Cryptocurrencies Have Broken Almost All of Their Major Promises

> The most common form of inflation is due to an increasing money supply

Not really. The money supply only affects inflation in that it increases demand for some things quicker than supply can meet demand. In that regard, untargeted stimulus money did that. Let's not forget though that there is also significant supply disruptions with covid, the war in Ukraine... There's also strong supply-side factors to the inflation we're experiencing.

I don't know how accurate it is when you get down into actually calculating it (which is a really complicated topic unto itself), but the best description I've heard of inflation is that it's about the balance between the monetary supply and the available "goods" to spend it on. In crypto's case "goods" is a bit of a weird term to use, but the point is the same -- it's about the balance between money "sources" and money "sinks". If you have more money sources than money sinks, then you get inflation; the other way around, and you get deflation.

>If I could buy 1000 loaves of bread with 1BTC last year, but this year I can only buy 900 loaves with that same 1BTC, that's inflation.

No, that's just an increase in the price of bread. If all the inputs in making the bread were in BTC, then it would be inflation.

If all of the inputs that went into making that bread were paid for in USD, and the relative price in BTC went up, that's called "currency risk". That's a completely different thing from inflation.

Sure, the things being traded with a money supply can decrease and if the money supply doesn't decrease alongside, it also is inflationary. BTC was used to trade USD, supply of USD is decreasing while BTC is algorithmically not decreasing, so it shows a great deal of inflation in the purchase of USD (and the reverse during the run-up), which unfortunately you cannot prevent unless you instituted capital controls.

That's the modern definition of inflation. In crypto circles, when referring to crypto inflation the classic definition is used, which was increased supply of a currency.

There's the usual fact that the more extreme or fundamentalist someone's viewpoint is, the more like they seem to want to yell it (and the easier it is to say it, concisely). With cryptocurrency, I think that there are many people with a financial and/or political stake in it, who argue from a technical perspective about the merits, so the usual-moderate person senses this disingenuousness and, annoyed, responds more negatively than they usually would. So, in other words, the same dynamics that drive polarization on contentious political issues apply (and I'd actually argue that cryptocurrency is more of a political issue than a technical one).

The problem with crypto is the same problem as always. Bad humans come along and destroy what could have been a good thing in an attempt to fill their bottomless empty pit of greed at the expense of everyone and everything else. Happens every time any human(s) try to create something that's meant to be beneficial for everyone - along come a few scammy ass-hats who decide they're gonna ruin it for everyone (by weaponizing it, turning it into a scam, or what-have-you), and inevitably a whole bunch more scammy ass-hats always gotta jump on that same bandwagon, increasing the momentum of the downfall. Yay, humans!

And the people who criticize crypto don't really understand why would you use crypto.

They have a stable government, a stable currency, a free Democratic system, they see no reason to use crypto because they have never lived in a sanctioned or very corrupt country with no freedom and Dependant on a financial system and a mother countries decisions without any influence over them.

These people are only about 15% of the world, you are lucky if you are born or living there.

I think this video explains it very well, from a north Korean citizens point of view, even though I don't agree that BTC is good for this, its similar to digital gold now, its vrry inefficient almost no one uses it IRL.

https://www.youtube.com/watch?v=cR4sMsI8z7U

I use the terms "supply inflation" and "price inflation" to distinguish them.

The relation between supply and prices is also influenced by velocity, which has been swinging wildly at least for the dollar.

Velocity suddenly went low in Q2 2020. That means people are holding on to their USD more, and therefore the value of USD goes up.

So, in spite of supply inflation going up, velocity crashed, which means price inflation was close to nothing during 2020.

IF velocity picks back up, we will see price increase, but if not, then no. This depends on how much people want to spend versus save, and not as much on central banks.

And people tend to suffer from the bandwagon effect, and that is how we get business cycles.

And supply inflation is the way it will always be as that suits the high financial class.

Pretty much all these arguments boil down to "yeah, but Bitcoin wouldn't be worth as much if X happened".

I don't think you'd find anyone to disagree with you.

There are absolutely drawbacks and tradeoffs. If Bitcoin becomes banned/regulated by a significant number of countries it will still perform exactly as it is doing so today in those conditions. It just might be "worth" 1/100th of what it is today.

If you take "price speculation" out of the picture, I think your rebuttals here are entirely invalidated.

> At it's core, yes. For any sort of adoption/usage ability for the 'average day person', there will always be a requirement for some sort of intermediary company.

Even if this may be true, these services can still be decentralized for the most part. For example there is localbitcoins where you can trade bitcoins without ever having to go to any other third party except the listing on the site.

