My Opinion on Blockchain
vladcalin.ro
vladcalin.ro
* Blockchain is not Bitcoin. Bitcoin is the first (and quiet primitive) PoC implementation of the technology.
* Blockchain is not "cryptocurrency". Blockchain is just numbers and an ability to trustlessly and safely flip those numbers. What those numbers mean to people is secondary.
* To build on the previous point. Blockchain is being used to record much more than monetary value. The Baseline protocol for example aims to use blockchain as a protocol for inter-business communication. So basically offload paperwork onto blockchain. This hasn't happened with more traditional technology because it makes the middlemen too powerful. (Here's a presentation by Paul Brody of EY on the topic https://www.youtube.com/watch?v=QAmNjJRtLGo)
* Blockchain is a technology in it's infancy and is experiencing a lot of research on all fronts: scalability, anonymity, UX, decentralization, resilience, etc. For example ZK Rollups, which would cover a few of those nice-to-haves, are just being investigated.
Now, on to money. If this is an emerging and potentially revolutionary technology how do you capitalize on it? Or should you? Well, it is up to you to figure those out, that is beyond the point. The argument I (and many other people) want to make is that blockchain right now is like internet in the 80s - usable mostly by the power user but will alter the tech and social landscape tremendously. And people cannot hear that argument over stories of pump-and-dump schemes.
Also, I think it pays to keep in mind that 1.7 billion people (according to world bank) are unbanked and have no access to any kind of financial products at all. So for all the age and convenience of the system it's reach is faitly limited.
All of the use cases of blockchain have other solutions. Blockchain is just not that interesting, except as a social phenomenon. So many smart people so confused.
This is not so much a emerging technology as a giant Ponzi or Pyramid scheme. The only way to get your investment back is if a "bigger fool" buys you out.
> Please don't comment on whether someone read an article. "Did you even read the article? It mentions that" can be shortened to "The article mentions that."
Touché
That's because the argument that "All of the use cases of blockchain have other solutions." is wrong. There in no technology that can achieve the basic primitive interaction that Bitcoin whitepaper describes, which is make a cryptographically provable transaction from one person to another with no middlemen while mitigating a double-spend attack. In other words a trustless one-time digital transaction whether of value or some other information.
It is not trivial to think that a $600B asset that cannot be touched or used to buy daily groceries for majority of population is "useful" or taken seriously. This has never happened in our history, people will take time to adjust.
Also, some of the questions being raised are absolutely worth listening to and responding by either an explanation or changing the blockchain logic. High energy consumption, taxation, inflationary vs deflationary crypto, block sizes, abysmal transacction rates, Central bank crypto, moving BTC on Ethereum, etc are all questions worth thinking about.
It's about the money.
For the same reasons real-estate speculators care so much about real-estate.
Bitcoin might be interesting from a tech perspective, but it makes zero sense as a financial instrument. My main problem with it is the arbitrarily limited supply which doesn’t scale to adjust for a growing economy or wider adoption. Also, I don’t care for having to work with values like 0.00001 BTC.
This isn't really true. The dream is that crypto becomes the reserve currency itself, and spendable after hard work on scaling solutions. There is no hypocrisy.
The Morpheus meme is one of the oldest and strongest that Bitcoin has. [0]
> Every advocate promotes holding, which is not what a currency is for
Holding is just a new meme for an old concept: Save your money. Saving your money is something your parents teach you when you're a kid. It doesn't mean dollars aren't a currency.
"Damn fool delusion" is that any better?
- Presumably more people will be online, and more ways to use crypto will be released.
- One big benefit of crypto is that it crosses borders and is relatively anonymous. The USA might have stable money and relative safe banks, but that isn't true everywhere.
- Non reversibility is a rough one, but I think we'll see software managing keys to make scams less likely. For example you can't get your coinbase private key afaik, which helps stop scams.
Volatility will go down a steady state - it's still very early days for crypto, and I think we'll end up in a steady state after a while.
I could be wrong but this feels temporarily true, but illegal in the long term. Is the US government working on adding regulations to cryptocurrency to make it "just another form of currency"? aka, have it regulated to the point where cross-border and anonymous would become synonymous with the likes of "tax evasion"?
Bitcoin launched in 2007. Facebook opened to the public in 2006. One of those has 3 billion users, the other can't get out of the basement. Why haven't we seen more of those ways yet?
> It's still very early days for crypto
Facebook is one year older, and it's now basically a nation state in power and scale. When will it stop being "very early days for crypto"?
When does it stop being the early days? I don't know - it'll take decades I would guess for it to be widely used and the general population to be comfortable with it.
> I don't know - it'll take decades I would guess for it to be widely used
Well we're already down one and a half decades. What if it never sees widespread use. Defining "very early days" as "there's no users yet" means you can always claim it's "very early days".
