You can make your substantive points thoughtfully. As far as that goes, though, this comment doesn't say anything that the parent didn't already say.
The steel-man argument is that the monetary policy of central banks can cause hyper-inflation of a fiat currency, and holding onto an asset that is immune to that, and potentially even being able to transact with that asset is a reliable way to break free from the monetary policy of the central bank. The fact that one may place this transferable asset into a centralized institution that we may call a (lower case b) "bank" isn't at odds with the aforementioned principle.
Put another way, the dollar doesn't depreciate because of my credit union, it depreciates because of the Fed.
The whole reason we have a strong central bank is because we tried the alternative before and it worked terribly: https://en.wikipedia.org/wiki/Wildcat_banking
> The whole reason we have a strong central bank is because we tried the alternative before and it worked terribly
I think there's a strong argument to be made (derived from history) that having a purely gold-backed currency be the sole and legal tender is bad. That said, there's a third option: "porque no los dos?". Do we know for certain that there's anything inherently disastrous about a society that has BOTH fiat-backed legal tender as a hedge against "Wildcat banking" alongside "digital gold" backed currency as a hedge against fiat-backed legal tender?
I think the answer is "probably not". I'd even go so far as to argue that we've already been doing that for the last 70-odd years; people still use gold as a hedge against the USD. Bitcoin is just digital gold that derives value because it's easier to trade Bitcoin for bread than gold bars (in theory).
Personally, I think the burden of proof goes the other way. Especially when after 12 years of Bitcoin innovation in practice it's so far mainly useful for scams, ransomware, market manipulation, money laundering, and other kinds of light financial crime. (Plus speculation of course, but there were plenty of options for that before.) If hobbyists want to speedrun reinventing financial regulation that's ok by me, but I'd rather they do it without the collateral damage.
That's especially obvious in contrast with actual digital money efforts like MPesa, which have real user bases, scale perfectly well, and aren't ongoing ecological disasters.
> Personally, I think the burden of proof goes the other way.
Well, it's not exactly a brand new experiment, we already know what happens when you have a deflationary store of value alongside fiat currency, and we see that in Gold today. The concept isn't strictly unheard of. I think what's debatable is if the last 70 or so years of gold alongside fiat currencies is sufficient enough information for us to conclude that having things like gold and gold-like assets won't be disastrous to a financial system.
> so far mainly useful for scams, ransomware, market manipulation, money laundering, and other kinds of light financial crime. (Plus speculation of course, but there were plenty of options for that before.)
This is true of paper cash, too. There’s a common saying that if cash were invented today, it would be illegal, since it’s hard for the government to track and they wouldn’t like it, which I find amusingly true. The preponderance of bad people using a tool doesn't immediately render the tool itself bad.
Bitcoin (and crypto) has been around for only 12 years now. Is it perfect? No absolutely not, there are a ton of kinks that need to be ironed out. Costs and speed need to be improved (probably through L2 protocols), we need to find ways to reduce energy consumption and use green energy as much as possible, we need to make sure that the money flowing into schemes like Tether is legitimate. I think the proponents all know that there is still lots of work to be done, and it feels like the detractors think that the adherents don't know that.
What's especially entertaining to me, personally, is that I have no horse in this race; I don't work with or for any crypto institutions and I hold a tiny amount of play BTC/ETH just for curiosity's sake. I am neither a proponent nor a detractor. But the sheer amount of misinformation and strawmen arguments leveled against BTC has has pushed me to seek out the strongest possible arguments in favor of BTC, so thanks for that.
I'm not saying Bitcoin isn't perfect; nothing is. My point is that Bitcoin has not demonstrated any significant value certainly not in excess of its costs and harms, and it's had plenty of time. Bitcoin and Android are basically the same age. Bitcoin is still at best a niche, probably a shrinking one. Android is coming up on 3 billion users worldwide, providing clear daily value.
This argument doesn't make much sense. It's like saying if rubies are the same as emeralds, then we don't need rubies. Also, there can be multiple types of assets! Nobody wants to put all of their eggs in one basket. Bitcoin can coexist with gold.
Bitcoin is also arguably superior to gold in that it's MUCH easier to pay for bread with a little bit of bitcoin, and MUCH harder to do the same with gold (who's going to chop up the gold bar?). In fact, if I were to use the same zero-sum argument as above, one could even say: "if Bitcoin is the same as gold, then we don't really need gold" (again that's also a bad argument, both can coexist and gold is sometimes better)
> But its point is being different. So you can't handwave away concerns based on it being exactly the same.