> At it's core, yes. However, having no 'owner' is rather meaningless as governments can regulate it and decide how Bitcoin is used; which has the same effects/problems as an 'owner'. > [...] However, again, this is pretty much meaningless because they can make it illegal for a transaction to happen or they can make transactions allowed but under their rules.

Governments can regulate it but it's going to be hard to follow through if you take proper precautions. If you live in an oppressive state you most likely break the law all the time any way. That's the thing about oppressive regimes, it's almost impossible to abide by the law completely and life a proper life.

> But again it's not based on reality of life. If an oppressive government outlawed bitcoin, you wouldn't be able to take part in the Bitcoin network unless you wanted to break the law. Bitcoin would be on its knees if the only people that could use it were purely illegal users. (compared to its current situation)

You don't even need to live in an oppressive government. I live in a western society and still see the value of cryptocurrencies. Whenever I talk to a bank I have a strong feeling that cryptocurrencies are the future and my recent connections with my bank completely convinced me.

I don't know where you live, but in my country banks are open like 10am to 2pm, there is no handling of cash at all basically and their customer service is completely shit. It's obvious that their power over the society is so strong that they feel they can treat their customers like total crap and get away with it.

I know of many people that have had their accounts closed because they have incorrect political opinions, use too much cash or doesn't want to answer questions about what they're going to use their money for. If I have cash, I cannot submit them to my bank account without being harassed and there is a very small limit on the amount of cash I can deposit even if I take the harassment. I also have to travel quite far to a special office with open hours like a couple of hours per week and call them before hand to inform them that I want to do a cash deposit. That is only for deposits, but the same rules also apply for withdrawals where people simply get denied from withdrawing money from the accounts. If you go to an automated place, usually you can only withdraw about $200-$500 if you're lucky. If you want to withdraw more you need again go to a special office with horrible opening hours where they again will harass you, ask you a bunch of questions. My father that does this regularly usually loudly claims he's going to buy sex toys in order circumvent the system and shame the person into stop asking more questions.

This is a description of real life in the western democracy of Sweden which is often described like a poster child for western democracies. This is why I believe in cryptocurrencies, because even in one of the most open societies on earth you get treated as a criminal while the banks themselves launder millions.

I used to be negative towards cryptocurrencies, but I am totally convinced that it is the future now because there is no other real alternative that's not a dystopia.

> Except I need an exhange to get the coins and turn the coins into usable currency

I bought my phone with bitcoin, graphic card, many house hold items with bitcoin (no conversion). But I do understand your point. Thing is, bitcoin is still in very early stage.

> Meh, the biggest investors are still in control in practice.

that's false. tell me how big investors can stop or take my bitcoin?

> Yet they can claim taxes on transactions, seize funds, stop you from exhanging the funds into usable currency. But yeah they can't stop the transaction itself, which is also true of cash, except trash isn't also completely traceable.

that's totally fine and by design. nothing wrong with paying taxes. They can confiscate, but they can not target you and confiscate because you belong to some group, deplatform you. That's the point.

> Last time I bought some bitcoin I had to scan my passport just to buy it on an exchange.

you have 1000s ATMs around the world, you can exchange without any ID. I've sold and bought p2p many times as well. This will improve with wider adoption.

> Except I need an exhange to get the coins and turn the coins into usable currency

Not any more than you need a bank to convert your left-over € from your Europe holiday into US$. You wouldn't need a bank, you could try to look for another person who is about to leave for Europe to trade, just as you can try to look for a person that is willing to trade your BitCoin against whatever else you desire or another crypto (say on localbitcoins.com). Yes, there are marketplaces that bring these traders together, just as there are institutions that specialize in those exchange in larger amounts (for a fee). You also wouldn't need to exchange your gold into US$ with a bank, but some offer this as a service and its easier to find a buyer yourself.

> Last time I bought some bitcoin I had to scan my passport just to buy it on an exchange.

There are plenty of exchanges that don't care one bit about KYC. Of course, you get a significantly shittier exchange rate and sometimes waiting times of up to 90 days before you can do anything with your coins.

U235 was meant to be used to accelerate society via free energy. It’s being held in the Earth instead, steadily decaying with time. It’s primary purpose as been destroyed.

The thing about U235 is that it has no such purpose. It is a tool that can be used in all kinds of ways. If humans were better, we could have power all of civilization in an age of abundance and peace, until unlocking a more portable fusion energy source than the sun. Unfortunately, most human beings lack that desire. It was used to blow people up instead, and brought us an age at least without large scale world war.

Crypto is being used in a greedy, speculative way. It doesn’t need to be. It could also run an entire world’s economy absent corrupt intermediaries. Fundamentally it will not change human nature, but it makes guarantees that anyone can verify. Which is desperately needed in a world of otherwise unaccountable money.