There's another issue here, which is that people point out hard problems and say "don't worry, smart people are working on solutions". This has been happening as far back as 2013, when I was poking my head into the Bitcoin-sphere. But it never accounts for: what if there is no solution that meets all requirements? That's politically appropriate, safe, secure, and efficient?
Maybe we can't claim magic future solutions will solve us when they still haven't been solved yet -- 1.5 decades in.
I don't think the market is anywhere near liquid enough to let you extract all of that $1 trillion, especially with Tethers looming over the whole industry.
One handy thing about Bitcoin and systems like it is that, by creating digital money systems, the industry is funding itself which will hopefully lead to the rapid evolution of technologies within the space. There are hard problems to solve, but enormous incentives to solve those problems.
The solution you are looking for is transparency. Perhaps the only thing I like about crypto as money (well Bitcoin) is the that every transaction can be traced back to the transactor (think about that buying and selling drugs).
Speaking as Finance Nerd I think all finance should be that transparent. There is no room for privacy in financial matters.
But that is one aspect of crypto money that is being deprecated by the people who invent it
* Example 2. Alexey Navalny is a Russian opposition politician. What the state practices routinely is coming up with fake court cases and freezing assets of his team, their families and even their neighbors. People in US in Europe are very trusting to the banking system because they do not have thing like these happen to them routinely. A counter-example is my beloved Argent wallet. Argent is an example of a "contract wallet" with social recovery. In other words it's a place to store tokens (for examples ones that represent USD) that comes with a complex system of security measures. And there are no middlemen to this system. Nobody can freeze the account, or even steal your phone and try to transfer the account to them, they would hit a hard limit writ into the chain. These systems are still evolving but I gladly and proudly make use of them now.
I tend to agree with the author, that blockchain doesn't solve any problems that can't be solved better by a database. So far, no-one has come up with a problem outside of cryptocurrency that actually needs a blockchain to solve it.
The only evidence of any innovation that I see (and I'm not that into the space, so I'm probably missing things) is scammers learning how to scam better.
Given that currency is actually this great use case for blockchain, can we solve the outstanding issues for that? Bitcoin has some serious problems with transaction speed that stopped it from being used as an actual currency. Can we solve those yet? Can you actually buy a coffee with a cryptocurrency without having to wait 10 minutes for the block to resolve and confirm? If so, can we actually use that as a currency?
> That is why to me Bitcoin looks like a long-duration option on a highly unknown future that I could put an amount of money in that I wouldn’t mind losing about 80% of.
https://www.bridgewater.com/research-and-insights/ray-dalio-...
Which is why Vitalik advocates social recovery wallets:
Congrats to everyone who made money so far. I totally support speculation. I do it too. Just keep an open mind to the counter argument and you'll do very well. Become dogmatic and narrow minded and you won't do so well.
Inflation is completly based on politics and it's as much an experiment as central banking is. It works until it doesn't. Also it's incredibly hard to truly calculate.
Deflation is the best thing for employees. Imaging having the leverage in contract renegotiation. "They" don't want you to want inflation.
Inflation being good is a myth that was made popular by the fact that it gives the government and banks power, so economists who promote inflation are themselves promoted and selected by people in power. It is now so prevalent an idea that few question it.
And what is the magical reason why we need to keep the economy going?
We're burning through this planet's resources much faster than they are being replenished.
The economy needs to stop going.
If cryptocurrency causes people to use products until they fall apart instead of throwing away a pocket-size supercomputer every year then I am damn fine with that.
Until someone crunches the math on how much energy the construction and maintenance of every bank on the whole planet costs, including digging shiny rocks out of the earth, I am not sold on "PoW is a waste of energy".
It merely compresses the concept behind the existing banking system into its very essence to do that efficiently without bells and whistles.
Here watch this: https://www.youtube.com/watch?v=xLYYh4aPXAM
Bitcoin mining allows energy companies to de-risk an investment in green energy solutions such as solar. If you place some miners onsite you always have full demand (which is a problem during peak production times). Bitcoin mining is a energy revolution.
Proof of works is DESIGNED to waste energy. If tomorrow, you'd make hash computations 1000x as energy efficient, the hashing difficult is designed to adjust to make sure that 1000x as many computations are performed and the same amount of energy is wasted.
Think of it this way: Currently, 900 bitcoins are mined per day. At a price of $40K per bitcoin, whoever mines those bitcoins earns a combined $36M. So miners are incentivized to invest approximately that much money into energy & equipment per day (minus some profit margin). If they invested substantially less, somebody could invest more and pick off their coins. (And that's counting only mining profits. There are also transaction rewards, and, if you were to control a majority of mining, more nefarious sources of profit).
