Bitcoin is a disaster

I don't transfer money much, but superficially that doesn't seem too expensive considering the volatility risk to WU due to fluctuating exchange rates combined with the overheads of regulatory requirements.

It seems to me that Bitcoin is only as cheap as it is because it sidesteps those regulatory overheads. So it's great, I suppose, as long as everyone is fine with it being used to launder money from human trafficking, the drug trade, corruption, or whatever...

Edit: Or I should say, “Could it work internationally?” Because afaik it does not currently.

ACH is also SLOW and painfully insecure relaying on the banking institutions to stop gap the security and its built in slowness to allow for reversals of fraud or error transfers

ACH is not a model people should be promoting as good method to do money transfer

But I'm no expert.

The entire us consumes 75 twh in a year, the same as bitcoin’s global energy use.

Of that, the entire commercial sector is about 12 twh. That’s not just banks. That’s every company. Banks alone are surely far less. Maybe 2-3 twh? And the us is 15% of global gdp. So, global finance might consume about 14-32 twh.

Again, that is while doing all of global finance. Bitcoin powers a rounding error of transactions yet consumes 75 twh.

There’s just no comparison energy wise. My math could be off by several orders of magnitude and bitcoin would still consume more if it were actually powering the world’s transactions.

https://www.eia.gov/energyexplained/us-energy-facts/

https://digiconomist.net/bitcoin-energy-consumption

Anyway, as another way of answering your question, physical money printing and transfers require no electricity at all, predating the invention of electric power by thousands of years.

The GP complains about the overhead and data collection of traditional solutions, implying it’s a bunch of unnecessary cruft. In fact it’s to comply with local laws and protect the consumer and merchant from fraud. GP used Bitcoin to get around this hassle, renouncing any rights in the event of a dispute.

Now, maybe that’s a win, but it’s a much more nuanced and less generalized win than is put forth by crypto proponents.

Notice also the goalpost move of declaring Bitcoin a win over mailing cash. Ok, have you ever done that in your life? I have not been involved in mailed cash transactions aside from receiving $5 from my grandma in the mail 20 years ago.

Isn't that exactly why this mailing cash/cheques fell out of favor compared to bank transfers, credit cards, PayPal, all these centralised systems that bitcoin posits are a problem

The inflation effect causing cash to lose value is something you suck up - it's incentive to invest the cash.

I'm not sure what would/should happen with extremely short term trades, i.e, you convert to Euros from USD for a vacation, the USD crashes, you convert back upon return from your vacation. I doubt the IRS worries too much about it, but I suppose technically you should file Form 8949 along with a Schedule D.

Out of curiosity, you mention depreciating value for fiat being a liability, which is absolutely true. That being said, doesn't appreciation also create a different sort of liability?

For example, let's say I buy a 1TB SSD for $60 worth of BTC on Monday, and then that same amount of BTC is worth $75 on Friday. In theory, would it be reasonable for me to feel like I've overpaid?

Of course in this scenario, I pay for rent, food, taxes etc. using fiat, so I'm exposed to the difference in conversion rates. I suppose if I lived somewhere where I could transact wholly in BTC for everything and its value wasn't in any way tied to a fiat currency and the value of goods and services were negotiated in BTC in a way that's entirely decoupled from market value on exchanges, this wouldn't be an issue for me. Is this possible?

The current problem in fiat money is what the new money is funding. This is a society/government policy choice and isn't an inherent flaw in fiat money. In the west the money is primary used to boost asset prices instead of used for production.

Yes, it’s a good idea to keep your coins off the exchange, for all the reasons you’ve provided. The issue is that keeping your money off exchange is far less convenient, which is exactly why most people keep their couns on exchanges despite the risks. If the Bitcoin community in general wants people to stop getting hacked on exchanges, they need to provide more convenient alternatives rather than just continuing to say “keep your coins off the exchange” and blaming users who get hacked for not following this advice.

It’s a bit like recommending that everyone not drive to avoid dying in car crashes. This advice is strictly speaking true; the less you drive the less likely you are to die in a car crash. But it completely ignores why people drive and therefore most people won’t listen. As a society we’ve decided that rather than asking people to not drive, it makes more sense to focus on making driving safer per mile travelled. This is a much more effective strategy at reducing driver deaths.

