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Comment by librish | Hacker News Reader

Until someone has built a crypto product that creates values (for the purpose of this discussion it can be a good or a service would be willing to spend USD on even if it wasn't a crypto) crypto is a negative-sum game. Any USD taken out of the system someone else has to have put in, plus whatever the miners take out. Fortunes aren't created, they are redistributed.

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That's like saying the USD is a negative sum game because "any CNY taken out of the system someone else has to have put in, plus whatever the government takes out. Fortunes aren't created, they are redistributed."

The transference, redistribution, and storage of wealth is itself the value of monetary networks. The more circular trade that doesn't need to exit the network happens, the more valuable the network becomes.

The ultimate point of projects like bitcoin isn't to build a system that makes everyone rich. That would obviously an absurd ponzi like scheme. The point is to build an open monetary system for the whole planet that emerges out of distributed consensus rather than dictated to us by a global superpower, and is therefore not fragile and subject to failure when the superpower declines. Early investors of the network will get rich if it succeeds, just like early investors of any tech giant did. That mechanism of rewarding those who take a risk with their money when the future is uncertain is a huge part of what's driving its continued growth and success. If you didn't have that to bootstrap the network, bitcoin would likely be a forgotten oddity of a cypherpunk project that nobody ever cared about. But now, it's a global money that nation states are adopting.

I do agree that most crypto projects will fail and end up looking like nothing more than pump and dumps to scalp investor money, whether from dumb VCs or retail.

>The point is to build an open monetary system

A structurally impossible goal when it is deflationary in nature.

Why's that?

A rational actor would never spend a deflationary currency since it would gain value as deflation happens. If everyone was rational, no money would ever change hands. You can’t have a functional monetary system without liquidity or exchanging of currency.

Bitcoin is a deflationary currency (for now)

So that's why retirees who have their money in investments that constantly increase in value over time never spend money?

Come on man. This argument is patently absurd. I expect better from the HN community.

The only thing an inflationary currency does is wipe out the savings of the poor who don't have knowledge or the privilege to invest in harder and/or income generating assets.

You could equivalently say that a rational actor would never sell any equity or property that was appreciating faster than inflation.

A deflationary currency would only be one of many different investments, and people will buy and sell based on their expected gains and risks of other holdings.

A rational actor will exchange money for food rather than starve to death, regardless of whether the currency they are using is deflationary or not. Your argument is nonsense.

That rational actor doesn't need to be a human. In fact, the concept of rational actor makes more sense in the context of corporations. Now, imagine a corporation hoards a trillion dollars worth of a deflationary currency. Will it invest it back to the economy as eagerly as it would an inflationary currency?

A corporation has fixed costs to continue existing, even if it's not directly food. Any possible rational actor you can come up with will have some need to trade with external actors.

I'm curious if this comment is a usual fare of shallow dismissal or if you are aware of current applications of crypto in the wild and consider them to be useless nonetheless.

One example that comes to mind is that Docusign offers a product that uses Ethereum for storing evidence of contracts in a decentralized medium. That seems like a fairly legitimate application for the technology. Another example (albeit possibly more dubious) is BitTorrent tokens as a "currency" for "buying" download speed by incentivizing people to keep nodes running within its P2P network.

Do you consider these types of applications to be negative sums? If so, why? Not trying to be antagonistic here, I'm actually curious.

Every large company (including my own) jumped on the crypto bandwagon when the tech started gaining mainstream popularity, but it was mostly to give their salespeople more content for their pitch decks instead of building features people would actually utilize.

For the case you mentioned, is anyone actually using this tech for their contracts? No Docusign (or any other) document I have ever signed was written to any blockchain. Have any real legal disputes ever been resolved by looking up a public ledger?

> One example that comes to mind is that Docusign offers a product that

Yes, they "offer a profuct", but don't even use it themselves because it's too expensive.

> BitTorrent tokens as a "currency" for "buying" download speed by incentivizing people to keep nodes running within its P2P network

Incentivizing how?

> Do you consider these types of applications to be negative sums? If so, why?

If you "incentivize" people, it means that someone gains. If someone gains, someone loses. At best these are zero-sum games.

Those applications are not negative sum. My impression is that the total revenue for services like that is minuscule, I would be very interested if you have data showing something else.

My impression has been similar to the comment sibling to yours, that a lot of attempts at crypto-related applications were somewhat hype based. However, despite the huge amount of noise, some do seem - at least in principle - valuable.

I certainly share a certain level of cynicism towards many crypto applications, but even the likes of OpenSea currently employ people and presumably pay them actual money that they can spend on stuff, in exchange for their time and effort pushing the platform forward as a digital marketplace. That, to me, looks more like creating traditional business value than hype and pyramid schemes.

I'm ambivalent on whether I should consider NFTs "value". On the one hand, the NFT mania has generated quite a bit of commercially-oriented artistic output that likely would not have been created otherwise. But on the other hand, whether "artistic output" is valuable at all in the first place is kinda in the eye of the beholder, I suppose.

