralized services offering fiat.
Bitcoin is savings technology. There will be plenty of ways for people to spend bitcoin in future, but I suspect that once people become exposed to it, their time preference will rapidly decrease and they'll probably find themselves spending less.
Who said anything about MMT? I'm taking the monetarist position of Milton Friedman here.
> Individuals who save money for a rainy day don't need inflation - they've already accounted for potential liquidity crises. The fact that the rest of you can't save is not my problem, it is yours. Please deal with it without devaluing my savings, thanks.
I don't think you understand what a liquidity crisis is. Your view of economics seems to be that of a caricature of an early Austrian.
> Fixed supply is important to savers of money, who don't want to see their savings devalued. Instead of their savings decaying with time, there's fair chance that they'll appreciate in value due to increased demand and deflation due to lost wallets.
The point of a currency is not savings. Currencies are neither investments nor stores of value. If you want to invest, buy assets. If you want a store of value, buy gold.
If individuals are so financially uneducated that they put their savings in currency, that's not my problem.
> When you hold a stack of USD, you are investing in the dollar.
No you're not. The stack of dollars doesn't do anything. It doesn't pay rent. It doesn't pay interest. It doesn't pay dividends. It doesn't appreciate. It's not an investment.
> The "programmable money" thing is complete hogwash that doesn't need an expensive and inefficient blockchain to perform - it can be done with centralized services offering fiat.
Sure, but those are controlled systems. Bitcoin is really good for one thing: Speculating on cryptocurrencies. Sure, you can trade BTC and maybe a handful other cryptocurrencies on ordinary broker platforms, but if you want to gamble on the latest shitcoin, the easiest thing is to just deposit some BTC on an unregulated trading platform.
> Bitcoin is savings technology.
That's a narrative that people came up with to deal with the fact that Bitcoin failed as a currency. It makes no sense. Bitcoin is a highly volatile speculative asset. There is no intrinsic value, no intrinsic demand in "rare numbers" like Bitcoin, no matter how "scarce" they are or whether the supply is fixed.
Somewhere in the next 20 years, before Bitcoin has another 5 halvings (which would reduce the reward to 0.195312 BTC), I expect there will be a proposal for Bitcoin LTS (Long Term Security, sounds better than Bitcoin TE for Tail Emission) which will be a Hard Fork to end further halvings. The ensuing debate could make the 2015 scaling debate look pretty tame...
This habit of disproportionately rewarding early adopters is a universal feature of our economy and doesn't only apply to cryptocurrencies. The reason why it's like this is simply because it's extremely difficult to get any project or company off the ground; the risk of failure for an early adopter is ridiculously high so rewards also need to be ridiculously high to justify those risks.
This is because most economic activity today is focused on seeking rents and building moats; so this has made the environment extremely adverse for newcomers; it lowered their probability of success and forced early adopter payoffs to skyrocket. We live in an age where the moats are so wide that that even offering customers a solution which is 10x better isn't going to cut it anymore in terms of being able to turn any profit.
One might think that cryptocurrency would be immune to this; after all, the entire point of the blockchain movement was to fix such kinds of socio-economic problems - But having worked in the space for several years, I can say with confidence that incumbents in the cryptocurrency space have become part of the same problem which they were originally claiming to solve. Development in the space is slow, inefficient, lacks a clear vision and the incumbents of the cryptocurrency space lack any incentives to give newcomers a fighting chance. They will happily let the most promising new projects drown in the noise of popular mediocrity.
The hypocrisy of it all is unmistakable. I've seen the ugliest side of human nature in this industry. That said I'm still cautiously optimistic but it's clear that something has to change at a social level in order to move forward.
Bitcoin (BTC) is classed by the US Federal Gov't (IRS) as property, not currency.
That wasn't some kind of mistake or tax technicality on the IRS' part - a lot of analysis went into this in 2013, along with DHS and FinCEN. This is the definition for BTC in the US.