You're right that gold and Bitcoin are different, but things can be different while still being "the same" at a fundamental/conceptual level. Cars and bicycles are different, but they still serve the same underlying need: transportation.
> My point is that Bitcoin has not demonstrated any significant value certainly not in excess of its costs and harms, and it's had plenty of time. Bitcoin and Android are basically the same age. Android is coming up on 3 billion users worldwide, providing clear daily value.
I think this is a really strong argument that Android is more valuable than Bitcoin (in some subjective sense), I agree with you that Android is extremely valuable and "good". That said, this is not a particularly strong argument that Bitcoin is absolutely valueless. The value of Bitcoin is in the eyes of the "behodler", and some people seem to value it a lot. People are using it as a safe haven from their country's poor monetary policies (happening in Nigeria and Argentina right now, has happened in Venezuela and Zimbabwe before). That's clearly non-zero value.
And if your argument is that value is strictly a function of its utility, well then I'd like to introduce you to the economic concept of the Diamond-water paradox (https://www.investopedia.com/ask/answers/032615/how-can-marg...) which is the fundamental underpinning for the Subjective Theory of Value.
> Bitcoin is still at best a niche, probably a shrinking one.
We agree that Bitcoin is currently a niche, but I'm not sure that I agree that it's a shrinking niche. As of the last month, major institutional investors like BNY Mellon and BlackRock have started to include it in their asset mixtures. Major companies like Square and Tesla have started to hold some of their cash reserves in Bitcoin. Canada just approved North America's first Bitcoin ETF, trading on the TSX. I'm not sure how we can conclude that Bitcoin is shrinking with all of this institutional activity.
If rubies didn't exist and somebody were setting out to invent them at the cost of major ecological harm plus enormous waste and collateral damage to financial novices then that would be a decent comparison. Except that rubies have intrinsic value, whereas Bitcoin doesn't, making it a yet worse analogy.
> different but [...] still being "the same"
I am going to take this as an exercise in aggressive point-missing on your part. If you still don't get the point, feel free to ask.
> Bitcoin is absolutely valueless
I didn't say Bitcoin was valueless. Again, you seem to be aggressively missing the point.
> BNY Mellon and BlackRock
That's not proof of value. Traders will trade anything with enough volatility, because that's how they make money. Making money is frequently distinct from creating value. I'm speaking specifically of value, which again, Bitcoin has not demonstrated net value creation, especially when compared with other things that started at the same time, and especially when there's a full accounting of costs.
This is _really_ debatable. By most measures, the vast majority of Bitcoin mining is done via renewables: https://www.iea.org/commentaries/bitcoin-energy-use-mined-th...
"Around 60% to 70% of bitcoin is currently mined in China, where more than two-thirds of electricity generation comes from coal. But bitcoin mining facilities are concentrated in remote areas of China with rich hydro or wind resources (cheap electricity), with about 80% of Chinese bitcoin mining occurring in hydro-rich Sichuan province. These mining facilities may be absorbing overcapacity in some of these regions, using renewable energy that would otherwise be unused, given difficulties in matching these rich wind and hydro resources with demand centres on the coast."
"Electricity generation in other key bitcoin mining centres are also dominated by renewables, including Iceland (100%), Quebec (99.8%), British Columbia (98.4%), Norway (98%), and Georgia (81%). Globally, one analysis estimates that the bitcoin is powered by at least 74% renewable electricity as of June 2019. Another analysis of data from 93 mining facilities (representing 1.7 GW, or about a third of global mining capacity) estimates that 76% of the identified energy mix includes renewables."
Another report: https://coinshares.com/assets/resources/Research/bitcoin-min...
"Furthermore, we show that Bitcoin mining is mainly located in global regions where there are ample supplies of renewable electricity available. And finally, we calculate an estimate of the renewables penetration in the energy mix powering the Bitcoin mining network at 73%, making Bitcoin mining more renewables-driven than almost every other large-scale industry in the world. Our renewables estimate has marginally dropped since our last report, reflecting increased levels of mining in low-renewables regions such as Kazakhstan. However, we still caution that our location estimates likely have error margins of ±5% and should be considered within that context."