The people who have assets in cash end up paying for it. That includes the poor who have most of their net worth in cash as they live paycheck to paycheck, and whose purchasing power has been stagnant for decades.

In short, from a quantitative perspective, it never makes sense to look at a security or asset in isolation. Instead one must consider the total portfolio as a whole.

Source: work as a quant trader

tldr: If the question is "does crypto have a place in everyone's portfolio?" The answer is emphatic an "yes". And indeed, we are quickly moving towards a world in which crypto is held by most institutional investors. Even at this early stage, the institutional flows into btc is staggering. And it will only increase with time. From my vantage point as an insider, btc is here to stay. full stop

That seems like a lot, but compare it to Apple -- the market cap of just this one company's stock is currently ~2,238bn.

The market cap of gold, US dollars, Euros, etc. are all many times more than Apple. The value of all BTC is a tiny microscopic speck compared to the amount of USD or gold in the world.

This means (among other things) a few small players (with tiny capital relative to, say, the size of all USD) can swing the BTC market either way with a comparatively tiny amount of value moving around.

That would seem to greatly limit BTC's usefulness as any kind of inflation gauge for the broader economy.

What's being asked is, "is what we're seeing a warning sign of inflation-yet-to-come?" Rephrased, "are people bullish on technology stocks and Bitcoin because they're speculating that there's major fiat inflationary risk and these asset classes are most likely to hold value?"

The key ingredient missing from your calculation is time. If you are simply measuring how much an hour of work can purchase now, you are completely ignoring that some people want to save money.

If $10 is the measurement for an hour of work and 4 gallons of gas today, in a decade or so, you might need $20 to pay for 4 gallons of gas, and you might get paid $20 for an hour of work. But somebody who saved $10 worked today, and chooses to spend it a decade later, will only be able to acquire 2 gallons of gas. The result of their labour would have been reduced to half.

This is what Bitcoin intends to fix. We want to be able to store wealth into the future - so that an hour worked today is still worth an hour (or more) tomorrow. The potential appreciation in purchasing power is reward for thrift.

As it stands, if one wants to preserve wealth into the future, they must put money into risky investments to ensure that the dollar value of the savings appreciates at a greater rate than its purchasing power is lost to inflation. They also run the risk that their savings or pensions could be lost with companies going bust or if hyperinflation occurs.

Bitcoin is a pension plan.

As for using Bitcoin as a reference frame of measurement, there's a good reason to do this. Bitcoin is a fixed system of measurement which is disjoint of time or other externalities. There is an absolute maximum of 21M bitcoin, so any whole bitcoin is always 1/21M of the total supply. This is a truth that holds today and in a decade. It is immutable.

Consider measurement of length. If you only have cows in a field, how do you measure the length of a field? You could say it is 100 cows long and 80 cows wide, but how long is the cow? The cow grows as it ages. Once you get hold of an external tool of measurement - a meter (or yard, etc), then you can measure both the field and each cow against it.

The same is now true for economic value. Before Bitcoin, there was no fixed scale of measurement. The dollar was flexible, just as any other commodity. Bitcoin OTOH, is not flexible. The exchange rate of BTC/USD might be flexible, but when you use BTC as the frame of reference, you can instead measure how much value the dollar is losing against bitcoin. https://usdsat.com

As you can see, the dollar is losing value so rapidly that inflation of the dollar is negligible. It is the perception of inflation which is causing it to plummet far quicker than the actual rate of inflation.

Everything else is just a derivative of this. You're measuring the side effects of inflation. If you want the deeper cause, it's here.

So? They can still be idiots. Idiocy does not have an age limit.

>> Inflation is measured in many ways, most often by looking at a basket of goods where the prices are relatively non-volatile.

Meaning you remove the items from the basket if it's price jump too much ? so if you tamper with the items in the basket you can project(pretend) that the inflation is not happening.?

>> using the USD/Bitcoin ratio as a yardstick for inflation seems very misguided, as Bitcoin is heavily speculated.

