Bitcoin Is Worse Is Better (2011)
gwern.net
gwern.net
Another irony is the fundamentally terrible design of cryptocurrency seems to be why it's a gold rush to increase fiat. Generating random numbers until you find the right one as a means of verifying transactions is almost as a bad idea as a smart contract, and yet! This profound waste and inefficiency is precisely why the fiat price is going up, increasing interest, not at all increasing the desire for use.
For being meme money, it seems to do a better job of being actual money than more serious contenders.
This is hard to explain, like explaining air to animals or water to fish. Deflationary currencies aren't surging in value. Fiat currencies are dropping in value.
Your frame of reference is a $ is a fixed unit of measurement, like a cm or gram. This is wrong. $ value is not fixed, and intentionally designed to decrease in value at fixed rate (but in practice does not decrease in value uniformly across all parts of the economy).
What you see as surges in value of Bitcoin are more impacted by decreases in value of $s than anything else. Yes there are changes in demand to hold BTC vs. $, but that is dwarfed by expectations of future changes in the global supply of credit derived $$$s.
Credit based inflationary fiat currencies have a lot of really bad properties. But it's very hard to see those effects, because it surrounds us (like air or water for a fish) and is often confused as the measuring stick of value.
If you are still skeptical, maybe another example: Do you think gold is really 100x more valuable now than it was in 1971? Or do you think a change in ratio of $ : gold available is what causes the 'crazy surge in value'.
At about this point in 2011, 1 BTC was worth $1. Today 1 BTC is worth about $60k. Are you suggesting that BTC has been mostly consistent in value in that time and that it's the USD which has dropped in value by 60000x in 10 years?
Bitcoin is a relatively new asset. What I think he's saying is that some of the price increases are attributable to the loss of value of 1 USD and some to geniune BTC price discovery.
> What you see as surges in value of Bitcoin are more impacted by decreases in value of $s than anything else.
How can that sentence be read as anything other than saying the majority, or at least the largest and primary cause, of the increase in BTC value is the decrease in value of USD (and presumably other fiat currencies based on the rest of their comment)?
EDIT: For grins, a quick calculation on what 10% (3-10x higher than the official annual inflation numbers over that period) of inflation per year over 10 years does to the USD: $1 (2011) -> $2.60 (2021). That is, a 2.6x change in value over a decade.
BTC has increased in value by 60,000x. Even going with this very high estimate for inflation, we still have about 23,000x change in value to find an explanation for. I'd suggest looking at its deflationary nature.
> What you see as surges in value of Bitcoin are more impacted by decreases in value of $s than anything else. Yes there are changes in demand to hold BTC vs. $, but that is dwarfed by expectations of future changes in the global supply of credit derived $$$s.
That particular word choice strongly suggests to me that GP sincerely believes that the 10× jump in BTC price is because the USD has (or will shortly) collapsed to well less than a quarter its prior value.
My comment has nothing to do with fiat currencies. Look at the gold/BTC or silver/BTC exchange rates. Or the exchange rates between BTC and the overwhelmingly vast majority of goods and services. Bitcoin's buying power has grown much quicker - by several orders of magnitude - than fiat's has decreased.
How exactly?
Is this what you're referring to? The vulnerability has been patched, so I'm not sure what your argument here is. Are you saying we should never use code because code can have flaws?
I would say that in general it seems weird to handle either of those cases with a smart contract. For example. Let's say I am on Alibaba as a seller. The escrow unlock is probably based on arrival of an item - which is tied to freight companies or possibly a fedex tracking number. This "seems" like it's totally amenable to a smart contract. But where things break is fraud. Let's say an alibaba seller starts shipping empty boxes so that the funds are released.
Now one could say that a smart contract as well as an escrow company would make the same mistake. But it's still not the same. If that seller repeatedly sends empty boxes - it will quickly catch up to them with an escrow company. At some point the escrow company will stop believing the company and start trusting the pictures of empty boxes arriving. Not so with a smart contract. It would mean un-ending fraud. Now you could back things up by saying there could be a company that the smart contract is tied to, not specifically fedex tracking. But then what is that? It's an escrow company.
