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Comment by johnebgd | Hacker News Reader

Blockchain has two proven use cases:

1.) Speculative investment assets.

2.) Moving value outside of a financial system.

Unregulated stable coins have proven to be as stable as the titanic was unsinkable.

Number 1 is really a problem because of Number 2. Number 2 is a fancy way to describe a primary use case being money laundering. Of course though there are some instances where that’s helpful like backing a foreign government you agree with. Unfortunately, it also means countries like North Korea can use it to evade sanctions.

Blockchain is largely a solution in search of a problem with speculators throwing money into stuff they don’t understand.

I’m a reformed blockchain enthusiast.

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What do you mean it’s a “solution in search of a problem”? It solves a very clear problem: lack of scalability of traditional Ponzi schemes. That’s why most of the answers to criticism of cryptocurrencies is usually “it’s not much worse than the kind of thing that led to the 2008 crash”. For crypto enthusiasts the problem is not that scams exist; it’s that they didn’t get to join them early enough.

Traditional ponzi schemes didn't have a scalability problem, they had a marketing problem. Cryptocurrency solves that by adding hand-wavy tech hype.

> Unregulated stable coins have proven to be as stable as the titanic was unsinkable.

When in the last five years have you had difficulty cashing out USDT, USDC, or DAI at dollar value?

Because past performance is _always_ indicative of future performance, am I right?

> When in the last five years have you had difficulty cashing out USDT, USDC, or DAI at dollar value?

You could have said the exact same thing about Terra/UST right until sometimes last week. It works until it doesn't.

Same could be said for US dollar as a world currency, couldn't it? Do you think its model is sustainable?

British pound has enjoyed a long history and was used as a currency for international trade until early 20st century. Then dollar took over.

One could argue it's because USA emerged from WW2 as a super-power.

But it would be foolish to say that only a major war or a fall of the empire will change what currency people use.

I'm not arguing for Terra as it was really a bad design. But it is odd that so many people just reject the idea of cryptocurrencies.

It's a big sandbox, big experiment with thousands of people working on the new primitives. Even if 80% projects are scam or failures, 20% might be revolutionary. The US dollar as it is today went through several iterations

It was kind of a stablecoin in the early days, pegged to the value of Spanish dollar which was more popular. There were also Continentals that failed and many colonial currencies that were outlawed IIRC.

What you're describing is totally different in scale though. When the British pound got displaced as the currency for international trade it didn't suddenly lose 99.9999% of its value in a weekend. And whilst the Dollar isn't guaranteed to be the most popular currency for international trade, it's still going to be the currency a bunch of guys with guns insist Americans pay taxes in. There are real reasons people must hold real currencies. There are no reasons that anyone needs to hold crypto.

I'm not saying crypto has no value, but I'm saying it's not comparable to a modern currency. You might be right that it's similar to some historical examples of weak upstart currencies most of which failed, but even those were backed by a lot more than just... what? In this case we're literally comparing to currencies that are often backed by nothing.

> it's still going to be the currency a bunch of guys with guns insist Americans pay taxes in

Well, yeah, most currencies are defacto backed by military force. That fact creates bad incentives.

Crypto doesn't have this luxury, it can be only be backed by the trust in code. If the currency is trusted - because it's open-source, open for all to use, is well designed - it's value is going to go up. See Bitcoin and Ethereum as best examples of this.

This make a decision whether to use a particular coin similar to choosing Python vs JVM and their ecosystems.

To be fair, I don't think stablecoins work well in that context. The information on how they are backed is not completely public, the companies issuing stablecoins are not that well audited...They are blobs of closed-source "stuff" that look like 1$

Sure, and UST is another example of this, it built a multi-billion dollar market cap by obfuscating the fact you were buying a perpetual motion machine. The incentive created by "trust the code" is "lie about the code". Which is why you'll hear several thousand reasons why BTC is valuable but none are as compelling as "Those bunch of guys over there will shoot you if you try and undermine it", and most of them aren't even as compelling as "Number goes up".

The theory is that the market can efficiently decide whether the code actually does work. But the practice is that you can make billions tricking people about what the code does. And often it's people who have never even glanced at the code telling you what it does. I would wager good money that there was no one invested in UST that understood the code.

Currencies rise and fall, and US dollar may as well get replaced by the Chinese yen as the world reserve currency by 2050. But that does not in any way merit cryptocurrencies, whose uselessness is independent of the failures of the US monetary policy.

