If you look at a 5 year chart of the BTC value, it's still super insane high and it's been going down hard once before (summer 2021). If I were a crypto fan I'd just tweet HODL like every previous time.
1. The world decides it's "tulips" at some point, and the value goes to 0.
2. The world decides it will be a major part of the financial system, and it goes to 500k or 1 million.
Basically, anything in between is just a probability calculation of whether it will end up at one end or the other.
The problem with this, though, is that the way proof of work works means that it is impossible that it will ever go to a million. The amount of electricity needed to protect the network is directly tied to the price of BTC. This is not just some small, inconvenient detail. It is inherent to how proof of work functions. So if it takes the electrical output of, say, Argentina to run Bitcoin now, it will take the output of China to run it when it's up around a million, and that obviously is untenable.
Other cryptocurrencies have seen the writing on the wall and are moving to proof of stake (not without other issues). But the politics of Bitcoin mining, and the few large mining groups, makes it hard for me to see how this happens.
> anything in between is just a probability calculation of whether it will end up at one end or the other.
There is some strong assumption you’re leaving out here.
But yes, with your point overall I agree, like in 10 years or something it doesn't seem workable without major changes. Wasn't that what lightening or side chains were supposed to do?
Any way, also, I don't own any crypto and I'm definitely not defending it. Feel free to correct me too if I'm mistaken, anyone.
If 1 coin costs $50,000, and you already own the rig, it's worth spending $49,999 on electricity to mine the next coin and you will make a profit. If you're rig can't do that, you're better off just turning it off.
Close, but not correct. As the price of BTC goes up, so does the expected reward for mining any given block, making it profitable to spend more electricity in pursuit of the rewards. This results in a net increase in electricity usage as everyone spends more in an attempt to capture the rising value of mining a block successfully.
In practice each miner is incentivized to spend an equal amount in electricity per block (at local rates) as the expected reward per block will net them. This results in a 51% attack being inordinately expensive, which was the point of the original design.
And thereby offsetting other inelastic demand for electricity, forcing them to count on non-renewables instead.
Bitcoin might be renewable if every single miner pinky swears to turn their rigs off the moment renewables stop over-producing, but come on, nobody believes that'll happen.
> Despite what the born-again eco-warriors have to say about consumption and the environment, Bitcoin can actually be an incentive for safe energy sources.
Interesting you've got to put an ad hominem in there about people who care about the environment. Probably not a good sign for the second half of this sentence, and it makes me wonder if you're representing other's positions in good faith.
Also, oops: https://e360.yale.edu/digest/bitcoin-miners-resurrect-fossil...
Sure, bitcoin miners will use cheap renewables if they're available. They'll also happily use whatever the hell is available too given the opportunity, since they need to use so much of the stuff. They're particularly notorious for driving up electricity rates locally as they turn previously abundant renewable hydro energy into a over-subscribed resource, requiring towns to import electricity from, yes, fossil fuel plants.
As the block reward goes down (and it is dropping), the rewards of mining also drop, so you have a reasonable argument that the power use is transitory until the block reward goes to 0. However, it looks like this may end up being made up with transaction fees because the transaction throughput of bitcoin is also really low.
Lightning and other solutions are supposed to fix the transaction throughput, but they have limitations.
> Every 2,016 blocks (approximately 14 days given roughly 10 minutes per block), nodes deterministically adjust the difficulty target based on the recent rate of block generation, with the aim of keeping the average time between new blocks at ten minutes.
So the changes are made at somewhat predictable paces, in this case roughly every 14 minutes, but the difficulty is adjusted based on demand. In other words, it's a little of both. Demand though will definitely affect the difficulty of the problems, but the demand is only updated every 2,016 blocks.
Only indirectly. More precisely the difficulty is based on supply of hashing power. If more people hash, the blocks will be minted faster and the difficulty will be adjusted higher at the next re-adjustment. It doesn't really matter if those blocks are actually full or empty, and in fact the system would continue to work if most of the blocks were empty and the trading happened off the chain in exchanges.
I say indirectly because the amount of hashing power on the chain at any given moment is driven by the expected reward per block minted. Nobody wants to run thirsty machines if the cost of electricity exceeds the expected rewards for successfully minting a block. So the number of machines online and is directly proportional to the value of bitcoin, which is driven by consumer demand.
Simply put, there's just no path forwards where Bitcoin retains it's value long-term. Other crypto is harder to grok (often intentionally so), but I suspect they'll meet a similar fate once the media attention blows over.