For houses - if anyone has been involved in a real estate transaction I would say you are probably familiar with the notion that there are 15 days to attempt getting your loan. Some contracts can be 45 or even 90 days (or years for complex business/government escrows). There are also situations where the seller decides to not cause grief because of some other issues or mistakes. Again a smart contract is not going to understand this shit. It's very peoply.
Again, not the OP on this, but just some perspectives. Maybe someone else has a great use case on people betting on weather outcomes - but what great societal use is that?
If the best argument in favor of them is "well, they're not really good for much right now, but someday somebody might figure out a good use for them," then it's hard to see why people are so excited.
(Though, maybe it's not so hard to see why people are excited if the folks who are excited are all crypto fans who want to build hype to drive the prices up....)
1. https://suredbits.com/discreet-log-contracts-part-1-what-is-...
For land transactions in the US (not houses yet), check out Fabrica (disclaimer: former co-founder). We/they have built something incredibly hard to plug into the existing legal structure in the US, but essentially you can transact on land properties in minutes, as opposed to days.
It's definitely true that many ridiculous and farfetched bad applications of smart contracts have been attempted or proposed. None of these have any bearing on the utility of smart contracts.
When you do have a contract that a computer can execute, the value of having that contract executed on a machine owned by a 3rd party seems pretty low. At the same time, contracts frequently have undefined behavior and, when they do, courts step in to work out what to do. The option to stop or roll back a contract is usually a feature, not a bug.
Care to explain?
I have no interest in acquiring more fiat, above and beyond what's needed to pay living expenses.
Using Strike, I can pay someone in USD (or any other fiat) using bitcoin with no capital gains taxes: https://jimmymow.medium.com/announcing-strike-by-zap-4f578c7...
Bitcoin is a non-sovereign, hard-capped supply, global,
immutable, decentralized digital store of value. It’s an
insurance policy against monetary and fiscal policy
irresponsibility from central banks and governments
globally.
— @Travis_KlingI don't think you can generalize to just first mover always win, especially since Unix wasn't the first mover. More that any plan, scheme, product, whatever that can actually work needs to be put into operation as soon as it can work. It's no guarantee you won't lose anyway, but you can win for a very long time until you don't. Unix may be supplanted at some point and Bitcoin too, but Tom from MySpace at least made a few hundred million when he likely makes nothing if he launches after Facebook.
I'd reserve Worse is Better for cases where (a) that speed advantage was gained by specifically choosing to ignore/hack-around a known problem, and (b) that problem/hack becomes worse due to the inertia of this approach.
The classic example is C, which has spread far and wide, as a foundation for almost all of the modern computing house-of-cards. Yet this adoption has come with memory management problems (and their associated security exploits), a foot-gun approach to macros, etc. when such issues are literally non-existent in contemporary languages like Lisp, Scheme, ML, Prolog, etc.
A military example might be the trench warfare of WW1: a quick way to avoid machine gun fire, which froze armies in place for years.
A financial example might be loan sharks.
In Bitcoin's case, the hack of trusting the longest chain and incentivising hashcash to reduce spam/overtaking has resulted in today's energy-hungry monstrosity.
That was the contention of the original article, if I recall it correctly.
I wish our interests could have continued down the same path because for me, distraction is the real mind killer.
Another question arises: what is it good for? It certainly isn't empancipating or empowering ordinary people.
But really only if it would be difficult to obtain and safely keep USD.
Bitcoin isn't unstable. It has a fixed supply of 21M. It is the other currencies to which it is compared that are unstable. Bitcoin allows you to measure fiat currency instability.
The rest of the world's unstable goods like gold, fiat currency, real estate, stocks, cars, and even groceries are always fluctuating in BTC value but BTC stays perfectly level.
Edit: I now again have no idea if they are or not. Looking at their comment history it doesn't appear they are.
I tried to be absurd enough in my initial post to make it clear. When that failed, my reaction was to add more absurdity. It's not the first time this has failed. I should have known better when imitating a group that defies parody, like crypto aherents.