No it doesn't need to be a yardstick as Bitcoin is not yet in full circulation in the economy but it's growth indicates people are increasingly prioritising it over paper to store value.

Re: speculation, everything is a speculation, there are those who keep holding USD in cash and banks and keep speculating that the economic prophets will do the right thing to retain value in their chosen currency.

It is more an interplay between wages and price signals of consumer goods and services than between price signals of separate commodities and consumer goods. Consumer debt (primarily credit card, but also HELOC) distorts the timely impact of purchasing signals upon pricing, but wages-offered signals are much quicker to respond. The debt acts as phantom wages, but only for awhile does this levitating act suspend disbelief in the pricing signals, until the debt service overwhelms consumers. By then, the purchasing decision has already long since been priced into the market, and the correction of the debt overwhelming the consumer is either completely ignored because it is by now disconnected, or attenuated away into irrelevance.

"Awhile" in this use case is longer than the time horizon of most consumers, on the order of a few months to a few years depending upon the individual, but in any case long enough to modify consumer behavior. The glass half-full perspective is this behavior implies a strong optimistic bias to consumers; nearly everyone believes they will make the debt nut over time. Looking at the historic patterns of US institutions laying off however, most working and middle class US consumers should be much more secularly pessimistic in looking after their own interests: they should be acting on a cash-basis only, and make very austere purchasing decisions therefrom until they can use capital to help themselves, instead of capital using them via debt (with extremely few exceptions, like home mortgage in very circumscribed circumstances which most of them do not qualify for).

> Your medical bill comment -- you're basically saying that when one of these families hits a statistically predictable snag, they're instantly bankrupt because they've always been functionally broke, propped up by the consumer debt industry?

Correct. Most working and middle class families are under-insured. Using plans that only pay 80% of covered procedures. Or have very high annual deductibles to afford the premiums, which are orders of magnitude more than what they can pay from savings. Most such families struggle to find $400 to spare [1]. A typical high-deductible-low-premium health plan will typically set back a family $2-4,000 before the plan kicks in, and for many of these families, the plan offered by employers only pays 80% of covered procedures, and there are many exceptions to covered procedures.

Unless you are well-educated, persistent, have time to set aside, apply an extremely low time preference, and able to learn the ropes, these families are completely unprepared for the probable budget killing black swans. One bad broken bone, or God forbid a serious disease, they first get blind-sided by a $2,500 deductible. Which they'll take on debt to meet. Then they start getting the bills and dunning letters. Many of which are wrong, but that's where the "well-educated, persistent, have time to set aside" part comes into play: you have to be willing to pay the cost in your own time and energy to make the phone calls and figure out which bills are legitimately what you have to pay, and which the insurance company has to pay, and do other people's jobs for them by pointing out where it says in the black letter policies their own companies wrote. So many of these families start good-naturedly taking on more debt for multi-hundred (if they're lucky) and multi-thousand (typical) bills they shouldn't, which they cannot afford.

It is not unusual for a mean household income of $68,000 to get blindsided with $30,000 in medical debt. At high double-digit interest rates. Mix in a chronic, terminal or serious illness, and they start racking up nearly that much every single year. The US system is fundamentally broken.

> And so you're saying that most commodity goods face deflationary pressure as a means to stabilize the market? So if the price of commodity goods does increase significantly beyond the capacity of debt issuance, we're likely to see a depression?

Most commodity goods consumed by working and middle classes are facing deflationary pressure on the consumer buy side because the bulk of consumers in working and middle classes are barely staying afloat through sheer, literal luck of the draw. But yes, with those qualifiers in place, you rephrased what I intended convey.

Due to the US lack of adequate response to COVID-19, the presence of an unknown, yet statistically significant recovered population exhibiting what so far appear to be chronic after effects, and the above dynamics with medical debt, one factor to the US economic recovery story I'm watching is how many people go into bankruptcy because their after-acute-recovery conditions require too much care (in the US, any ongoing care is too much for such financially-stressed families). 19.9M infected is large enough to affect the margins if enough of them require even medium-term (3-7 year) care, not to speak of life-long care. I wish I had hedge fund-grade access to data, as this is tradeable information at the macro scale.

[1] https://www.cnbc.com/2019/07/20/heres-why-so-many-americans-...