That is actually one of the strongest arguments, to my mind, for why some variant of a cryptocurrency will survive as a store of value. Gold kind of "organically" found its way into value almost precisely because it is backed by the physical laws of nature. Cryptocurrencies went up a level to be backed by the laws of mathematics.
Bitcoin is also a Schelling point.
Making gold has always been the holy grail of chemistry. It's only valuable because chemistry says you can't make it easily.
3. It continues to be used very little/nothing in the legitimate financial system while being used for blackmail, drug trade, crypto trade etc. Price $1000.
This is not how proof of work functions. Hash rate and price are not directly related, they are somewhat correlated because when the price goes up it becomes more profitable to mine. Bitcoin doesn't need more hash rate for the price to go up - the price is the independent variable and the hash rate is the dependent variable.
The whole point of proof of work is that it is proof that someone has spent the value in electricity validating a block.
As the price of bitcoin rises, naturally more and more miners will beef up their rigs (that is, spend more money in infrastructure and electricity) to mine BTC, because the rewards and fees are worth more. Note if they didn't do this, anyone could easily have a "free money" arbitrage play, and basic economics says that discrepancy in prices (i.e. the value of a BTC on the market and the cost to mine one) must be arbitraged away.
Think of it this way, if hash rate is independent of price, why does it take the electricity output of Argentina to run the network? It certainly didn't take that much years ago. The reason being that as BTC becomes more valuable there is more reward and thus more competition for miners to mine. As that happens, the hash rate will rise as more power is added to the network.
It's really not as simple as hash rate = price. It's more so that they are correlated in direction of change.
Why? I keep seeing this claim and it makes no sense to me.
Of course, they would beef up their rigs (spending commensurately more in electricity), and the required hash difficulty would go up to keep the mining speed at a block per 10 minutes.
Another way to think of it, is why do you think the electricity requirements of Bitcoin are now the output of Argentina? Years ago they were a teeny fraction of that. As Bitcoin became more valuable, the competition for mining increased, so the hash difficulty adjusted to ensure the new block rate matched the higher wattage miners were willing to put in to increase their hash rates.
There is a guaranteed deep correlation between BTC price and amount of electricity needed to run the BTC network. That is the way proof of work is designed to function. I.e the whole way it protects against a 51% attack. There is simply no getting around this.
""" If 1 coin costs $50,000, and you already own the rig, it's worth spending $49,999 on electricity to mine the next coin and you will make a profit. If you're rig can't do that, you're better off just turning it off. """
Note that this is how it worked for bitcoin startup five years ago once the first specialized bitcoin rigs came into being. When the price of electricity where they operated became too high, some startup shut out or just changed their operations to create value around BTC(email/photograph ID/validation on the blockchain or other stuff like that)
Seems to me like bitcoin could keep seesawing on the fringes of relevance for a while. And people still buy tulips and beanie babies, albeit not anywhere near the prices at their height.
Tulips are pretty flowers.
Beanie babies are cute toys that you can play with.
Bitcoin is a purely virtual financial instrument. It has no purpose other than to be worth money.
I agree that Proof of Work has a severe scaling problem; which is why I expect Proof of Stake to outcompete PoW (a token with lower transaction costs being inherently more desirable as a store of value). AFAICT PoS scales linearly: as the market cap goes up, the opportunity cost of locking tokens, and the mining rewards, both go up proportionally. It'll be interesting to see if BTC maxi culture sees the writing on the wall, or sticks to their guns to the bitter end; even if they're right that it's a better security model (I'm doubtful), it wouldn't be the first time that "good enough" won the market.
I suppose the biggest reason that we'll never see PoW vanish completely, even if carbon-taxed or outlawed by most states, is the massive capital outlay in ASIC mining hardware, which literally has no other use. There'll always be a desire to recoup that investment, and an incentive to foster "true believers" to maintain demand.
Where does this belief come from?
Dollars are also a major part of the financial system, at yet each dollar is only worth $1.
This depends on the value of bitcoin, true, but also the amount users are paying in fees and the reward era we are in (see https://en.bitcoin.it/wiki/Controlled_supply).
More so explain to me how the USD is less of a Ponzi scheme when it is the super wealthy banks/institutions that are getting zero interest loans allowing them to make even more money while at the same time devaluating the currency.
https://www.ceicdata.com/en/switzerland/official-reserve-ass...
I hadn't considered how many reserves have probably shifted to euros since the euro, that's actually a big deal for the US. Anyway...
It’s value is in how robust it’s value it is. It isn’t robust at all and has lost 30% or more of its value since the start of the pandemic if you look at commodities.
