I, Token: The untold story of the hole in Bitcoin's heart

> But a cash token is not mere paper, and the numbers we see in bank accounts are not mere numbers. They are accounting records of legally-enforceable promises...

That sentence strikes me as the crux. But we never find out what is being promised. The word IOU is also used a lot, but we don't find out what we are owed.

Is it access to a financial system? If so that's a flimsy argument, who's to say crypto couldn't create its own financial vortex (as the author describes it)?

Something needs to have certain properties in order to become money, such as scarcity, divisibility, durability, verifiability and transportability. This ensures that the money can be used for trade in different scales, in different places, and in different times. Whichever money does this best, will eventually replace the old money, given a free market.

I think he's correctly pointing out a very human barrier to adoption. There's, for example, a reasonable argument that bitcoin might be like gold -- really valuable, but perhaps not as moveable as a currency. What the author is pointing out is that gold is different because it's shiny and pretty and you can shape into things -- and like it or not, that MEANS something, even if that something isn't easily captured in a rigorous (nerdy?) economic analysis.

I think the author would agree that it's too early to tell if the above "something" is a deal-killer or not, but it is certainly significant.

The value of money created by governments is based on the ability of then government to tax the population.

But there are many counties where USD is more useful form of money than the local government backed currency.

Legally enforcable numbers in a bank account means nothing when your account is frozen, the government changes, you have no funds to pursue legal remedies, or be bogged down for years in court. Probably wishing you'd kept it all under the mattress or in Bitcoin at this point

Bitcoin is a special type of Ponzi scheme that uses energy input from miners to create the illusion there is a return in value over time. Like Rai stones, immutability comes from the work and risk, but the value of the object is itself held in the population's mind. This only "works" if everyone agrees it works. If everyone agrees it doesn't work then it doesn't work and isn't worth anything and the risk taken to "make" it is lost. This is why an allegory can be told that indicates it is the faith in such an object that brings it value.

Without enough people using said blockchain, it is both worthless and empty of meaning - no different than a scrape in the mud. A killer use case for crypto will make its utility valuable and inventible. A road is formed from wear of people agreeing the road goes somewhere.

The danger is the requirement for increases in power to the network, which both drives and is affected by the current value to fiat. We may yet wrap our planet with solar to drive our economic desire of "wealth".

You give him one final chance, replying with, “This tulip like object you have, granted does sound unique. Maybe it's because Im an engineer. Alright, I'm interested in a couple of ducats worth. I guess it would be oddly ignorant for me not to. ... it's really quite beautiful isn't it?” His final response is, “Ah, it is... and it has a beautiful emblem! I’ll sell it to you for two ducats”.

And thats what separated the Bitcoin Barons from the rest of hackernews, 10 years ago.

[1] https://nakamotoinstitute.org/shelling-out/

The example of the chair, where the author asserts that “functional definitions are wrong, only ‘structural’ definitions are correct” is a good test here. The author objects to the idea that “anything you sit on can be a chair” and then provides a definition of chair which does not include: - folding chairs - metal chairs - plastic chairs - any chair much bigger or smaller than a person (such as dollhouse furniture or some novelty item).

Does that make any sense? The moment you try to fix the problem with the author’s definition , you should come to the conclusion that functional definitions correspond more reliably to what people mean.

For example, how would this author define “food”?

Look at the extremely convoluted definition of money the author proposes:

> what is money?”, I would begin like this:

A vast network structure, at the centre of which lies three sets of issuers issuing out three chained layers of legal IOUs – in physical and digital form – which will later return to the issuers to be destroyed, but which in the interim entrench themselves as economic network access tokens that circulate around an interdependent web of people who cannot mobilise each other’s labour without them. These tokens are activated in the context of legal systems set within political systems set within social systems set within ecological systems, and this mesh structure underpins modern capitalism and is etched into the very fabric of our being.

If this is the definition of money, then it suggests people never used money at all until computers existed. Absurd.

This is someone trying to sell an idea (MMT) and claiming that it’s the result of “more rigorous thinking”.

Is the value of websites indistinguishable from a bunch of batteries just because its form can't be meaningfully distinguished from a battery to a drunk 12th century techno illiterate in a tavern?

To explain what a bitcoin actually is to people utterly ignorant and skeptical of how information stored on hardware works sounds like an exercise that can be left to the writer, they may have to spend the rest or their lives explaining every bit of tech to every layman.

What is a book after all? Dead trees stained with ink? What intrinsic value does that hold? If someone were to ask stubbornly the value of any book, I'd be similarly disinclined to spend the time explaining that as well.

Like with TVs and cell phones and plumbing, lay people will stop asking or caring about "What is bitcoin" once you can give a functional answer of "You can buy a house with it". Explaining what it actually is to people that obtuse will not get one any closer to that point anyway, so I'm not sure what the value is.

The cycle for the next wave of technology whose final purpose and form baffles the general public will continue on and on, this is just a season we're in, like all the ones before.

Are you in the ideology game or are you in the money game?

This guy is trying to straddle both, and despite their early evangelism of Bitcoin last decade, they are lost in an irrelevant quandary. Am I one of the people in the article annoyed that a deeper question is being asked, no, I can acknowledge its irrelevance depending on what use case you aspire for. It's a deflationary asset.