Your argument reminds me of the Politician's fallacy, which goes like: "we should invest in an alternative asset in case the US dollar fails, cryptocurrency is something, thus we should invest in cryptocurrencies." Go read this thread to understand the numerous criticisms of cryptocurrencies and then think why any of the existing cryptocurrencies should be worth beyond $0 (or slightly more, I admit they are novel and thus could be a collectible).

[1] https://en.wikipedia.org/wiki/Politician%27s_syllogism

> British pound has enjoyed a long history and was used as a currency for international trade until early 20st century. Then dollar took over.

The British Pound is still worth about the same proportionately to the dollar as it always was, and no-one would look at you funny for paying for stuff in pounds.

Typically, past performance is indicative of future behavior. This is why statistical modeling in social sciences works somewhat okay. But there are extrapolation regions or shorter memory missing prior events that cause behavior to deviate from status quo expectation.

Have you heard the tale of the inductivist turkey and thanksgiving?

  This turkey found that, on his first morning at the turkey farm, he was fed at 9 a.m. However, being a good inductivist, he did not jump to conclusions. He waited until he had collected a large number of observations of the fact that he was fed at 9 a.m., and he made these observations under a wide variety of circumstances, on Wednesdays and Thursdays, on warm days and cold days, on rainy days and dry days. Each day, he added another observation statement to his list. Finally, his inductivist conscience was satisfied and he carried out an inductive inference to conclude, “I am always fed at 9 a.m.”. Alas, this conclusion was shown to be false in no uncertain manner when, on Christmas eve, instead of being fed, he had his throat cut. An inductive inference with true premises has led to a false conclusion. (via Alan Chalmers, What is this thing called Science, 2nd edition, University of Queensland Press, St. Lucia, 1982)

Have you heard of faster ways of conveying the insight that “turkeys seem safe until the day they get slaughtered” and less toxic ways of formatting quotes?

And was it a fully general argument against induction, or do you disagree with the conclusion you were promoting?

"The reaper didn't come today, so he won't tomorrow"

The thing is, you're right many times until you're wrong. Unfortunately when you're wrong, it can be catastrophic.

... is a pretty good approximation.

The problem is that you don't care if a stablecoin collapses tomorrow; you care if it collapses in the next 50 years and "the stablecoin hasn't collapsed in 50 years so it won't collapse in the next 50 years" obviously doesn't apply.

For technology, that assumption is more likely than not, in a general sense.

https://en.wikipedia.org/wiki/Lindy_effect

Value of an asset doesn't really count as technology though. The technology of UST/Luna still "works" even though the value crashed.

UST was intended to be a dollar-pegged stablecoin. The failure of its dollar peg was certainly a failure of technology, because a "dollar-pegged" coin that is not actually pegged to the dollar is not a "working" system.

Yes, you could say that sometimes past performance can indicate future behavior, but it doesn't hold for crypto the same reason it doesn't hold for perpetual motion machines.

Algorithmic and partially backed stablecoins (like Luna's TerraUSD) are perpetual motion machines.

Fully backed stablecoins (all other popular stablecoins with the arguable exception of Tether) are not perpetual motion machines.

What do you mean “fully backed”? The last time I checked on USDT (which was a while ago) I thought they admitted it was a fractional reserve, primarily denominated in undisclosed commercial paper. Additionally, they had not yet received an unqualified audit report from any of the big four. Has something changed in the last year or so?

As I said, Tether (USDT) is an arguable exception. You seem to be arguing that exception. I don't disagree with you.

Tether is the largest stablecoin in existence. If you are intent on arguing that the biggest example of your mentioned category is an exception, how do you propose the average person goes about find out what's an exception and what's following the norm?

Picking any regulated, US-based stablecoin is a great start.

https://news.ycombinator.com/item?id=31381864

Tether is large because it got a head start on network effect before the proper regulatory frameworks were put into place, in the USA at least. There's a massive amount of momentum there even though their product is inferior.

I’m genuinely curious, can you point me to credible information showing that some other stablecoin is actually fully backed?

USDC backing, audited by a large US accounting firm: https://www.centre.io/usdc-transparency

GUSD backing, also audited by a large US accounting firm, subject to New York State Department of Financial Services regulations: https://www.gemini.com/cryptopedia/gusd-stablecoin-gemini-do...