This means that PoW has some truly perverse incentives:
* Industry wide energy efficiency does not matter, because the difficulty will adjust accordingly.
* The higher the bitcoin price rises, the MORE energy gets wasted (That's a big difference with e.g. Gold. Sure, rising prices lead to more marginal deposits being exploited, but it's not like pickaxe prices for a given prices rose proportionally with gold prices).
The mean wealth of an adult on Earth (in USD) is ~$70,849 [1]. For all adults (let's say 70% of the global population, or 5.46 billion), on average, to have even 1% of their wealth stored in bitcoin, and assuming 14.8 million bitcoin in circulation (as 18.5 million have been mined, ~20% have been lost [2]), the bitcoin market rate would have to be $258,243 USD/BTC. This would mean an increase in mining incentive which will likely outpace advances in renewable energy technologies. With ballooning transaction fees, Bitcoin is not even useful for 90% of the world, for the scale of their transactions.
With Ethereum's 2.0 network (which uses PoS), we will have a much more sustainable cryptocurrency that can hopefully be adopted at a global scale without devastating impact on the planet. Perhaps Bitcoin Cash or some other contender with negligible fees will play an important role as well (I'm not sure what the Eth 2.0 transition will mean for mining fees on the Eth network, which are also undesirably high). I'm overall optimistic on blockchain technology as a whole, but I really hope Bitcoin isn't the dominant cryptocurrency in 10 years time
[1] https://en.wikipedia.org/wiki/List_of_countries_by_wealth_pe...
[2] https://www.investopedia.com/news/20-all-btc-lost-unrecovera...
But anyway, not every cryptocurrency uses PoW :)
See my other reply for why I believe it absolutely is.
> But anyway, not every cryptocurrency uses PoW :)
True, but Bitcoin is the one that people actually speculate in. Ethereum seems to be in some kind of transition phase. Tether is not designed for speculation, and operates more on a Proof of Shenanigans principle. So it seems the highest capitalized Proof of Stakes cryptocurrency right now is Cardano, which is tiny compared to Bitcoin.
His article starts talking about his investment portofolio, so I think we can safely conclude his opinions are predicated on there being economic growth.
I don't doubt that at some point we'll see crypto getting a self-deleting coin. Balance today is $1. Tomorrow it's $.9995.
If the prices fall because economy crashed (e.g. due to an inflated credit bubble beforehand) and now everyone is without spare cash and broken/useless production chains, then sure - no one is buying stuff because life is miserable.
But if the prices fall because everyone's savings exist and appreciate, then arguably, people can afford more things tomorrow than yesterday, which could only cause them to spend and invest more.
Rising prices due to monetary inflation only "stimulate economy" (whatever it means) on a short distance while people have money to spend and are forced to get rid of it for something more useful. But that's not a sustainable game.
The author should be more specific in their claims, and do more research on the space. Blockchain is a technology, not a cryptocurrency. Cryptocurrencies each have methods for resolving micro-transactions (e.g. side chains) and wallet storage (centralized solutions like banks, or UIs like MetaMask).
I agree that many crypto-investors are looking to make a quick buck. That alone does not make something a bad idea, this isn't a centrally managed scam that dumb investors get tricked into. Blockhain's influence on fiat currencies is something that plenty of smart people aren't sure about.
FWIW I am not that invested in the space. But the author is missing technical details to make a compelling argument.
Imagine a blockchain system for tracking who has the rights to stream a movie. Copyright holders can issue 'coins' with the streaming rights to users' accounts, everyone signs a contract saying the blockchain is authoritative - now you have an open market on streaming. Any streaming media company can stream you a movie assuming you have the token. Users can run their own blockchain network to maintain the system if the companies move on.
Looks like it is instead the author who has a misunderstanding of basic economics, in the seminal paper in monetary theory, Optimum Quantity of Money, we find “optimal monetary policy would involve a steady contraction of the money supply at a rate sufficient to bring the nominal interest rate down to zero—is one of the most celebrated propositions in modern monetary theory.”[1]
The reason we target a small inflation rate is chiefly to try to keep the nominal interest rate 0 and secondly because it doesn’t risk a deflationary recession. Israel for instance often targets a negative inflation rate [2]. But due to apprehension and perhaps some politics, many nations follow something similar to the Friedman K-Percent rule [3].
> they say that it's a currency, when it's not. It is not accessible to everybody (not everybody has access to internet).
This being true would imply to Zimbabweans the Sterling isn’t a currency since most don’t have immediate access to it, yet the British are happily using it as so. This is not a good nor mainstream criteria for a currency. But either way, in today’s day and age, money is already indisputably digital. Yet just like one redeems physical dollar at an ATM he may do so with cryptocurrencies such as Bitcoin Cash.