When the central bank later buys those bonds from banks (they never buy them directly), something different happens: the bonds are exchanged for "bank reserves", a different type of digital money that only exists as numbers in the central bank's database. This "money" cannot be used to buy groceries.

But do we really want stable prices? Today you can buy a device a million times faster than 20 years ago for the same price. Imagine if everything were like that.

I don't see why that can't happen to Bitcoin if the network participants (ideally normal users but practically the miners) and major stakeholders can benefit from it.

And of course that’s exactly what the major mining consortiums will do: Collude to increase the limit when it’s reached. After all, the rewards are in the mining, not the transaction fee.

100% of all cases. You just used gold to ask that question.

https://geology.com/minerals/gold/uses-of-gold.shtml

The $3 million example from China was operational for over 2 years.

> The articles point out the value of the electricity stolen but not the gained profit.

Sure. Random internet source says average Chinese industrial electricity is $0.084/kWh. So that's approx. 36 million kWh total, or average 1.4 million kWh/month (1.4 GWh/mo) during their operation.

> E.g., what percentage of BTC was mined with stolen electricity based on the cases we've found so far?

https://digiconomist.net/bitcoin-energy-consumption/ for Mar 2017 through May 2019 estimates global BTC energy consumption at 10 TWh/yr (830 GWh/mo) minimum to 73 TWh/yr (6,100 GWh/mo) maximum. Absolute lower bounds are 3.4 TWh/yr-60TWh/yr (280-5000 GWh/mo).

So, making some hand-wavy assumptions that they did not scale their operation over time, or reduce mining if prices fell, and that their ASICs were approximately as good as everyone else's, they were anywhere from 0.2%-0.5% (early 2017) to 0.02-0.03% (2018 peak) of global BTC energy consumption.

Per https://www.blockchain.com/charts/total-bitcoins the number of BTC in circulation rose from 16.193M to 17.728M (= ~1.535M) coins during that time. Just as rough bounds, 0.02% would be 307 coins and 0.5% would be 7675 coins.

https://www.coindesk.com/price/bitcoin price in Mar 2017 was ~$1200 USD, peaking in 2018 at $19,000, and $8,700 in May 2019. I don't have a weighted average for that period, but I'd approximate the average price over the period as roughly $5k. So: our extreme low estimate of 307 coins, sold immediately on mining, yields revenue of $1.5 million (on $3mil stolen electricity). On the high end, $38 million in revenue. Probably they made something in between.

> If only a vanishingly small amount of BTC was mined with stolen electricity

That is just the one operation, which got caught. It doesn't include any other illegal operations which got caught, and it does not include illegal operations which have not been caught. 0.5% is small, but significant. 0.02% is maybe less so.

This estimate of percent-BTC-produced-with-unpaid-electricity doesn't include legal operations that went bankrupt and will not be able to pay what they owe to the local utility. (There was a lot of this after the 2018 boom-crash.)

> then the rest of the argument kind of falls apart.

I don't really agree. The incentives here are all terrible and will encourage more of this going forward, especially with BTC prices astronomical again.

(1) Burn as much electricity as possible. This is just bad for society and the world.

(2) Acquire electricity as cheaply as possible. In the absence of theft, this encourages consuming electricity in locales that do not price carbon production externalities into electricity costs. Obviously, theft makes electricity even less expensive.

(3) Maaaybe you can take your stolen profits and run, because BTC is pseudonymous and freshly mined coins aren't connected to real world identities. This encourages illegal operations.

Thanks for reading :-).

So either you disagree with my initial description, or you disagree that that description matches something other than anarchy. Either way, I think you'll find either one of those a difficult argument to make.

This is exactly wrong. In fact, it is the origin of the term "fractional reserve": They are reserving a fraction of the deposits and lending out the rest.

To be clear: "Not your keys, not your coin" equivalent in the fiat world is not putting your money in the bank, but holding on to it instead. So you put all your fiat in a safe eg.

> Sadly, the vast majority of Bicoin buyers just leave their coin on the exchange (or worse: in the case of Paypal, they can't do anything else), thereby opening the door to all kind of shady practices, including FRB.