USDP backing, also audited by a large US accounting firm and subject to New York State Department of Financial Services regulations: https://paxos.com/usdp/

DAI backing, viewable transparently on-chain. Currently backed 168% by collateral: https://daistats.com/#/overview

LUSD backing, viewable transparently on-chain. Currently backed 189% by collateral: https://dune.com/dani/Liquity

UST (Terra/Luna) and USDT (Tether) have/had nothing like this.

Cool, thanks a lot! But why is it then that these currencies are not as attractive or hyped as Tether and UST? Could it be that the fact they are properly backed makes them less interesting for those who want a more adventurous kind of investment?

Tether is popular because it was the first stablecoin by several years (e.g. Tether launched in 2014, USDC launched in 2018). Much like Bitcoin, Tether isn't a particularly good product nowadays if you look at its fundamental properties - most of its usefulness comes from its extrinsic properties such as liquidity and demand. However, much like Bitcoin, due to its very early launch, Tether became an early schelling point that has gathered significant liquidity/usage due to network effect (liquidity begets liquidity).

TerraUSD (UST) was hyped up and became popular mainly because the network paid 20% APY interest on UST deposits, which is a way higher rate on a "stablecoin" than you can get anywhere else (rates in much safer protocols are about 5-8% right now). Obviously a 20% interest rate is unsustainable when it's supported by money printed from thin air. But people were either unaware of this (unsophisticated investors), chose to overlook it (calculated risk-takers, RIP), or positioned themselves to be able to find a chair right before the music stopped (institutional investors like Celsius).

Just wanted to thank you again for all the valuable information. It’s certainly food for thought during a couple of coffee breaks!

1. UST hasn't existed for 5 years, the others have.

2. "Algostable" coins are experimental, and this one was propped up by ponzinomics on Anchor. It is not comparable to collateralized stablecoins, and claiming otherwise is intellectually dishonest.

1. The beanie baby craze lasted a bit shy of 5 years. 5 years is nothing.

2. Collateralized stablecoins are stable insofar as they actually have enough liquid collateral to redeem. None of these coins have even remotely been tested yet.

You don't think USDT holders have been scrambling to exit USDT over the last few days? Actually the sensible ones started cashing out around 1-2 months ago. You say that they have "not been remotely tested?" How are you quantifying that claim?

USDT can only be redeemed by non-US-person "authorized participants" as determined solely by Paolo Ardoino per their terms and conditions. Just who do you think these APs are? Best guess, they're exchanges, whose existence depends on USDT continuing to hold it's peg.

Yes, I do think the holders have been scrambling to exist - one guy lost $4M trying to swap for USDT - but I think it's not Tether cashing it out, but instead exchanges eating the losses.

That can only get you so far. The failure mode is a step function.

no, terra is an algorithmic coin, the ones that are 100% backed by IRL assets are flawless

Depends on the assets doesn't it.

What if those assets decline in Value by 50% where assets held is 50% or less than equivalent usd value?

> When in the last five years have you had difficulty cashing out USDT, USDC, or DAI at dollar value?

Wow, naming USDT was a bold choice since Paolo's answer as to why they can't tell you what backs it was almost verbatim what Skilling said when asked why Enron couldn't provide a balance sheet. [1]

[1] https://www.youtube.com/watch?v=kp5kv7aENxw

I thought I was listening to a podcast but it seems I accidentally stumbled into a butcher.

Have you ever redeemed Tether?

As opposed to selling it to another chump on am exchange?

Have you ever taken your Tether holdings and redeemed them at Tether.io for US Dollars?

My impression is that at certain exchanges that accept USDT (eg. bitfinex), you can withdraw your USDT for "real" USD wired to your bank account. Isn't this effectively redeeming it, even if you're not directly transacting with Tether Operations Limited?

No. That’s you selling your usdt for usd to a non tether entity.

With a corporate account, not personal, but yes. They make it relatively simple. I don't imagine it's any different for an individual, aside from the verification process.

> When in the last five years have you had difficulty [snip]

When until 2008 did anyone have problems with their holdings in Bear Stearns and Lehman Brothers stocks?

Things are OK right up until they aren't any more. Afterwards this can seem (painfully) obvious. Beforehand, less so.