That means what happened today could be described as: The first and oldest decentralized, distributed, cryptographically-secured record of digital property ownership (Bitcoin as a network) is producing cryptographic keys (the property, BTC) at half the rate it was yesterday. There is now less of the digital property (BTC) being created by the network daily, and this is due to an artificial scarcity strategy built into the Bitcoin source.
Hope that helps
Early settlers are incentivized to grab large swathes of land quickly and cheaply, to get the system bootstrapped. Later settlers have to fight over smaller tracts of land, because after all the land is finite (you eventually reach the ocean). However, the land is also nicely divisible into smaller and smaller sub-plots, so units can be adjusted as needed.
The rules by which this "westward expansion" are governed are written into the Bitcoin protocol. But unlike land and the ocean which are natural facts for the most part that we take for granted a priori, with Bitcoin the "border"/limit here is also defined as a theoretical construct (and hence, could theoretically be changed, but this would be a hard fork and people would have to reevaluate the value of a new network with a new set of boundaries/rules).
I don't really understand the economics of this, but it seems there are a few possible outcomes:
A) Prices double because miners refuse to sell at a price that gives them less than $100k a block and demand for coins is inelastic.
B) Fees go up 10x because miners now need to make $50k in transaction fees instead of $5k per block to make up for the lower block reward, and demand for transactions in inelastic.
C) Difficulty and prices drop because neither transaction demand nor coin demand is inelastic, and miners will begin turning off rigs that are no longer profitable at $50k per block.
D) Some combination of the above.
also, is the price of gold for example really tracking the cost of producing it?
It's a chaotic system by design which makes it really hard to predict what will happen in the long run.
There is no BitCoin economy, only people watching the BTCUSD sticker price because only the real economy matters.
I'm also willing to bet the network resilience is not as high as techno folks want to believe and if some governments want it shutdown it will be pretty close to shut down and the FX rate will go towards $0.
In many ways BitCoin is not an anti-globalist or anti-anything response. It is a product that exists due to globalization. And the high prices are a result of some economic stability and prosperity that allowed the population to play with shiny things. The coming depression will put an end to such trivialities.
This event was (modulo + or - a month) pre-determined from the very first day bitcoin was launched (and so is the next halvening and the one after that).
The coinbase transaction is the first one listed in the block. It has no explicit payer, and can be valued up to/including the sum of:
- the block's aggregate transaction fees
- the block subsidy (6.25 BTC starting with block 630,000 today)
There's some technically detailed information on coinbase transaction/money stock edge cases that have occurred over the years here:
https://bitcoin.stackexchange.com/a/38998
Also see this discussion of a jaw-dropping miscalculation of the block subsidy (even though dated April 1, it's for real):
https://github.com/bitcoin/bips/blob/master/bip-0042.mediawi...
Having a periodic “The Halvening” ritual every four years allows Bitcoiners to reconcile and forgive each other’s trespasses for one, it also gives Bitcoin a nice bump of attention in the media and on social media, and finally it gives the Bitcoin High Priests an opportunity during the ritual to re-iterate the Bitcoin Commandments (eg. “Thou shall worship fixed monetary supply” and “thou shall not worship other consensus rules”). All this strengthens the community, and thus, the consensus, and a strong consensus is part of the main selling point: to get filthy rich.
Bananas are bad for you! Bananas suck! Bananas are a scam!
You're going to have to elaborate on this. I don't understand how the adjustment of future mining rewards has anything to do with past "trespasses."
>it also gives Bitcoin a nice bump of attention in the media
It gives bitcoin negative media attention, because people on the outside will read the headline as "Bitcoin's value is cut in half," which is not the case.
For specific examples of who is reconciling at this specific ritual, just look at this thread! Hundreds of comments from hundreds of strangers around the world, all coming together.