Of the BTC mining that isn't on renewables, it would be interesting to see how the net CO2 output compares to diamond/gold/ruby mining, not to mention the labor exploitation.
> Except that rubies have intrinsic value, whereas Bitcoin doesn't, making it a yet worse analogy.
What intrinsic value do rubies have? They're just used for jewelry. It doesn't really "do" anything. Bitcoin is the same. It doesn't "do" anything, and its value is subjectively derived by the people that use/hold it. Much like jewelry, when it's not being used as a store of value, it serves a somewhat superficial use case, and that's censorship resistant transaction.
> I am going to take this as an exercise in aggressive point-missing on your part. If you still don't get the point, feel free to ask.
> I didn't say Bitcoin was valueless. Again, you seem to be aggressively missing the point.
You'll have to help me out here, because whatever point you think you're making simply isn't coming across. You just said "Except that rubies have intrinsic value, whereas Bitcoin doesn't...", while also saying "I didn't say Bitcoin was valueless". It's hard to follow.
> That's not proof of value.
My point about BNY Mellon, BlackRock, Square, Tesla, Canada, etc was meant to be in response to your claim that Bitcoin use is "shrinking". The entire argument here is that Bitcoin is (among many things) a store of value. Its worth as a store of value is entirely predicated on whether others think that it's a store of value. The fact that institutional investors are also beginning to treat it as a store of value suggests that it might not be "shrinking", per your conclusion.
It's also used for censorship resistant payments: https://www.coindesk.com/nigeria-bitcoin-adoption
> I'm speaking specifically of value, which again, Bitcoin has not demonstrated net value creation
Calculating "net" value creation is debatable, because different people have a different point of view on how to measure the cost (eg how "bad" the electricity usage is). But, we can talk about the output: and that it has provided an easy-to-use store of value, comparable to gold, which can be used as a hedge against fiat currency. It's being used in regimes with poor monetary policy:
https://news.bitcoin.com/venezuela-bitcoin-use-hyperinflatio...
https://qz.com/africa/1947769/nigeria-is-the-second-largest-...
You, personally, may not see any value in that, and that's fine! But we go back to the Diamond-water paradox; you probably derive more use from a glass of water (or an Android phone, to your earlier point) than Bitcoin, but utility alone doesn't determine the price/value of the thing.
I don't get the impression that you understand value at all, except as a stick to beat people with in arguments. Given the volume, glibness, and excess confidence with which you write, trying to argue you into understanding it doesn't seem like a good use of my time, especially given your tendency to treat your personal feelings as objective fact. If you actually aim to learn, you could start with the Lean look at value; they write some pretty accessible stuff. But I'm done here.
> Large-scale hydro is major ecological harm. And even for something less damaging, that's still massive energy use that could be used for something else. Bitcoin is displacing other activity.
Sure, but you or I don't get to decide how people spend their time, or where they focus their activities. And you also didn't address the fact that this needs to be compared, apples-to-apples, with the mining of conceptually similar assets like diamonds, rubies, gold, etc.
> especially given your tendency to treat your personal feelings as objective fact.
Actually I'm arguing the exact opposite; that value is purely subjective. Just like you, I myself don't derive much value in Bitcoin (something we agree on!). The point I'm trying to make is that just because you and I don't find value in it, doesn't mean that the value doesn't exist. My entire argument here is that my personal feelings don't matter, and importantly, neither do yours.
That argument of subjectivity is a lot more uncomfortable for people because it means that you have to just sort of accept that some people see value in something that you don't. That's the idea I'm trying to convey to you. The only objective fact is that everything is subjective.
The Diamond-Water paradox isn't some "feeling", it's a real economic theory that attempts to explain the exact question you've been grappling with. You've been asking all the right questions, they're just questions that have already been asked before when dealing with conceptually similar assets (obviously not "the exact same").
> I don't get the impression that you understand value at all
Oh you've more than made it clear that you have this impression. You just haven't done the best job explaining to me why that is.
> If you actually aim to learn, you could start with the Lean look at value; they write some pretty accessible stuff. But I'm done here.
I'm more than happy to learn! But you'd have been better off in this conversation if you spent less of your time attacking me or expressing indignation at the mere fact that I'm making my points and more of your time making the specific case for why the Subjective Theory of Value doesn't hold or what the "Lean look at value" is and why it's compelling (I'd even believe you if you fully articulated it).