Let me give you an example. Chuck E. Cheese tokens are hardly worth anything. They're a terrible store of value. Why is this? Because Mr. Cheese can direct more to be minted at any time in an attempt to quantitatively ease the Chuck E. Cheese economy.
One day, Chuck E. Cheese will go out of business for good, and no more of his tokens will be minted. At that point the value will stabilize and, relative to depreciating assets like USD, stocks, bonds, or other things that aren't types of coin, it'll actually skyrocket. Limited supply equals stable or increasing value, forever.
Any object is worth approximately (all the world's wealth) / (number of that object in existence). This guarantees Bitcoin will always have value since supply is limited to 21 million.
It's also why my cheese tokens become sound money if Chuck E. Cheese goes bankrupt and is no longer operating, but they're junk right now while they can still be used to play arcade games.
It's also why I'm forking a new version of Bitcoin with the supply limited to 21 thousand. It's also got stable value and currently isn't trading for much but I'm holding it with the expectation that the value of every other asset in existence will rapidly depreciate soon.
Before covid it was 1.6 NZ to the US, now it's about 1.4 - so a loss of about 10%. If you had 1600 NZD in 2019 and bought USD, kept it under the matress, and sold it, you'd have lost NZD200.
That's not great, but it's a similar range of NZD vs AUD, NZD vs CHF, CHF vs USD, etc.
Now if you had 1600BTC in 2019 and bought USD, well that's tricky -- when in 2019?
In Jan 2019 it was about 3500, by May 2019 it was about 5000 USD to the BTC, in June it was about 10,000, it fluctuated by about 20% over summer, dropped back to 7,000 in December. It stayed in that whole 7k-14k range until November 2020 when it ballooned upto about 60k over the next few months.
In the last couple of years, gold has gone from about 1200 to 1700, 40% change in the last 2 years. Silver about 30%. Other currencies that haven't had printing about 20% fluctuation. Rice about 20%, Wheat about 40%, Soy about 50% - those comodities do fluctuate a fair bit over long time though.
Bitcoin has increased around 1,000%. That's so far out from EVERYTHING ELSE that it isn't currencies shifting, it's crypto.
Not really. If you own 1 fiat dollar today and I double the money supply tomorrow, I have just halved the value of your fiat dollar over time. Your share of the money supply has been diluted[1]. 1 nominal FD tomorrow is worth 0.5FD in real terms all else held constant.
Of course this thought experiment is trivial and oversimplified because the real question is about purchasing power. But consider that majority of USD in existence were "printed"[2] last year. Consider that the global fiat monetary base expanded by ~50% last year.
"Since 1933, the U.S. dollar has lost 92 percent of its domestic purchasing power. Even at its “moderate” 1994 inflation rate of 2.7 percent, the dollar will lose another half of its purchasing power by 2022."
https://www.google.com/amp/s/fee.org/articles/central-banks-...
Nominally.
How do you grok the practice of coin-clipping? You hand in one gold coin which is then clipped and you are given a coin with a smaller percentage of gold in it. 1 solidus is still nominally worth 1 solidus. But it's really worth 0.x a solidus. Does this debasement matter? The coin has the same name but it's not the same coin.
> bitcoin has also gained and (occasionally lost) buying power.
Over the long term, Bitcoin can only gain and has only gained purchasing power, algorithmically.
Unlike with fiat, your proportional share, based on your stack of coins, of the total value in the economy has not changed. This assumes a Bitcoin Standard where bitcoin is the world currency. (Some of us already live on a Bitcoin Standard preemptively.)
With fiat, your share has been debased. 1 usd is not equal to 1 usd over time. With Bitcoin, your ruler is always accurate. 1 satoshi = 1 satoshi over time unto eternity. Fiat cannot make that claim.
That's what we mean when we say 1 btc = 1 btc.
> "1 oz of Gold has always been worth 1 oz of gold."
Now you see why gold was the world's hardest money. It's chemical stability guaranteed this statement. Hardly any other commodities behave this way. Unless you have examples?
That's not how modern money is reckoned. It's a neat aside, but it has nothing to do with a modern currency.