If I'm not misunderstanding you you're saying there could be value, which I've never argued against. I'm asking if you have any evidence that there's currently any significant value created.

I mean, if by value, we mean a "good or a service [someone] would be willing to spend USD on", then yes, all the things I mentioned are things that people have spent money on in one way or another, presumably because they felt that they were getting something in return by parting with their money. From an economic perspective, the crypto product incentivized labor of some sort, so it would arguably qualify as "creating value".

My reservation for whether to call those products "value" is more along the lines of the argument about whether cigarettes are "creating value" (i.e. if one buys a "feeling" from literal puffs of smoke and punts the costs of externalities onto others, is that a net positive?)

While partly true, that is true of any asset (dollars in/dollars out). However your statement that fortunes are not created, they are redistributed is incorrect. The value is not a 1 to 1 relationship with inflows. The value is based on supply/demand. If demand outstrips supply, value goes up regardless of how much $ is flowing in or out. You can see large price swings even on days with low volume.

No, when I invested 100k₹ in my brother's shop, it was able to turn a profit in a few years and pay me back with interest. The money came from selling products and generating revenue. With Bitcoin there is no revenue. The only way you can turn a profit is if you get some other greater fool to buy it from you. This is how most ponzi schemes work.

I find it very scary that the people investing in crypto don't even understand the basics of investment. They genuinely think that all investment follows ponzinomics.

How is it negative sum, and not just zero sum?

There are middlemen extracting fees at every step

Miners are paid some $40m/day, through 1) creating more BTC (called "coinbase" here, "Seigniorage" more generally, leading to inflation) and 2) fees.

For now, the $100 miners siphon off per transaction are predominantly from 1), so those costs are not very visible.

And then of course the exchanges charging 20 to 120 bp (or more) for a roundtrip against money you can actually use. Coinbase (the exchange) alone takes around 0.4% of the entire crypto market cap per annum into its pockets.

If that seems crazy, wait until you hear about these companies called Stripe and Visa.

Not sure what you are talking about.

1. Stripe has revenue of $bn 8, Visa $bn 25, and Coinbase $bn 8. Are you suggesting that Coinbase provides as much utility as Stripe?

2. The equity market cap is about $tr 100, so Stripe and Visa together take about 0.03% of that per annum.

Mind you: That is way too much. Credit cards are an inefficient oligopoly, and they've been fined by regulators for their extravagant fees. That's a whole topic in itself. But: Crypto is 10x worse.

A lot of miners have access to free electricity, often through corrupt officials on some unsavory countries... or even US Army folk who are abusing their home's utility bills (Uncle Sam pays for that electricity).

Under these conditions, the utility company has to pay for say $100 in electricity to make $80 of cryptocoin. But since the miner has "free electricity" and doesn't see these costs, they only see the $80 of cryptocoin that they sold off.

Carbon footprint, and convincing people that a JPEG is an asset that will go up.

The real stuff is the waste of resources. Not just the carbon footprint, the staggering amount of silicon wasted on those. Though that sure makes GPU prices go up…

I find a lot of DeFi projects to be very useful, but you have a logical fallacy -

If I buy 1% of Apple stock at $100, and later it's worth $1000 based on the last trading price, money didn't change hands to make me have more USD, it's my paper wealth.

If Bitcoin goes from $1 to $50k, and I never sell, I didn't take any money - the wealth simply grew.

The point is that holding Apple stock is a claim of ownership of the assets of Apple as well as the future income of Apple, either in the form of dividends or stock buybacks.

The activity of Apple is economically meaningful; and the price of Apple stock reflects that.

Why are you comparing a currency with a stock? What is the claim of ownership for USD for example?

The ability to pay taxes.

The activity on Ethereum is economically meaningful, whether you believe it is or not. And let's be honest, Netflix or Facebook could disappear off the face of the earth tomorrow and productivity would arguably increase, so is that a negative sum game?

The activity on Ethereum has the potential to be economically meaningful (there's a separate discussion on whether or not it's the best way to do it) but I don't think it currently is.

What is people extracting from the Ethereum ecosystem that isn't USD?

OK but I'm responding to a claim about BTC.

Applying this argument to the US dollar when it was gaining value relative to many other currencies before the current inflationary spat is illustrative. Probably all of us held USD during that time, but that act in itself wasn't productive. The increase in value came from the underlying institution of the US Treasury being perceived as more trustworthy than other similar international institutions. The distinction to make is between the minor deflation of USD and the absolutely massive deflation of BTC over the same time period. I think everyone would agree there is some value to a decentralized proof of work transaction ledger, but $50k USD is clearly the result of some mania (rational or otherwise). That "some value" should therefore be reflected in a positive price, even if that number is orders of magnitude less than the current astronomical price.

If you hold something with that much volatility it's not a currency.

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