USDT and USDC are certainly not "unregulard stable coins". DAI is collateralized and well-designed. In fact its value were often above $1 in the SAI days until the USDT-USDC-DAI pool was created and it became possible to mint $1 DAI with $1.01 USDC.

If you can’t learn from examples, I guess you’re gonna have to learn by experience.

your talking points are from like 2012 man. off the top of my head: remittances, online retail, trustless decentralized computational systems

Maybe people wouldn't repeat the 2012 talking points 10 years later if crypto had improved in any way since then. But no, all that has happened is the growth of a massive speculative bubble on top, while the fundamental issues remain the same.

Remittances and online retail is already done quite well with centralized systems. "Trustless decentralization" is only relevant when you are doing things illegal. Which, as it turns out, is the main usecase of cryptocurrency.

“Nothing to worry about if you’ve got nothing to hide” goes back even further than 2012.

That has absolutely nothing to do with what I'm saying. What I am saying is that cryptocurrencies are so horrible in every way except anonymity that the ONLY reason you would use it is for illegal activities, speculation, or paranoia.

i personally use it as a passive, diversified savings instrument, but i don't mess with altcoins or trading. most crypto is actually exceptionally bad for anonymity, worse than cash, and the proportion of criminal activity it facilitates is 1-2 orders of magnitude lower than the conventional economy: https://www.forbes.com/sites/haileylennon/2021/01/19/the-fal...

it is in fact so bad for anonymity that i suspect you have not read much about it!

i don't disagree that it features a lot of hype bubbles and ridiculous speculation, but that's hardly specific to cryptocurrency. how's your local housing market been looking lately?

It isn’t even that good at anonymity for the most frequent use case compared to alternatives. By far the most transactions that may benefit anonymity are local and involve relatively low values. Cash is a perfect fit for that and gives you even more (and a lot easier) anonymity then cryptocoins.

Cryptocoins only prove them selfs superior if the transaction is located to far away to conveniently travel, or involves such large sums that gathering or carrying as cash becomes inconvenient (or impossible). I would think that over 99.99% of people never engage in such transactions where they additionally require—or even prefer—anonymity.

s/cryptocurrencies/encrypted communcation

And does the mainstream crypto outside Monero help you to hide things? You are still dealing with some actors and surely they keep records if you don't solely do face to face activities. In which case why even bother and not just go with Euros or dollars...

this is the exact same argument as politicians saying that encryption is only useful for child pornographers

I thought this too, but then looked into and saw that fiat currency use for illicit things is an order of magnitude more then crypto (as a percentage of total use).

zero knowledge proofs have other uses, for example proving to your family members no-one has bought the same gift for the same person, without revealing the nature of the gift.

Can you link a couple of sources that show companies that successfully leverage this use cases?

i run a small retail business that only accepts crypto and it's been doing fine

Is it a small laundromat, or do you just not want to accept money from all customers?

What do you sell/provide?

Could you tell us why you chose to do that?

partly to seize a market niche and avoid fees, partly as a proof of concept for others (i wrote up the technical details), and partly because the product is crypto-adjacent, which most CC processors won't touch. i highly recommend the software i use, you can fairly easily turn it into an automated vending machine for digital goods that relies on no middlemen: https://btcpayserver.org/

my business is not even close to legally questionable but i prefer not to dox myself on this account. i found a friendly CC processor that i'm waiting on approval from, so it will be hybrid eventually.

https://brave.com/transparency/

A trustless descentralized system that manages to process a handful of operations a second by spending as much energy as a country?

remittances - money laundering.

online retail - drug & illegal sales - essentially money laundering

trustless decentralized computational systems - There is still trust, it's just in the code. Which also tells you how "decentralized" they are.

i urge you to think about things a little bit before talking

Trustless or distributed trust (up until the point of a 51% attack)?

fair enough, but in the same way that conventional systems are only 'secure and encrypted up until the point of being beaten with a wrench'

Conventional systems don't tell you all the time how they save the trust issue.

And conventional systems are old and grown and have a ton of security features and is still getting finetuned.

if i want to send money to a family member in bangalore, i don't have to trust anybody by using crypto. this isn't some nebulous promise, it is intrinsic to the design of the system -- i perform a transaction in my bed room, and the money is transferred to a new ownership address, which nobody else has control over. this trivial use case is profound and there is no parallel for it in the conventional financial system. that isn't to say it has perfect security, but it eliminates the need for middlemen while preserving the benefits of digital systems. it's optimized for autonomy and freedom over safety -- giving someone the power the revoke transactions can also be used against you. "grown and have a ton of security features and is still getting finetuned" is also true of crypto

> ...which nobody else has control over.