> Over the long term, Bitcoin can only gain and has only gained purchasing power, algorithmically.
True. As of this moment it's gained before. Day to day it's an entirely different matter.
> Unlike with fiat, your proportional share, based on your stack of coins, of the total value in the economy has not changed. This assumes a Bitcoin Standard where bitcoin is the world currency. (Some of us already live on a Bitcoin Standard preemptively.)
Bitcoins are being generated. It's a planned inflation - how do you reckon that with the share not changing? You have less porportions of the total Bitcoin supply. Unless wealth is created from nothing with every bitcoin generated you've lost a proportion of the wealth. It only works right now because it's being measured against things, if it ever became the determining standard, you'd be experiencing inflation with it.
> With fiat, your share has been debased. 1 usd is not equal to 1 usd over time. With Bitcoin, your ruler is always accurate. 1 satoshi = 1 satoshi over time unto eternity. Fiat cannot make that claim.
Again, this is a nonsense argument. You either have to accept that the 1973 $1 bill is still worth a dollar (relative to the dollar) or you have to admit that a 2010 Bitcoin is not worth the same as a 2021 bitcoin.
> Now you see why gold was the world's hardest money. It's chemical stability guaranteed this statement. Hardly any other commodities behave this way. Unless you have examples?
Silver. Sheep, salt. 1 measure of any commodity has always equaled itself.
Bitcoin is just a commodity right now. That's it. If it becomes the standard currency it'll experience deflation as the supply grows just like any other currency.
M3 money supply in 2009 was 8.48T
M3 money supply in 2014 was 11.67T
M3 money supply in 2019 was 15.32T
So 60% of money in existence in 2019 was created in the previous 15 years
Are you imply that means that the purchasing power of the dollar has dropped 70% then, and a dohicky that cost $1 in 2004 would cost $2.40 in 2019 in line with M3 increase?
The cost of bread in 2004 was 97c, and was $1.36 in 2019 - increasing at 2.3% per year. [0]
A pound of chicken went from $1.03 to $1.45 - 2.3% per year [2]
A gallon of milk dropped from $3.23 to $3.19 in that time period [1]
Official inflation figures for 2004-2019 are $1.35, about 2% per year, and that includes the time period of the 2008 crash.
Rental price for an acre of cropland across the US in 2004 was $76.5, in 2019 it was $140, increase of 4.1% per year [4]
Rental price for a primary residence has increased 3.05% per year [5]
In that time GDP has increased by about 3.8% per year [3]
Median wages have increased by about 2.6% per year [6]
That period included the massive money printing of 2008 crash, none of it says hyperinflation, despite the federal reserve "printing" $3.9T between 2009 and 2014.
[0] https://www.statista.com/statistics/236635/retail-price-of-w...
[1] https://www.statista.com/statistics/236854/retail-price-of-m...
[2] https://www.statista.com/statistics/236834/retail-price-of-f...
[3] https://countryeconomy.com/gdp/usa?year=2019
[4] https://quickstats.nass.usda.gov/results/58B27A06-F574-315B-...
[5] https://www.in2013dollars.com/Rent-of-primary-residence/pric...
[chuckle] Now do assets as well. Do healthcare and school fees and energy for good measure.
> […] dohicky […]
Also see Jeff Booth's "The Price of Tomorrow" for a discussion on the deflationary effects of technology.
Also consider velocity of money and if it slows as governments and commercial banks print.
Also, M3 contains illiquid assets. Perhaps, better to think in terms of base money? https://cryptovoices.com/basemoney
For fun, the history of McDonald's menu prices.
> Official inflation figures for 2004-2019 are $1.35, about 2% per year, and that includes the time period of the 2008 crash
Inflation is perhaps a vector.[0]
> Median wages have increased by about 2.6% per year
US centric but consider also https://wtfhappenedin1971.com/
That's not a cost you need to live. You need to pay for food, housing, healthcare, energy. You don't need stocks in amazon.
> [chuckle] Now do assets as well. Do healthcare and school fees and energy for good measure.