I plugged it into Wolfram Alpha and it showed some solutions. Some go up to infinity and some go down to zero. So the first guy was right after all!
USD has inherent value, it's the only currency where you can pay taxes in, and if you want to do business with government or government employees - who are ever only paid in USD - you must accept USD.
Even something like gold with no value production - whose price is quite stable because of that by the way - has value because people want it for jewellery and industry.
“Most” is the key difference: a share of Tesla is fractional ownership in a real business which has proven capable of selling real products which people want. Some fraction of that is definitely speculative but far from all of it, and there's no reason to think that the value would decline to zero under any feasible economic situation.
A Bitcoin, in contrast, has no value other than what you can convince someone else to buy it for. Nobody needs it to conduct business, it's trivial to set up competing blockchains, and the deflationary model is designed to make you profitfrom everyone who starts buying later despite not having created any new value.
I don't know, I pay my taxes in EUR, I live in EU. But I get your point. Moreover, USD is the most dominant coin in the world. Even outside USA, a lot of people depend on it.
1. Immutability
2. Limited supply
3. Censorship-resistance
4. Independence of governments, nations, banks, institutions, corporations
5. Accessibility
You can also pay your taxes in crypto in many countries.
The dollar’s inherent value is very weak and not really tangible.
It’s 2022 and people still don’t get that.
The currency of a nation has inherent monetary value because it is backed by the state; the details of what that means will vary from jurisdiction to jurisdiction, but except in states undergoing massive crises, you can still be sure that if you hold their currency, you have something of value and can transact business.
Bitcoin is backed by nothing but other people holding Bitcoin.
As for the attributes you list:
1. Immutability is a double-edged sword. There are legitimate situations where you want mutability.
2. Artificial scarcity of a digital thing is only beneficial if you are among those holding large amounts of it.
3 & 4 (basically the same). This is both a huge negative for many people, and only true until those institutions' policies, laws, regulations, etc catch up with Bitcoin and either fit it within their existing structures or ban it entirely.
5. It's really not that accessible unless you're already fairly wealthy and digitally savvy.
Independence, you are very much dependent on the internet, miners, etc. Yes, you can use the tool to avoid detection of a nefarious state actor. But you'd be breaking the local law, willingly and knowingly. That's a risk. At one point, police are going to recognize these sweet 'lil Ledger and Trezor hardware wallets. Furthermore, if a large local economy would collapse, like say in my case EUR, it'd take Bitcoin with it. I admit, it makes sense to avoid currency in small economies in crook countries, but you're choosing for your own benefit instead of the state you live in.
Accessibility, since a lot of people use mobile smartphones, they cannot sync the blockchain to it. Many are dependent on third party like exchanges. Hardly independent of corporations.
Immutability, you can lose your private key and be done with it. If I lose my bank card, I can disable it and just get a new one. With NFTs, these depend on a third party resource. Which depends on USD or EUR or whatever in order to be paid. These also depend on authority of whoever made the blockchain or smart contract.
You didn't mention anonymity, because Bitcoin isn't. Yes, it takes effort, but it can be anonymized. The reason it supposedly doesn't happen is 1) if you are investigator and know a vulnerability to do so, you're best to keep it private for reuse 2) you apply parallel construction instead. But specialists who can do this exist. Its just that they're expensive, so they only go after big fish not Pablo who sends some Bitcoin from El Salvador to USA.
> You can also pay your taxes in crypto in many countries.
(It is called cryptocurrency, not crypto, but yes you can recognize cryptocurrency proponents by the way they call their asset.)
No, I cannot, as Bitcoin is not a currency. I have to pay my tax in EUR.
> It’s 2022 and people still don’t get that.
This kind of straw man is useless.
1. Immutability - clearly a negative feature, no way for humans to manage transactions and correct mistakes.
2. Limited supply - very bad for a "currency"
3. No censorship resistance in bitcoin, but ease of tax evasion due to exterritorial nature. IRS may find you easily but can't do anything. On the other hand oppressive regimes can both find you can prosecute you because in that case you are physically in the regime's country.
4. Dependence on a handful of anonymous guys in the non extradition offshore printing tokens to pump price with zero oversite. I pick governments. Also Bitcoins are not really independent from governments for the lawful citizens.
5. Zero accessibility after more than a decade in production.
Here is a very direct question:
How does BTC or any other currency protect itself from a goverment?
Imagine that a very big government decides to mine BTCs, will not they control the BTC if they have enough miners? And when I say a government controls imagine: slowing down mining, making it illegal, or limiting it in general population, forcing people to declare thei cryptocurrencies, putting a cap on how much one person can hold personally and forcing you to keep them in an official wallet ...