The dollar depreciates / appreciates due to various economic factors, not just because of actions by the Federal Reserve.
https://www.investopedia.com/articles/forex/051115/top-econo...
The argument is that (2) is an inevitability of the market, whereas (1) is political. Crypto adherents aim to solve for (1) and accept the inevitability of (2). And deciding to use Coinbase to store (and exchange) your crypto is not at odds with that philosophy.
To be clear, I live my entire life on fiat, and most of my savings are in traditional financial instruments. What I take issue with is the misrepresentation of the case for crypto; when it comes to assets like Bitcoin, Coinbase is not equivalent to a central bank nor will it ever be.
The market is influenced by politics more than you might expect, and, conversely, the Fed’s actions are less political that you think.
That being said, political influence on markets (e.g. via fiscal policy) is indirect and can take years to manifest.
https://fivethirtyeight.com/features/no-bill-clinton-does-no...
https://fivethirtyeight.com/features/dont-let-trump-or-any-p...
https://www.theatlantic.com/business/archive/2014/07/why-the...
Monetary policy, on the other hand, is immediate. Interest rates and treasury yields cause immediate movement in the economy because capital can be made liquid. It also has the potential to get really bad really fast, as we've seen with hyperinflation in Venezuela and Zimbabwe.
And specifically speaking to the merits of assets that are free from Fed/Treasury policy; if you had held a little bit of gold throughout the 2000s as a safety net, it'd have been much easier to weather the storm of the financial crisis than if you hadn't. People flock to safe haven assets to seek refuge from their country's policies when required:
https://news.bitcoin.com/venezuela-bitcoin-use-hyperinflatio...
https://www.coindesk.com/nigeria-bitcoin-adoption
Gold (and other comparable deflationary assets) are considered a hedge against fiat. Whether Bitcoin can also be seen as a comparable asset is the central question, but looking at the last 12 years, the ship has mostly sailed there.
Controlling one means losing the control of the other and modern central banks control the interest rate, not the quantity of money.
So, the causality is like this: when the economy gets hot, more credits are asked by business and households, because of that, the interest rate go up. In order to keep the interest rate in their choose target, central banks will add more money to the system. The Fed doesn't decide the quantity of money, the economy does it.
In contrast, there is no way you can do this with (most) cryptocurrencies. The monetary policy of Bitcoin is dictated by the physical bounds of the proof-of-work algorithm. There is absolutely nothing that Coinbase can do to "create" more Bitcoin outside of just mining it like everyone else.
There is in fact an upper limit set by the fractional reserve. I see US has abolished that limit right now (March 2020), but when they would set it to 100%, there would be no money multiplying at all.
In your own source, the banks ability to increase money supply through the multiplier effect is capped by the capital adequacy ratios, which are defined by the Fed. It is also an inevitability of any currency that isn't backed by an asset. To be clear, I don't have problems with the concept of fiat currencies, but we have to be honest about what it actually is and how it works, and how Bitcoin is different.
Numerous exchanges have blown up when the wallet got stolen from underneath them - but in the gap between the theft and the discovery, the users thought they had bitcoin when in fact they had a bitcoin balance.
Your Bitcoin balance, as it's shown in Coinbase's UI, is very different from your Bitcoin balance as it's understood by everyone else on the public blockchain; and that too only temporarily. There is nothing that Coinbase can do to permanently alter that supply of Bitcoin. That is what we're talking about.
In contrast, the permanent US Dollar supply can and is permanently altered due to the monetary policy which governs it.
* accept 100 bitcoins for deposit, giving their previous owners "100 claims against exchange X" in return
* sell those 100 bitcoins
* the new owners of those 100 bitcoins can roll down to exchange X and deposit them and accept 100 claims against exchange X in return
* and the exchange can sell those 100 bitcoins once again
Now we've got 100 bitcoins out in the world and 200 claims against exchange X, and each of these 300 items functions identically. They're exposed to all risk of gain or loss on the market, they can be traded, sold, used to purchase stuff... with the only limitation being that not every claim against exchange X can be immediately redeemed. But as long as not every person tries to redeem their claim at the same time, there are no problems.
