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I think the trippiest bit of cryptocurrency economics I have ever witnessed is how Ethereum and Ethereum Classic forked after the DAO hack and both chains were still worth considerable market caps. It blew my mind.

What matters is the order book. How many bid/asks are there on it. The contracts and debts outstanding in it. That's all there is. Everything else. Store of value. Whatever. Doesn't matter. Cryptocurrency is people persuading each other to do things in an organized fashion, believing there will be reciprocation at some later date.

I wish we had someone around who really understood currency at a deep level like F.A Hayek to write about crypto economics in a painfully cerebral careful way that avoids all handwaving. There is something very deep going on here that is entirely new or very old and never quite clearly elucidated.

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> persuading each other to do things in an organized fashion, believing there will be reciprocation at some later date.

Sounds like it has parallels to society in general. It is just that society with it’s deeds, titles, government issued promises to pay etc. has been around for a very long time, so has proven itself. But it is all based on faith.

For example borrow 1M tokens in exchange for a piece if paper that says you own some land, with confidence that you can earn more tokens (or get someone to rent the land for tokens) and that the legal system will give you continued access to that land and so on.

Well - faith, taxes, guns, and a monopoly on legal violence.

You can live on land or work land to create wealth. Trading crypto tokens does not create wealth, it's simply shifting around bits.

Get rid of 'store of value,' 'decentralization,' 'smart contracts' and all that's left is a ledger. Its really not that complex or special - if that's what fascinates you then you can just as easily approach the topic from the examples of traditional credit or even the history of semi-arbitrary currencies.

If your implication is that the only thing backing crypto currencies is an expectation of reciprocation then you are mistaken. The qualities you want to hand waive away, and most importantly (though often trivialized), is the inability to roll back the chain which is a function of "consensus power." Consensus power simply quantifies the cost of rolling back x blocks. Bitcoin currently has the highest cost to roll back blocks and therefore the most assurance.

You’re saying things that are true but don’t really make sense.

The history of transactions has no importance to the value currency. A dollar that was stolen is just as valuable as any other because they are bearer bonds (like most currencies).

The whole Immutable thing is just translating the concept of a bearer bond to digital space, nothing to do with its intrinsic value.

What is "the value currency" supposed to mean?

> What is "the value currency" supposed to mean?

People are willing to trade their labour and opportunity cost for entries on this ledger.

>Bitcoin currently has the highest cost to roll back blocks and therefore the most assurance.

This is false. Ethereum has higher block rewards (in $) for over a year now. Bitcoin is the second biggest PoW network by mining expenditure.

The "cost to rollback blocks" is a cost in computational power (to run a 51% attack), _not_ the cost of the block rewards

In theory a higher block reward will incentivize and allow for greater computational power to be thrown at it, thereby increasing the cost to attack it.

The only way to measure that is by looking at expense over longer timescales.

https://www.f2pool.com/coins shows Bitcoin on top in daily dollar issuance. Ethereum was on top a few months ago, but not for over a year.

That appears to not include fees.

https://bitinfocharts.com/

Ethereum ($38,451,803.7)

Bitcoin ($34,875,489.84)

Before EIP 1559 fees were much more important. Ethereum has higher rewards since about Q3 2020

edit: even worse, f2pool just multiplies the base reward (2 eth) - ignoring uncle rewards and fees, by the wrong number of blocks (based on 15 sec block time - it's actually 13.2s). Trash calculation.

Thanks for the correction. Is there a site providing historic graphs of daily miner revenue?

"Bitcoin currently has the highest cost to roll back blocks and therefore the most assurance."

Bitcoin was rolled back at the cost of sending out emails several times.

> the only thing backing crypto currencies is an expectation

This is, however, true regardless. The value of cryptocurrencies are measured in USD, and it is expectations of this future valuation that backs up the current price.

The only way to make it more certain than expectations, would be by some sort of government decree.

I was actually disgusted by the fork - it was a 'the emperor wears no clothes' moment: Instead of standing by the proposed system, the stakeholders instead chose to change the rules. This can happen again any time for whatever reason.

Happened to Bitcoin as well, the moment was the big block debate and UASF - the narrative from Bitcoin Core developers for years had been "miners hashrate 1 CPU 1 vote" (this is how they drove BitcoinNG out, the client by Andersen the person Satoshi left maintainership to). Then over a day decided to flip "well fuck the miners it is the users running node software which can activate a fork". No clothes.

> What matters is the order book. How many bid/asks are there on it. The contracts and debts outstanding in it

That's the central insight of https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years . If you want a good picture of how money works, it's essential to look beyond the Austrians.

Is something new really going on here, or is this just standard asset speculation with the word “currency” incorrectly applied to it?

I mean, nearly nothing is priced in units of crypto and almost no GDP transactions pass through it…

Insightful comment. Do you have some books or resource recommendation to learn more on this topic?

F.A Hayek wrote a book titled "The Denationalization of Money" in the 70s where he predicted that we'd have competing private currencies not tied to any government at some point. Reading Hayek is difficult because he writes in a very intellectually dense style with very long sentences that assume the reader is already familiar with a lot of technical jargon. Here's a more general introduction to some of his ideas on private currencies with footnotes pointing to the source material: https://mises.org/wire/will-cryptos-fulfill-hayeks-vision-pr...

I was amazed that in the DAO hack everybody made money, even the victims! You ended up with coins on both chains, more value then you started with.

The amount of ETH doubled immediately. That doesn't mean everyone made more money. It's more like a stock split.

It also shows that the number of tokens isn't limited. It can immediately be doubled with a fork, infinitely.

> What matters is the order book. How many bid/asks are there on it. The contracts and debts outstanding in it. That's all there is. Everything else. Store of value. Whatever. Doesn't matter. Cryptocurrency is people persuading each other to do things in an organized fashion, believing there will be reciprocation at some later date.

you just described options trading

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