So how can a crypto currency be independent from a government. The government makes laws and as a citizen you are forced to follow them. Crypto cannot escape this, no matter the technology as the control is not technological, is legal, political and social. It is a social contract that I agree a technology can make it harder to discover some nasty business a citizen is doing, but that does not mean it cannot be control.
Don't get me started on corporations. Imagine Google or AWS decides to use his computing power to mine BTCs or whatever crypto. They will in fact control de market.
Please hypothetically prove me wrong with arguments.
This all already happened multiple times, but miners are so distributed across the globe that this has nearly no impact.
It’s also pretty hard for a country to spin up this much mining power, because it simply takes a lot of time to manufacture ASICs.
It’s also very expensive. $34B at the very least and rather $100B. https://gobitcoin.io/tools/cost-51-attack/
No country has this much free cash available for shenanigans like this, not even the US.
In assets there is can of course be inherent value (food, a sturdy house, land, etc.).
What value has a premium steak to a vegan?
If your house is on 0.5 acre of land and you add another acre it might great but if you had 500 acres of land and added another one you wound't even notice.
Why people tend to value diamonds more than water which is essential to live? If you receive two copies of the same magazine you like to read does the second copy holds some value to you?
The steak has calories and nutrients, regardless of who holds it (until it goes bad). Those are inherently valuable to any human being.
Your secondary point is about the law of diminishing returns, it’s a non-sequitur.
Water is inherently valuable for obvious reasons. Diamonds have inherent value in their hardness although that has little to do with their market value, that isn’t based on inherent value.
The magazine isn't inherently valuable. The information in it could be if one can decipher it. But additional copies of information don't make new information, so one or a hundred magazines, it makes no difference in inherent value.
"Inherent" implies independent of any individual buyer demanding it. Even if the buyer is federal govt.
Crypto currencies if anything are a bit like distributed pump and dumps, but at that point you're just talking about asset speculation.
Are you saying it’s inherent value comes from it being a protection racket.?
Bitcoin is better at laundering money than many fiat currencies but otherwise it’s only wide scale utility is a speculative investment asset that only increases in value if more people create demand for its limited supply.
Also, every ponzi scheme gives amazing returns, before it inevitably collapses. For example Madoff was able to give decent returns to his investors for 17 years! 'Number go up' is not a refutation of a ponzi scheme.
Guess which governments have the most of both.
This comment is a great example of how little bitcoin enthusiasts tend to understand about investing. One of this things is very much not like the others.
"Fiat currency" is virtually never used as an investment asset. Even in the FOREX market you purchases pairs of currency rather than just a big pile of dollars. In your 401k when you want to go all "cash" you very often end up choosing investment vehicles that track cash.
The entire function of a currency is as a medium of exchange, it only has value in the process of exchanging. It makes no sense, at the individual investor level, to 'hold' dollars.
If you don't understand how a fiat currency differs from gold and fine art then you absolutely should not be "investing" in bitcoin.
I think HN is going to need a good explanation for this. The value is intrinsic, and can go up without any activity happening... I think there are other fools scouring about here in the comments.
I think you need to explain this. In what way does bitcoin have any intrinsic value?
And how can this value go up without activity? A currency with no activity is literally worthless.
A friend of mine made a decent amount just tracking the tweets of Elon Musk and other coin influencers a few years ago.
Which ones would you say are not?
I would say that it's hard to credit the idea that Bitcoin is "the new gold" or any sort of safe haven asset. Just like the rest of crypto, it crashes when stocks crash, but harder. It's more like a high-flying tech stock.
In the end all you're doing is buying electricity and converting it to bitcoin, anything above that cost is based on future costs when the rewards halve.
All this means you should never sell your bitcoins, which means it's a terrible currency
To any investor this should be the biggest red flag that you are in a Ponzi/pump and dump scheme. "You can't lose!"
And rather than you are "buying electricity" I would say you are buying used electricity, which is useless.
The red flag is you're buying something that's useless. The cost of a bitcoin may be correct, but doesn't mean it's worth the cost.
I find this funny, my tech stocks portfolio has gone down 10% since the beginning of the year. I do monthly investing, so that's a loss compared to my average price over time.
In contrast, I bought ETH at around $20 USD, and it being at $2000 is still quite a good outcome for me.
Who knows.
That is to say, very large amounts of new money are being lost.
^ No, I’m not a desperate idiot, I’m just testing my feelings in trading in general on $1k, to stay calm and not act crazy in a real investment situation
To some confident people, this is just a flash sale.