Total healthcare spending in the US[0] in 2004 was $6094 per capita. In 2019 it was $11072 -- 4.1% per year increase. By comparison in 1989 it was $2440 per capita, so for 1989-2004 it was 6.3% per year.
Electricity increased 2.75% per year from 2004 to 2019 [1]
Average retail electricity price for industrial consumers in 2005 was 5.73c/kWh, in 2019 it was 6.83c/kWh, 1.3% per year [2]
A gallon of gas in 2004 was $1.85 in 2004, it's $2.60 in 2019, an increase of 2.3% per year [3]
I see little to show that inflation is any different to the official inflation figures. I do see evidence that the wealthiest part of the US is becoming even more wealthy
Cost per pupil increased 2.6% per year [4]
What's your point? Despite M0 goign from 600b to 3500b from 2004-2019 (average 12.5% per year), there was no effect on the cost of things people pay for, which broadly stayed in the 0-5% per year range, as it did before 2004.
[0] https://data.oecd.org/healthres/health-spending.htm
[1] https://www.statista.com/statistics/190680/us-industrial-con...
[2] https://www.statista.com/statistics/190680/us-industrial-con...
[3] https://www.statista.com/statistics/204740/retail-price-of-g...
[4] https://nces.ed.gov/programs/digest/d19/tables/dt19_236.55.a...
I'm sure you're absolutely correct about everything. Thank you for your time.
https://www.coindesk.com/bitcoin-adoption-venezuela-research
Unless Venezuelans are mining their own at massive scale, I'm not sure how they actually hedged inflation via crypto, since they likely had some ability to buy an intermediary currency anyway.
Here's a detailed thread[0] with global examples of empowerment of ordinary people. One example from the thread:
" 7/ Democracy movements and opposition leaders in Russia, Nigeria, Belarus, and elsewhere have used Bitcoin to receive donations and continue their human rights work while their traditional bank accounts have been frozen or suspended:
[0] https://twitter.com/gladstein/status/1377040725414580224?s=1...
Apparently, it saved the bacon of some Venezuelans.
It seems that bitcoin was useful in this particular instance only because of the failure of multiple other systems. Fixing those failure would seem like the easier option indeed.
Another alternative: You come up with a new way to do X which is 10X better. Then, you get the classic S-shaped adoption curve.
Another alternative: You expand the context of your operations, so that those governments just become little annoyances and quaint dusty backwaters inside a larger world.
My question was simply: What is keeping banks and governments around the world from standardizing money transfer between nations, like they did so well 150 years ago with mail? And my statement: Perhaps it is easier to settle on a standard way of transferring money between nation states then to rely on bitcoin to save some people from hyperinflation + predatory money transfer solutions.
That's one way you can think of the next generation of blockchain. Think of it as a "container" for transactions. Lots of transactions in 2021 are still frightfully primitive. The whole recent GME/Robinhood debacle is actually an example. The only reason why online trading companies need such large amounts of liquidity, is that it takes days for the transactions to fully settle!
Blockchain will transition from a weird, new, shiny doohickey, to a way to facilitate transactions. Just like the Internet did.
This strikes me as both true, and difficult to put any real value against. It's an existence proof more than practical use cases. Intuitively the value of that alone is both non-zero, and a lot less that BTC "valuation" - but where in between?
I'm part of the bitcoin community on Clubhouse of just regular people who've benefited greatly from bitcoin.
I'm personally investing in bitcoin due to the uncertain future of USD. It's simple: the dollar is loosing buying its buying power and bitcoin is gaining buying power. USD, gold, bonds, etc. are trending towards zero when graphed against bitcoin.
I'm old enough to remember when a person could save in USD and get a return higher than the inflation rate and be able to retire comfortably.
I remember seeing people who thought they could retire comfortably in 2008 until the economy blewup and we had senior citizens competing with high school kids for jobs bagging groceries.
You can read about how financialized our economy has become and how bitcoin solves this problem: "Bitcoin is the Great Definancialization" — https://unchained-capital.com/blog/bitcoin-is-the-great-defi...
Bitcoin has averaged over 200% a year for the past 10 years--and that was before billions of institutional money began flowing in.
Curiously, still continues to this day.