Just because people wield a tool poorly does not change the nature of the tool. These things have no emotions, they just exist. And bitcoin as a tool is an incredible invention. I just wish more people could appreciate it for what it is.

>Bitcoin was meant to be used. >It's being held instead of used.

even worse.. most of it is held by very few individuals. the fickleness in all these markets is based on this one issue.

While it may be trivial in implementation, its unrealistic due to the cost.

>In reality, the Bitcoin network has proven resilient enough to withstand a 51% attack over the years. In fact, due to the size of the Bitcoin network and the extent to which hash power is decentralized, along with the cost of mining equipment, it’s prohibitively expensive to attack Bitcoin. We estimate it would cost over $13 billion

https://learn.eqonex.com/news/what-51-attack-and-how-much-wo...

I doubt it would work in practice. If an actor repeatedly used ASICs to run a 51% attack, it wouldn’t take long for the community to switch hashing algorithm and render all that hardware useless.

You have to continue executing the 51% attack forever, or else when you stop, the network goes back to normal. And about the worst thing you can do during such an attack is prevent transactions from confirming. You can't unilaterally rewrite the ledger, you can't steal money from people. So saying you "own the network" while executing such an attack is... pretty dumb.

if someone "mounts" a 50% attack and is successful, do you think the rest of the world will simply accept their "attack"? bitcoin was forked into bitcoin cash once, why cant it happen again?

Imagine cryptocurrencies are banned in your country.

The exchange of goods and services you describe might work between individuals. However businesses are much more visible. OK, you run a business accepting cryptocurrency payments for your goods. How will you explain it to the tax office? What if someone tips the police you accept it and they try to purchase something? OK, so only the small businesses will do it. They're numerous enough the police can't catch everyone. How will they transact with the bigger companies that can't accept illegal payments? Purchase utilities, tools etc. OK, somehow you make enough money with legal payments to pay your bills and keep the cryptocurrencies only as profit. Now try buying a car or a house with illegal currency.

Everything has a workaround, but if the state outright bans cryptocurrencies, the market will be severely crippled.

I paid people with crypto (a client paid me in crypto so I thought why not) for work and goods; these were people who were told by believers this will be a currency like you suggest. After (in 2018) they asked me if they could get money instead if they gave that crypto back to me. As long as people cannot actually buy flower and yeast with crypto from the wholesale supplier, it is kind of doomed.

There's a blog post I read once which title was something like "How I accidentally started a bank" about a dev who added a chatbot in his work's internal chat (I don't think Slack was a thing yet back then) that tracked what each colleague owed to each other for lunch, coffee, etc. The bot expanded to track monetary value, and in the end he realized he made a bank, where each colleague had their balance, and transactions can be made.

In theory a group of people (expandable to a society, depending on trust) could just use such an app (or even just a WhatsApp chat) to do their business transactions, e.g. in China people probably just keep a balance in their WeChat accounts, and the money just moves between WeChat accounts.

It's already started in developing countries https://twitter.com/HODLneverSODL/status/1518134911244320769

[citation needed]

Yeah, that's because Vitalik writes his content in good faith.

I've been involved in bitcoin since 2010. (1) Not once have I ever encountered someone who knew what they were talking about and yet spelled it BitCoin. (2) Every time I've encountered "BitCoin" the author had a truly dismal understanding of the bitcoin protocol or incentive structure.

Shibboleths are annoying, but they do serve as pretty accurate heuristics for assessing someone's familiarity with a domain, as in this particular case.

please see my direct response to the original author.

No, you don't have to be an expert to voice observations, but my point is that you have probably not investigated Bitcoin long enough if you write BitCoin to be able to see the nuances in most of the points you've made.

An example: The comparison between the two charts of Bitcoin and Apple stocks looks similar at first glance, but if you exclude the last week, most of that similarity is gone. Yes, Bitcoin is being invested/speculated with in mostly the same way that tech stocks are getting invested/speculated with, but that doesn't prove inflation resistance; that's a long-term trend, not a short-term trend.

Your points on stablecoins is fine; I agree that those networks tend to overpromise and underdeliver.

Regarding regulation: I don't see the direct relevance, because most cryptocurrency projects don't explicitly (or even implicitly) promise to be/remain unregulated. Anonymity isn't a thing on a public blockchain, and never was.

Your point on smart contracts is broadly correct, but I'd like to point out that most contracts were exploited because either the security was flawed (by human action mostly), the contract was poorly constructed and participants didn't care to actually read and understand it (also human action, though I do admit that most people on Earth won't ever (be able to) read a smart contract), or because of malicious actions of the smart contract creator (also human action).