Control may be distributed, though it certainly is there. And crypto requires no party have too much control over the hash rate or else the advantage over traditional finance is lost.

> ...but it eliminates the need for middlemen...

Not technically. Even crypto-to-crypto trades still involve miners at least. And if it's L2 then you're trusting that middleman. Then for the family to get useful fiat from crypto they need an exchange.

> And crypto requires no party have too much control over the hash rate or else the advantage over traditional finance is lost.

what is your threat model here? what practical attack do you think is going to happen?

>Not technically. Even crypto-to-crypto trades still involve miners at least.

miners are not middlemen, they have zero control or ability to interfere with the transfer of funds. wiring money involves handing control of the funds to a middleman like a bank, who you have to trust to do what you ask. there are incentive structures but it is ultimately a human system. this is not the case with eg bitcoin -- any individual miner or validator who didn't want to process your transaction would simply be replaced by one of the thousands of others. if you're savvy you can simply run your own node.

They control the whole network if they want.

You make it out as the miners would not own the Blockchain which is just wrong.

And it's not that you can run a node, you actually should run a node.

After all decentralization doesn't work if only big players own it.

But now you need to be tech savvy as you said it yourself.

And every Blockchain has this problem and the fact that there are many Blockchains makes this eve worse.

I disagree strongly that moving outside of the financial system is primarily used for money laundering. Bitcoin is great for censorship resistance, and for offering an alternative to oppressive monetary policies. Here's a good article touching on some of the use cases outside of the US: https://bitcoinmagazine.com/culture/check-your-financial-pri...

In the long run, I hope Bitcoin's existence will also lead to better monetary policies since governments have always assumed a monopoly on money, and now there's finally some true competition. And competition leads to better outcomes for consumers/citizens.

Currencies did a lot of centralizing on their own. One currency is much more useful to its owner than 500.

Ain't nobody want to spend time converting from the 500 down into one so they can buy an expensive widget that only accepts a specific currency

> Number 2 is a fancy way to describe a primary use case being money laundering.

That's not entirely true. I think a more principal use case for Number 2 is purchasing things (dark web drugs, gambling, etc) outside of the usual centralized financial system rails which would stop them at the edges.

Bitcoin seems like a poor choice for money laundering because of how traceable it is; you'd need to use privacy coins for that, and even then, it's questionable (51% attack is doable in the same way that many Tor nodes are compromised).

This type of argument always uses the same conjectures:

- crypto can be used for money laundering therefore it is mostly used for money laundering

- one big stablecoin has failed therefore all stablecoins are unsustainable (the first one usdt is still around btw, and so is dai)

- etc

The main value proposition of crypto is cryptographic security. You cannot confiscate crypto like you can other assets (unless obv. you have the key or miners somehow collude). Is this worth $1 trillion? Probably not.

> You cannot confiscate crypto like you can other assets.

You're correct. In most cases it's dramatically easier to confiscate the crypto. See: the horde of people who've had their cryptocurrency and NFTs stolen. To say nothing of the uncountable Bitcoin billionaires who've had a hard drive crash, lost their keys, forgotten a password, etc.

this is not the same as the cryptography being broken

losing crypto due to hardware failure or forgetting keys is not the same as someone taking it by breaking the cryptography . If this were possible, there is tons of crypto right now for the taking. It's a self-funding bug bounty.

Why does that matter? People care if they do or don’t have their money. Not if their money was taken or screwed up for a whitelisted type of reason.

Yes, but being cryptographically broken is not matter, does it? First rule of computer security is any system is no more strong than its weakest link.

Relevant xkcd [1]: why worry about breaking advanced cryptography when you can just socially engineer the passphrase out of people?

[1] https://xkcd.com/538/

https://xkcd.com/538/

Stablecoins without collateral backing them have repeatedly failed (and they failed when they were tried before crypto too), but dai/rai/usdc are working fine.

At this point I’d like to sees US regulation around $ stablecoins so we can use something else and reduce the power of the US dollar in the world. Go ahead America, regulate yourselves.

> they failed when they were tried before crypto too

do you have references to non-crypto based coins? also recent ones?

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