The only good point is volatility but that can be fixed and is not inherent to the blockchain cryptocurrency technology.
[1]https://www.sciencedirect.com/science/article/pii/S157344980...
[2]https://www.statista.com/statistics/375241/inflation-rate-in...
[3]https://en.m.wikipedia.org/wiki/Friedman%27s_k-percent_rule
It's as simple as that. Bitcoin itself is a foundational coin so it only will cross the non-speculative line / fad bubble until at least one other crypto coin becomes mainstream (it's capable to completely supersede a FIAT currency use case like remittances)
All Coinbase does is Crypto trading and all CB investors/users are crypto bulls. Just list it as an ICO and be done with it. Lead by example!
To me this is the most positive thing that has happened to crypto in the last 10 years.
Even though it’s being converted to fiat. The user still feels like they are spending crypto.
I see a future where crypto is used more prevalently than fiat. And fiat returns to the gold standard. And fiat is used during power outages and in disconnected areas
Other than a drug / money laundering tool, I have never see a use case for it.
> Every advocate promotes holding, which is not what a currency is for: currencies are meant to be a medium of exchange and to change hands.
You cannot dictate what currencies are used for. I like my currencies to keep a purchasing power. FIAT is not salabe over time. Its value decreases every day.
> We need inflation to keep the economy going.
No we don't. Tech is inherently deflationary, yet Iphone purchases increase year by year.
> they say that it's a currency, when it's not. It is not accessible to everybody (not everybody has access to internet).
Bitcoin is accesible via satelite, also try setting up a USD bank account in Iran :) Bitcoin is more accessible than any fiat currency ever has.
> if you lose your key, you lose the access to your wallet for good and nobody can help you. People seem to not understand how bad this is. Imagine people losing everything because of one silly mistake.
For some reason people think that just because the base is a final settlement layer, that there will be no systems such as banks with accounts build on top of it? You can have insured accounts on top of Bitcoin.
> Volatility is the enemy of any economy market: we need stability and predictability to avoid mayhem:
Bitcoin is in it search for it's pricing. This is going to take some time. No one who didn't sell made any losses as of yet.
I really don't get why some of you prefer FIAT central banks systems with settlement processes even bankers can't comprehend over a simple beautiful system that is auditable by even below average programmers.
In the end the hardest money always succeeds.
No DRM needed!
How about they stop forking first?
Digital art is a good example of "I can validate I own this piece". If you consider this in place with something like, not only digital goods, but even proof-of-ownership of other things (almost like blockchain-based-certificates), I think there may be some interesting applications down the road.
Volatility is still an issue, but it's still a pretty new technology.
As a technology, I agree that it's not that impressive. Stop making so many dang vaporware altcoins.
Crypto Enthusiast: "Bitcoin is a currency"
Crypto Sceptic: "Well it's not a very good currency because of X, Y & Z reasons, and nobody is spending it"
Crypto Enthusiast: "Well it's not really a currency, you need to treat it as a precious metal"
Crypto Sceptic: "But precious metals have intrinsic value - ultimately you can make something from them"
Crypto Enthusiast: "Well it's more like you can make sure your money grows rather than being shrunk through inflation - look how it's always growing!"
Crypto Sceptic: "But isn't the growth just driven by pure speculation? As in price increases just come from new people entering crypto at the bottom, and pushing it up to people who bought it earlier, who have an incentive to promote it? A bit like a ponzi scheme? I mean nobody is spending it so if it's not growing what's the point?"
Crypto Enthusiast: "Well if it stops growing that's fine because it's really a currency"
You can argue for the other points in this circle, but really the thing it's closest to is some sort of gold/silver that you can't use for anything else.
I guess it can be used as a currency much easier than gold can be, but in general nobody really does.
So why would I want to invest?
There has never existed a currency that has had such properties previously.
Or is it a currency you hold, but don't really spend? And if so why do you hold it?
- has 100% uptime
- 0 network-level hacks
- allows global large value transfer in less than an hour
- allows global micropayments in less than a second
- is a new asset class with unimaginable global impact
is not impressive. Hint: the technology is not blockchain, it's Bitcoin.
I agree that the UX of the whole crypto scene is crazy with the bottleneck of keeping your secret in a safe place, but you get some drawbacks I guess.
Correct, it's a store of value. See my comment here [1].
> It is not accessible to everybody (not everybody has access to internet).
Internet usage keeps growing [2].
> Also, as a technology, blockchain itself it's not that impressive.
People are forgetting that Nakamoto Consensus is a legitimate CS breakthrough concerning the Byzantine Generals Problem [3].
[1] https://news.ycombinator.com/item?id=26065232