2. All press is good press!
Another fact that supports the ritual hypothesis is the fact that this “event” has to be a big event every four years. Why not simply adjust down the reward at every block? Because then we’d have no ritual, and thus we’d have a weaker community.
Some may be speculating that miners dropping out is bad for bitcoin because it reduces the security of the network and may give people weak hands if they're concerned that their money may not be as safe as previously assumed. Miners dropping out of the race would also release more mining hardware onto the markets at discounted prices, and some of it may go towards attempting to attack bitcoin. However, if you do the sums and work out how much it would cost to attempt and sustain such an attack, and how much can be gained from it, you quickly realize that such an attack would never be attempted for monetary gain - it is in the miner's best interest to play by the rules. The only other motive for attack is to cause temporary denial-of-service, at the expense of the miner, but this could only plausibly be conducted by a nation state due to the amount of work done in Bitcoin.
They haven't been correlated to block reward AFAIK.
This means that without sufficient demand for transactions, a majority of miners would have to abandon the network, which would indeed put network security at risk.
Therefore I predict that the miners will make the supply of Bitcoin unlimited, should that situation occur. They already got their way with keeping the Bitcoin block size fixed, which kept transaction fees high.
Seems like an successful experiment to me. I am excited to see what next gen tech in this space will bring.
during some periods of time the price falls and it takes longer for all of that to happen, with existing miners being slowly replaced by more well capitalized miners
They are all useless and don't have exchange rates to justify the electricity cost. You can launch a new one given the assumption that this is many miner's first halving.
The price to yield to electrical cost market is pretty efficient, rarely a long lasting advantage there.
Bitcoin fans claims the price should go up. Conventional financial wisdom is that the price of something contains expected future events, so the price should remain the same.
I believe this is the theory behind expecting a price increase. Whether or not it materializes time will tell.
As of 10 blocks past halving it doesn't look like total hash power has decreased much.
It'll certainly be interesting to see if mining power drops off in the coming month.
Long term I'd love to follow something that simply warns when there's enough rentable or assumed dark mining power that 51% attacks on bitcoin mainchain is a realistic threat.
Ethereum launching their "ETH 2.0" and transitioning to staking will be a bigger event in the crypto space later this summer!
https://medium.com/@vijayboyapati/the-bullish-case-for-bitco...
I guess Satoshi thought that would be a good schedule when the code was written. It must have been hard to see how the future would pan out.
We're years into bitcoin and I feel that people still don't understand the basic premise that with an adjusting difficulty it literally doesn't matter how many people want to mine. Difficulty will adjust to about the break even point for miners that can run at scale (likely in a place with cheap electricity).
The price of bitcoin is still based on supply and demand for bitcoin. Whatever THAT clearing price is will determine whether or not it is profitable to mine. If it is not profitable to mine, miners will drop out until the difficulty level falls enough that it becomes profitable again.
Miners will want to cover the cost of mining, and to achieve that they will want to sell coins for higher price than they were selling it before for.
Fees are still not near dominating the rewards so we do expect to see miner revenue drop due to this.
First thing, even if the block reward is zero, there are still transactions fees. We are not here yet but they are expected to be the primary motivation in the future.
Second, difficulty scale proportionally to the global mining power so that one block is mined every 10 minutes or so. As rewards decrease, the most expensive mining operations will shut down, keeping the cheaper ones profitable. An equilibrium will be found.
The last point is a problem as it makes the network more centralized, potentially allowing for 51% attacks.
We know that the expected return from newly minted bitcoins will reach zero at some point in the future.
We don't know if expected return from tx/fees will ever hit zero.
TBH if it ever got back to the point where I could mine a block every couple weeks with a GPU, and I had access to a GPU, power source and internet connect I'd probably start mining again.
IMO Bitcoin exists as an interesting and historical concept in too many people's minds for mining to ever stop. The real worry would be that mining drops off to the point where 51% attacks are viable on the bitcoin mainnet.