In order to short bitcoin on the exchanges, the exchanges need to have bitcoin to lend out. Naturally these lent bitcoin come from deposits. Exchanges are already practicing FRB on a large scale, but somehow nobody is calling it that (mostly because FRB is not well-understood by the bitcoin community.)

Absolutely. (Although it's "a" difference, not "the" difference.)

> you can lend out bitcoin and even do fractional reserves, but ultimately, the bill must come due and over leveraged bad bets will get wiped out and good bets get rewarded.

Yes, and the subeconomy of bitcoin investing has a very different risk profile. As an example: I mentioned in another comment, the exchanges are already doing fractional reserves in spades. Bitmex has an insurance fund, and there has been at least one occasion where liquidation could not be covered by the traders and then exhausted the insurance fund. What happened then? The insurance fund paid out pro-rata on the successful bets (the successful traders made less than they should have") and much grousing ensued.

So it's the rough equivalent of an old-fashioned bank run, but tempers lessened because some money was made and nobody was zeroed out (other than the losing bets who should have gone negative but were only zeroed out).

But I think it's relevant to split hairs a bit and say that "sound" often has the sense of "firm" or "solid/reliable", but that is not an inherent property of non-governmental currencies that can be controlled by groups that are no more beholden to users of the currency than governments. (Consider Facebook's attempt at creating a currency as an example)

> What is the rationale for this?

The rationale is explicitly stated.

> Because by that token, nobody would ever buy computers, because the money saved by not buying a computer today can go into buying a better computer tomorrow.

No, because then you lose out on the utility of the computer today.

The argument was about financial investments; that it discourages investments in productive enterprise since holding cash produces a real gain at low risk. Putting off buying future potential money via investment in productive enterprises because holding money gives you more value of money in the future with less risk than investment in productive enterprise and the liquidity of money now is not parallel to deferring buying a computer to buy a better one later.

> if anything, deflation is fantastic because it makes you think twice before rampantly consuming shit,

While you call it “fantastic”, that's just another way deflation depresses economic activity, discouraging consumption as well as productive investment. (Of course, discouraging consumption also further discourages investment itself.)

At this point, bitcoin is a competitor to gold as an asset store. Maybe it will be more like a currency at some point. But there's a long way to go and a lot of forces against it for that to occur.

Of course, as Bitcoin currently stands, it's difficult for this to come to fruition because most holders are speculators rather than people interested in using it as currency.

Bitcoin was born in the Global Financial Crisis when the world was discovering the massive scam which the financial services industry had perpetrated, causing the whole problem. People wanted a way to do transactions without having to trust institutions which demonstrably couldn't be trusted. Hence Bitcoin which acts like digital cash with no trusted intermediary.

Bitcoin has a potential to serve as that kind of saving “currency” a lot of people actually need.

I've been banned from Paypal. I've run into many verification issues over the last decade with banks because I have no proof of residency once my driver's license expired.

Like physical cash, it doesn't need to be superior in all ways to be useful at all.

Nope. I don't buy things in crypto only because of the reporting burden. Every cup of coffee bought with crypto has to be reported on a tax return.

I, for one, have and will continue to use it as a currency in some cases. I'm quite sure I'm not the only one.

Yes, people are investing to speculate on its price, but they are also investing because it has a fixed supply that cannot be inflated away by governments.

Take a look at the U.S. M2 money supply YTD and the DXY and consider what happens next as more wealthy investors begin to recognize this advantage inherent in Bitcoin.

Ask the people who bought hundreds of millions of dollars (without inflation) of drugs on Silk Road, Empire Market, White House Market etc since 2013 until now. I am making up hundreds of millions based on the seized Bitcoins by the FBI, the real number probably exceeded Billions a long time ago already.

The WannaCry and other ransomware folks don't sit on their millions of dollars of extorted Monero/Bitcoin either. They buy cars and fancy things with them, and that's one reason many of them got arrested.

Few real world examples of scams against everyday folks:

https://www.youtube.com/results?search_query=canada+bitcoin+...

Safeway now has BTC ATMs and we we'll be able to drop "canada" from the query and get good results from the US soon.