Exchange X has permanently [until they exit the market] increased the usable supply of bitcoins. Nothing prevents an exchange from having more than 21 million bitcoins on deposit. With large enough exchanges, the banked, usable balance of bitcoins could be 100 million coins. 100 trillion. There is no limit.
You can still transact with Bitcoin using your own wallets against other exchanges/vaults. That's the entire point, Coinbase, like a (lower case "b") doesn't control the supply of Bitcoin, any more than precious metals bullions control the supply of gold despite their issuance of "gold certificates". Like any (lower case "b") bank, Coinbase can engage in bad behavior, and users are placing their trust in Coinbase to not do that. But those users aren't placing their trust in Coinbase to drive the monetary policy of Bitcoin, in the same way that the gold hoarder placing their gold bars in a Swiss vault doesn't really have to worry about the operator of the vault creating gold out of thin air. That fundamental fact drives the collective belief in the value of gold; as well as Bitcoin.
> * the new owners of those 100 bitcoins can roll down to exchange X and deposit them and accept 100 claims against exchange X in return
You can't deposit that purchased BTC at another exchange unless you cash out of Coinbase, because you don't have access to the private key, Coinbase does.
Not going to continue this discussion any further because you seem less interested in having a polite conversation, and this is starting to get destructive.
A government absolutely can declare that the correct blockchain is actually this other blockchain, or the only legal algorithm is now a version of their own invention (like the split between Bitcoin and Bitcoin Cash, but enforced by law). If the gov wants inflation, they can replace the algorithm with one that allows inflation, or achieve a similar effect by publishing an official root block every year with a portion of all holdings transferred to the government.
But they probably wouldn't do that, when it's so much easier to simply seize cryptocurrency ("give us your private keys or spend thirty years in prison") or heavily tax it.
None of this has been done because crypto is still a novelty, but if it ever becomes a serious threat to government policy, governments will find ways to deal with it.
And centralizing Bitcoin in exchanges like Coinbase makes this far easier; the government only needs to enforce its policy on Coinbase, and Coinbase in turn will enforce it on customers.
To that point, I found this blog post pretty interesting: https://juraj.bednar.io/en/blog-en/2020/11/12/how-could-regu...
tl;dr: Bitcoin mining is mostly done by businesses, businesses will choose legal compliance over bitcoin-idealism, governments could wrest control of blockchain transactions through legal penalties (e.g. blacklist certain addresses and make it illegal for miners to process transactions from them OR mine blocks based off ones with illegal transactions). Economic incentives will encourage miners too small for enforcement to conform to the regulations. Bitcoin idealists can't do anything about it because their hashrate is puny and no one legit will deal with their forks.
That is, can we add up all of the Bitcoin listed in the customer ledgers of all of the exchanges, or is that information (the total, not the individual entries) not available to auditors?
Coinbase, as a marketplace, engages in the exchange of (potentially) bad tokens like USDT, as well as tokens like BTC that are provably finite. All of this is orthogonal to the fact that there is nothing hypocritical or internally inconsistent about holding and using Bitcoin or Ethereum and using Coinbase.
You wouldn't own the bitcoin, just as now you don't own the real fiat. There would just be a number on your bank account that says how many bitcoin you own, but it's multiplied the same way as they do now.
It all comes down to the % of reserve they need to hold.
crypto: more friction, slower transactions, higher transaction costs. And wicked exchange volatility.
Plus no way to expand or contract the supply to prevent economic shocks.
I like my fiat and central banks, thank you very much.
Bitcoin, sure. Plenty of other cryptocurrencies which don't have these issues.
Cardano has faster transactions than any monetary transfer method (besides cash), with low fees. You also get
Bitcoin cash has negligible transactions fees with 10-20 minute transactions.
Nano has fee-less, near-instant transactions (could actually compete with cash for p2p transactions)
HN doesn't like crypto. Say anything pro crypto (even when it's true) and get downvoted.
very sad.
I'll send you any amount you want with Nano: <1 second transaction, 0 fee.
Try to beat that!
Just wait and see which solution will come on top.
I mean, you could also send me fee-free payments direct from your bank with rapid settlement if I had a Euro bank account. I don't, but the reason isn't because I can't but because I don't need or want to hold non-domestic currency - exactly the same reason why I and most of my fellow countrymen who do have Euro bank accounts don't hold nano. The hurdle is reluctance to adopt universal international currency, not a technical shortcoming of Target2 settlement.