We'd potentially see that if many large miners either started renting out their services to the highest bidder or sold all their miners. Once we see more hashpower for rent or purchase than goes into honest mining we have the potential for a 51% attack.
It's better to consider it as miners subscribe to a lottery (for the cost of their electricity). Roughly every 10 minutes someone wins that "block". Yesterday the reward for winning was 12.5 BTC per block, and now it's 6.25... the cost of entering hasn't changed.
There's more to it of course, e.g. as the difficulty adjusts as in line with the hashrate on the network, but lagged by roughly a couple of weeks worth of blocks being mined. Fees in any given block vary, which are added to the block reward. Many miners pool rosources and each share a fraction of the reward. Etc.
EDIT: sorry for the silly remark, ironically, the original comment stands at +10 at the moment after starting deep in the negative.
Perhaps things like Cardano (https://www.cardano.org) or Polkadot (https://polkadot.network) are better?
Clearly, the benefits for any energy consumption should be seen from the point of view of the consumer. They wouldn't do it if it were of no benefit.
It would be more fair for you to describe the distributed ledger clearing as of no value to you. Because it definitely has a value to some folks.
That said: some other cryptocoins do indeed provide a ledger like bitcoin, still decentralized and trustless, but without mining (and without block rewards).
The reason why is that electricity for mining is priced in national currency, so interest in mining bitcoins depends on a miners future expectation of the value of bitcoin price in national currency when they sell the bitcoins to pay the electricity bill. The current wisdom is that the halvening decreases the amount of bitcoin that miners receive while increasing the USD value of bitcoin because it decreases market supply and the perception of market supply.
If the price of Bitcoin now doubles presumably no miners will be turning off their machines. If it doesn't double, some fraction of all mining setups just became unprofitable.
I doubt that. Look at the recent oil production issues: despite demand falling off a cliff, and the price of oil following it, production (supply) hasn't dropped anywhere near enough to match the fall in demand. It's basically a game of chicken--keep going at full force, eating your losses, in the hopes that your competitors are weaker and will be forced to fold before you will.
If the law of supply of demand carries any predictive power, BTC should see a compounded rise.
Edit: Feel free to reply with your guesses (good as mine) for a good laugh in 4 years
in a nutshell: miners group transactions into block (ie mine). whoever manages to form a block (you need to solve a computationally expensive problem that has the transactions you want to include as inputs) get a reward. up until today the reward was 12.5 bitcoins. Starting today it's half of that 6.25.
speculations about what this means and where BTC is going follow from this.
It's totally possible that the price might go up, but the reason for that rise would be the irrational behavior of other market participants and people should acknowledge that.
Yes, current prices include anticipated future events (or at least speculation on those events, as well as anticipated behavior of market participants based on those events, yada yada), to an extent. What prices can't anticipate is the behavior of market participants at any point in the future, much of which will be irrational; or the events in future history that may or may not trigger that behavior.
Yes, there is alpha to be gained based on data collection/processing -- things like news, weather, twitter, satellite images of traffic or parking lots, etc. The more you know and can effectively analyze that other market participants don't know or can't effectively analyze, the better. But no one really knows the future, only what traders are statistically likely to do in the near future based on current events.
Perhaps this is glib, but it's worth remembering that bitcoin isn't a rational market. At no point in its history has the market reacted rationally to any event.
It only appears rational in hindsight, if at all. But "rational" implies a causal link between an explanation and a subsequent event. Those explanations almost never turn out to be true.
BitCoin is gambling where big players intentionally alter the price and small players hope to sap some $$$ like fleas on a dog.
Rationality, for economists, simply means that when you make a choice, you will choose the thing you like best.¹ This is very different from the way we normally think about rationality. Usually when we talk about rationality we use it to mean sensible, or reasonable. To economists—as long as you’re doing what you want given your situation, you’re acting rationally.
[1]read.hipporeads.com/what-an-economist-means-by-rationality/