So far over the course of my decade-ish long career most invoices are paid via fiat but actually my record sale was paid in Bitcoin. The client paid for approx 500 consulting hours in BTC (and is still a client to this day, paying for many more hours than that batch in subsequent purchases albeit sometimes in fiat).

I prefer Bitcoin over government fiat currency when doing large transactions like that because of the risk that a bank will freeze the funds or hold the transaction arbitrarily without warning and on either side of the equation; ie- you don't know if the party sending or receiving may be subject to the freeze.

I wouldn't necessarily say that most of its market cap is coming from people treating it like a currency. But I most definitely think it is effectively a currency in some places and in some special circumstances.

I take it that the point of the post is that, by and large, due to the fact that the blockchain is public and analyzed and mining is conceivably traceable to special purpose hardware, it's not for many practical purposes usable as a stateless, institution-free vehicle for transactions.

I'm not sure how to square the circle on this, but it certainly is a currency in some cases.

It's more like TCP/IP than businesses built on top of the protocol.

Even in the very basic ecommerce use case: buyer purchases item online with bitcoin. The buyer must necessarily trust the vendor to deliver.

There's no recourse outside of the good graces of the vendor. There's no chargebacks or third party mediation.

Thus Bitcoin actually reverses the risk assumed by online purchases from the vendor to the buyer.

This is the reason why Bitcoin is a failure outside of niche grey and black market concerns. It is far worse for the consumer than existing solutions that isolate them from transaction risk, and will usually kick back a small percentage in cash back.

I'm not sure that's quite true. Decentralization was a goal, but it wasn't necessarily the case that that decentralization had to pervade all use of the currency. The values of the ecosystem are that more decentralization is better - that's true, so Satoshi et al would have preferred to make decentralized transactions sufficiently scalable not to require centralized exchanges, but I don't think that it has fundamentally failed in its goals just because a lot of transactions happen in bank-like entities. The point is that users have the power to do it in a decentralized way.

> Bitcoin & crypto also might not be sovereign in origin but they have plenty of sovereign influence, basically as much as any sovereignty wants to impose on it. Especially as entities like the SEC & IRS come to terms with it, it will be just as vulnerable to government control as fiat currency. This is especially the case because any wide-spread adoption will require adoption by large financial institutions, which cannot avoid regulatory regimes of their local jurisdictions. From the US government's standpoint, US citizens holding bitcoins is not much different than US citizens holding Euros. How that money enters into the US economy & interacts with US financial institutions or changes hands from person to person are basically subject to the same rules & regulations. If you're conducting a a transaction in excess of $10,000 then whatever mechanism facilitates that will still be subject to CTR's, and any "suspicious" transaction of lower limits will still be reported, by law, to the government.

This just isn't accurate. It may in fact be vulnerable to some level of government influence, due to the fiat gateways involved. But it's just not true that it's equivalent to fiat in that regard. Cryptocurrencies will never be as regulable as fiat is, and I think it's pretty clear that that's true, given how widely they've been adopted by cyber criminals and darknet markets. Governments have been completely unable to prevent their use in this way, and will continue to be unable to do so.

It's true from a legal perspective that the government views it just like foreign currency (actually, in the US, they treat it like property, not currency, but we can ignore that for now). But from a technical perspective, its very very different. The technical differences make it very difficult to regulate. Think about music. When music got digitized, its legal status didn't change. It was just as illegal to download an MP3 as it was to steal a CD. What changed is the topology of the technical landscape underneath it, and that is what made all the difference.

> Basically, if you want to convert bitcoin to the local currency to buy something, you'll need to use some sort of off-ramp that will be a regulatory bottleneck. Want to build a "shadow" economy purely driven by crypto exchange? Well, you'll still have to deal with the IRS knocking on your door & saying "You have things of value that you are performing work to receive. We don't care what currency or form you received them in, you received things of value. Give us our cut."

I think you are under-weighting the significance of friction. In principle, sure, the IRS might do that - but we don't live in principle. We live in a physical world with resource constraints. If you make something harder to accomplish, it may no longer be economical to do it. Collecting income taxes from people that keep their money in crypto who don't want to pay them will never be as efficient as doing so in the fiat banking system.