I agree with your final conclusions. We do need a way to prevent rugpulls. The most straightforward way to do this is by realising that most altcoins are insecure or technically flawed in such a way that rugpulls aren't disincentivised. If you built smart contracts on Bitcoin (see: RSK) people will be a lot more hesitant, because Bitcoin is the only blockchain that is both secure, and thus digitally scarce. You can easily spot the difference in perception between Bitcoin and altcoins in the way people describe their interactions and goals for them: Bitcoin is a means to store wealth, altcoins are investment/speculation vehicles generally used to make more money with. You can nitpick about wether those definitions boil down to the same thing, but the perception and philosophy differs.

please see my response to the original author for my in-depth substantive comments.

I wouldn’t place much value on what Tether has to say. However, market prices can be irrational and will not tell you if it’s close to collapsing or not.

It’s in fact likely that Tether printed huge amounts of money by buying up large amounts of USDT at <$1

It's also flat over 10 years, and lost in the last couple of month, meanwhile inflation is raging at 8%.

I'm far from condoning the crypto trainwreck, but gold does not act as a safe haven in these conditions, it usually tanks along with everything else, just less maybe.

And mining gold is probably not much better than mining crypto, and is often produced under similar 'less than open and enlightened' regimes.

And gold doesn’t need ever increasing energy to be spent so it doesn’t vanish into thin air.

We have a lack of curiosity and skepticism, and too much passion. There is quite a bit of echo-chamber effect going on, entrenching current view. Suppressing an emotional topic might help later on. Hopefully in 5-10 years cryptocurrencies will either be boring or dead: either way passion will have died out and we can properly discuss it.

Hi, I'm not the GP but I have a couple thoughts here.

I can't speak to the first point because I do not know enough about that statement on inflation to either confirm or refute it.

- The author singled out UST as their primary example of "stablecoins are anything but stable". This dismisses every other stablecoin out there which has not had issues, USDC being the main one I'm thinking of. Were they to make the claim that "algorithmic stablecoins are not stable" I would 100% agree with them, especially considering what may happen with USDD in the near future.

They also bring up Tether in this section, which as far as I am aware was not at risk of being insolvent at the time.

I do not like Tether. I find Patio11's take on Tether to be convincing enough and I would never consciously choose to hold any Tether.

But to claim that Tether was close to collapsing a few weeks ago is, using Hanlon's Razor, a minsunderstanding of what happened during that time. There was fear that Tether would lose its peg, it lost its peg on exchanges for a few hours, and the company which issues Tether continued to process cashouts honoring the peg.

If Tether Limited were to begin putting obstacles in the way of withdrawals, I would be incredibly worried. As of this time, it has not happend. And because it has not happened, this section was not factual.

- The author stated that the claim of "no one can regulate cryptocurrencies" has been broken, but presented one example of mining being banned in one country and intended (but not enacted) legislation in another.

This does not present enough evidence in my opinion to form a valid statement.

- The author makes several claims about the presentation of smart contracts, and refrences a category of protocols and projects which had fatal flaws in the coding of their contracts.

I agree that poorly written contracts and/or overlooked bugs have caused a lot of financial damage. But this point is made with the implication that all code should be perfect and flawless is a very odd approach to take. To be clear, I do expect better from the engineering efforts that come out of these DeFi protocols which get compromised.

However, there was always going to be someone writing the code for the smart contracts being deployed and that means that bugs were always going to happen.

Perhaps if there was more rigorous regulation in this space we will have protocols in the future staffed by hundreds if not thousands of individuals all working to ensure regulatory complicance first, just like big banks. But even then, I would never expect them to deploy code with zero bugs.

I can't speak to the intended definition of the term "smart contract" nor the author's suggestion that the implication of having the word "contract" in the term would betray trust in users, that's just not a can of worms I'd like to try my hand at.

Incredibly inferior bandaid

That's a gross mis-characterization of proof of stake.

Also, take a look at Algorand's pure proof of stake.

> why does virgin bitcoin hold a premium over circulated ones

Because people doing bad things are happy to swap their dirty coins for clean ones that can be spent in the developed world. The people mining the clean coins in Mongolia couldn't care less about the other party selling weed on the internet in Germany and happily take the generous premium.

> And why do coins seized by law enforcement sell for bellow market value?

Because the onerous requirements to purchase such bitcoin from the government adds cost and simply buying the same amount on market has very little friction or overhead.

None of these examples include someone trading 1 BTC for X BTC, less, more, or equal to 1 BTC.

It's nice and round.

Cryptocurrencies will IMO always have some sort of residual value simply because of their usability for illicit activities. The specific value is debatable, but I'd guess a "round" number will be where psychological effects will naturally converge towards.

It must be hard math, soft science and such. Definitely!