How often do you need $50k without being able to wait a business day?
Why is receiving $0.001 a matter of urgency that can't wait until tomorrow?
In a crypto world, you don't need to convert to Euros. Are we in a crypto world yet? No. Will we live in crypto world in the future? Maybe, when it's faster and cheaper ;).
For the common transactions people make, crypto is both slow and expensive. I can Zelle someone instantly, for free. In the EU, Australia, etc., bank-to-bank transfers are similarly instant. I don't know that Bitcoin etc. ever get to totally free in this fashion, and it's probably 99.9% of most people's money transfer usage.
For the uncommon transactions - like the $50k international transfer you mention - slow tends to be OK, and it's likely gonna have some expense either way.
Short version: In contrived scenarios, Bitcoin may come out on top, but that's not likely to convince many people.
All "common transactions" use credit (even when you use a debit card). The banks approve transactions quickly, but reconcile those transactions slowly.
It'll be the same for any crypto that takes off but needs to reconcile slowly.
I'm not making a value judgement whether this is utopian or dystopian but imagine streaming money. Instead of paying for the use of something in advance and in coarse-grained chunks (driving through a tunnel, running on a treadmill in a gym, watching netflix, parking somewhere, etc...) you'd instead stream money throughout usage. On-demand with continuous settlement for the duration.
You are taking a look at the start of the speedrun and claiming that it's already over. All of those issues will eventually be solved.
>Plus no way to expand or contract the supply
This is simply not true. It is entirely possible to make it possible to mint new coins. You can burn coins by buying them back and sending them to a wallet owned by no one.
When does "eventually" arrive? For 12 years I've been hearing that all of the problems of cryptocurrency will be solved very soon. But merchant adoption peaked years ago and has notably declined. Most of the problems are still problems. At this point, I'm pretty sure "eventually" means what I mean by "soon" as a teen when my parents asked me to clean my room. That is, "not now and I'd like to keep ignoring the topic please".
I do too! But some people don't. And it appears that there are now options for everyone, which seems...good?
But regulated currencies can also turn out disastrously bad (see: Venezuela, Zimbabwe hyperinflation, Nigeria, Argentina). This hurts ordinary people too. There's an Argentinian in this very thread that's chimed in with their personal experience.
I won't pretend one approach is strictly superior to the other, nor am I suggesting that one ought to put 100% of their life savings into BTC or US T-bonds, but having options allows the ordinary person to hedge. That's the point. Optionality is good, and because BTC isn't legal tender (nor will it ever be), nobody is forced to use it anyway.
Still, buying shares of a company is much more "friction" than buying coins.
> crypto: more friction
Can you elaborate?
> slower transactions
Huh, even bitcoin will settle with 6 confirmations in an hour. Settlement to buy a share or FX is 2/3 days.
> higher transaction costs
Hmm, no.
> And wicked exchange volatility.
Volatility is a property of the underlying currency, not to "crypto currencies" in general. The volatility of USDTxUSD is zero.
> Plus no way to expand or contract the supply to prevent economic shocks.
You are mixing "crypto currency" and "bitcoin".
Absolutely not. If you take the top 10 crypto currencies sorted by marketcap, half of them are actually stock-like tokens. It is not a misinterpretation, or a deviation from the intended purpose at all. These tokens are intended to replace shares of the company, and they have rather similar capabilities: by owning them you have voting rights, different token (share) classes exist, etc.
Honestly, the term "crypto currency" is very misleading, most of the tokens issued nowadays are share-like, and buying them is just a form of venture funding for these startups.
Matt Levine covered this well in a recent column[1]. It reminds me a bit of the argument for why anarchy probably can't work that Robert Nozick laid out in Anarchy, State and Utopia. In a nutshell, the social forces are such that the simple, minimalist way of doing things represents an unstable equilibrium point, and the stable equilibrium point is much closer to the status quo.
That said, I wouldn't call armchair philosophy or armchair financial jurisprudence particularly ironclad. It's hard to blame people for wanting to actually try a thing. And it hasn't been entirely unsuccessful. While it's true that a lot of modern financial system trappings have built up around Bitcoin, the currency itself remains nominally independent.
[1]: https://www.bloomberg.com/opinion/articles/2021-02-24/the-va...