Look, even the beanie baby bubble was actually rational at first, there was a seemingly permanent supply chain issue that made them "deflationary" as well, all while demand was increasing. Did you all know that? The issuer solved the supply chain issue at the surprise to all and that's what cratered the market. Same for Tulips, the bubonic plague killed all the derivatives traders, we don't actually know what would have happened, and all of our current "bubbles" last wayyyy longer than the 3 months that tulip derivatives (and not the spot market) had high values - the demand dried up only because a virus killed everyone. Our best commodities bubbles are the worst examples of irrational exuberance to lean on. Here we are, Bitcoin crashing to $3,000 and then crashing upwards to $30,000, what's going to happen next hmmm

I'd love to see this author adapt his work to ethereum and ETH.

In my view, ethereum does not share the "hole in Bitcoin's heart". It's because ETH has real utility, as well as the foundations of being money "which reigns supreme as the primary pricing vortex in one geographic area", ie. on the ethereum blockchain and its web of Layer-2 scaling solutions.

You could substitute the Bitcoin network with an entirely different PoS blockchain and the price would not be negatively affected. In fact, it might go up since PoS would be cheaper to operate.

The hard part would be convincing everyone to switch to the technology.

The price of Bitcoin is almost entirely in its brand and its social structure. Tech doesn't matter.

>Recall the story we began with. The man in the 12th century tavern sought to give you an ambiguous ‘token’ whilst taking your ducats. If you gave him your ducats, the net effect would not be an attack on the ducat system. It would be an attack on the tavern owner, who might otherwise have got those ducats from you for board and beer. To use a more recent example, it is the promoters of Gamestop shares that lose out when people start using their disposable income to buy Bitcoin tokens from crypto promoters instead. The decision to buy either of those might be a response to an uncertain environment affected by monetary policy, but neither action is a direct ‘attack’ on the dollar, because the dollar system is the pricing hub for both objects, rather than the thing being traded.

I love this paragraph. You have to consider that fiat currencies are "artificially" kept stable i.e. price stability is a political goal. This means that the savings risk has been externalized to government institutions that will take over debts from the failing banking system. If the government is doing this to maintain price stability then where is all the instability coming from? As dollars are created through debt and we want those debts to be repaid (again this is what we want because of our human nature) they must fulfill their function of medium of exchange. Those dollars must keep flowing. They aren't allowed to stagnate in a bank account for all eternity where they actually interrupt the repayment of debts and that interruption is what is causing instability.

The ability to save in USD is at odds with the ability to use it as a medium of exchange. This is because savings represent a certain amount of value in the real world that has not been consumed. Because the real world keeps changing that real value is extremely volatile but the dollar isn't. It's extremely stable. How does saving in USD impact real world value? Saved money is money that is not being spent, meaning you delayed someone's paycheck and they were unemployed for the time being. Unemployment doesn't increase real value, therefore saving in USD has a negative impact. If the value of the dollar must stay stable (0%) inflation then the obvious answer is that the number of dollars must decrease to represent the loss in real value. You know, the thing that should have happened in 2008. People who had deposits at those banks should have lost their money. Of course telling people without warning that they lost all their deposits is terrible news. It would make more sense to fix the problem in the short term and clean things up over the long term and give people time to make the right decision. Of course that doesn't change the fact that their money must disappear through negative interest rates. Of course we can also loosen price stability and erode the value of each individual USD via inflation.

This introduction got much longer than I intended. Now back to the article.

When people buy Bitcoin and start saving in Bitcoin they stop saving in USD. The moral hazard is gone. When you save in BTC there is no entity protecting your investment, you shoulder the savings risk yourself. The volatility of BTC (and gold) isn't actually a bug. No government will ever bail out BTC. If people are unemployed because of you (assuming there was a BTC economy in El Salvador), you take the hit yourself. Thus saving in BTC is not an attack on the USD. You are actually making the USD more stable, you are reducing the need for government interventions to keep the system going. Of course it would be more sensible to invest into bonds and the stock market but simply taking on the savings risk while saving into nothing is better than saving into something with a moral hazard.

Edit: I failed to mention that holding onto savings beyond the duration of the debt is what is harmful about saving. Given enough debt saving is ok but as mentioned governments have to create artificial debt when there isn't enough "natural" debt.

LONG VERSION

I think the best way to explain Bitcoin is to point out that all currencies and accounts are ledgers.

The Bitcoin ledger has advantages over many pre-existing ledgers and accounts:

- No third party oversight or permission required to use it

- Users can create as many accounts as they want

- Users can manage their accounts directly

- Units can be sent by anyone to anyone, from anywhere, at any time

- Fast compared to some transaction types (wire or bank transfers, etc.)

- Inexpensive compared to some transaction types (wire transfer, etc.)

The current weaknesses of the Bitcoin ledger are:

- Still slow compared to some transaction types (cash, VISA, etc.)

- Expensive compared to some transaction types (cash, VISA, etc.)

- Has a leaky privacy model.

Other subsequent cryptocurrencies have mitigated those weaknesses, so Bitcoin is not the state of the art.

BUT two other advantages seems to have given Bitcoin a valuable role despite its inefficiencies:

- Rapidly diminishing unit production, with a hard maximum of units. So its total supply cannot be inflated.

This was an innovation, since other currencies and assets can have their supply inflated by their managers or producers.

It implies that as the ledger is used by more people, to store more value, the units will maintain and increase in value. I.e. deflate instead of inflate.

This makes it suitable as a reserve currency IF enough people accepted it as a standard way to do so.

- AND Bitcoin has first mover and the greatest recognition advantages over subsequent cryptocurrencies, giving it unique advantages as a standard

So far, the self-fulfilling trend appears to be happening.

There are a growing number of people using it as reserve value, or at least own it speculatively based on its future use as reserve value, or at least speculatively based on the idea that people will continue to speculate on its reserve value ....

So it has a clear use, that may be coming to pass.