For those like me who didn't understand the relevance, back in 2009, Satoshi (the creator of Bitcoin) put the following message in the very first block:
> The Times 03/Jan/2009 Chancellor on brink of second bailout for banks
Back then it was a response to the 2008/9 financial crisis, which is what makes this new message relevant.
I believe GP’s joke is about the minor technical issue that the very first block reward is unspendable in the blockchain, not that there was no market for it.
Ooh! Ask them about Tether! And how all the worlds crypto prices are in USDT, which is at most 70% backed (30% seized by the feds in a money laundering sting) and has never been audited.
Though I'm not sure why so many people were hinged about Tether (albeit the average solidity of its peg meant it's legit); the positive effect of this is that we now have lots of different stable USD coins: Coinbase, Gemini, TrueUSD, Binance all have stable coins with a total cap of over $1bn. Sure it's much less than TetherUSD $6.3bn but it's roughly 16%. Much better than the total monopoly of tether two years ago.
Not only are many of them full backed, but they all trade extremely close to parity with one another. Which means that they are all considered relatively safe by the people actually holding them.
> but they all trade extremely close to parity with one another. Which means that they are all considered relatively safe by the people actually holding them.
trading rather than holding. The people doing the trades are the ones determining the pricing. The people holding are reducing the supply of the asset in the market, but they're not actively participating in pricing of trades.
The current price is the equilibrium of supply and demand. Not only are the holders holding, but the market makers are providing liquidity at those prices. Deep liquidity.
i agree. A more realistic value is definitely the sum total of transactions conducted using said coin. Counting market cap as value is like counting the market cap of WeWork using the funding valuation they got for a small % of equity.
Bitcoin is a monetary asset with no underlying fundamental value. Transaction volume is meaningless. The only thing that matters is what someone is willing to pay for it.
As I recall, Bitcoin was designed for resilience to government pressure. But that's never been tested, in any substantive way.
I'm not aware of any reason why the Bitcoin network couldn't switch to VPN-level overlay networks. Using Tor would be somewhat problematic, given the limited bandwidth. But I'm pretty sure that it'd be doable. Other options include Orchid and Loki.
Mining could be an interesting issue. Government pressure could render large-scale mining operations unworkable. But as I understand it, the Bitcoin network could function just as well with far^N less mining capacity. Difficulty would just decrease with less mining competition. And that would mitigate the key negative impact of electricity usage.
Bitcoin isn't resilient because trading goods for bitcoin doesn't happen, therefore BTC is reliant on people being able to purchase it using their existing government-controlled money using regulated bank accounts.
There's probably a workaround for that. Or there arguably would be, if enough people cared enough.
Not too many years ago, there were trusted services that sold Bitcoin (and Liberty Reserve and Pecunix) for cash sent anonymously through the mail. I haven't needed that for years, but I'm pretty sure that such services still exist. And given the escrow sector that's developed to serve dark marketplaces, trust is likely far more verifiable.
Cryptocurrency and meatspace money are now entirely separate for me. I earn all the cryptocurrency that I need anonymously online. And I don't risk manifesting it as meatspace cash. While that's not currently workable for most people, I don't see why it couldn't become so.
>Cryptocurrency and meatspace money are now entirely separate for me. I earn all the cryptocurrency that I need anonymously online. And I don't risk manifesting it as meatspace cash. While that's not currently workable for most people, I don't see why it couldn't become so.
Even if buying goods with crypto is out of the question for you (say, because you don’t want it linked to any physical address), you can still buy a decent range of services. A whole suite of digital services (VPS, VPN, bulk data backup, domain registration, etc) is buyable with cryptocurrencies. A number of places will also accept donations in Bitcoin. Depending on your social ties, you might commission digital art with Bitcoin.
Now, most people I know who hold Bitcoin are motivated primarily by other reasons. But still, I can cut down my cash spending/donations by a few $1000/yr just by doing those things above — which have fairly loose ties to my physical person — with Bitcoin.
i.e., you cannot fulfil your meatspace needs using cryptocurrency as of yet. It doesn't matter that you are able to isolate your identity online from your meatspace identity.
And this is what gov't can easily enforce - through money laundering laws. If ever cryptocurrency becomes prevalent enough to offer meatspace usage directly, you can bet your bottom dollar that gov't will regulate, and prevent anonymous spending (at least, for any large-ish amounts).
That's true. But still, cryptocurrencies could arguably remain useful, even if they never widely displaced meatspace money. I mean, consider how thoroughly online dark marketplaces have displaced meatspace drug dealers. And perhaps there are other suitable niches.
For example, cryptocurrencies could displace cash for gig economy tips. Maybe they already have, for all I know. Also for online porn and gambling.
And in basic terms, how do you earn your crypto, selling what? I can think of only a limited number of things one can easily, readily sell for BTC or etc.. So, a bit curious and hope you don't mind answering since you're anonymized.
Mostly I write stuff for people. I've written a lot for IVPN's website, and also for Restore Privacy. I bill at typical meatspace rates.
I've also done some privacy-related development. For example, a client wanted a private IKEv2 server with a nested VPN chain backend. To provide iOS devices with anonymity that was stronger than VPN services provide, but also easy to use.
Taxes and tanks (also for now usd is the settlement currency for lots of contracts).
Also, oil has large carry costs. Many things with large carry costs are called toxic garbage and have negative value. Oil is just a useful so it mostly has positive value, but the moment you can’t use it, it joins in valuations other toxic garbage.
> the positive effect of this is that we now have lots of different stable USD coins: Coinbase, Gemini, TrueUSD, Binance all have stable coins with a total cap of over $1bn.
"Stablecoins" are not stable. How many times do we have to learn this lesson in finance? The probability distribution underlying this stuff is not what stability proponents think it is. They will be stable until they aren't, and then they will blow up. Chasing stability in inherently unstable systems is a fool's game.
There are at least three reasons why USDC could become unstable:
1. Pegged value currencies are subject to Soros-breaking-the-Pound style attacks.
2. USDC is based on Ethereum, a first-generation cryptocurrency with numerous design flaws, at both the protocol and scripting language level. On top of that is an increasingly complex network of DeFi apps which can be exploited in sophisticated ways, as we saw with recent multi-part hack across several DeFi apps.
3. The US Dollar itself may be heading into a period of instability, given the massive US Govt debt and Federal Reserve operations.
You can stick your head in the sand and pretend stablecoins are stable, or you can acknowledge they’re more likely one more in a long history of financial folly.
"stable" currency isn't "stable" because it doesn't exist in a vacuum. Populations grow, economies expand, efficiency increases. If I have $1 in 1919 when the GDP was $500B (and there were only 100M people) vs $16T (nominal), and I sock it in a drawer, I now own a much, much larger share of the US money economy than I did. I didn't earn it, I just held onto it. I accumulated value by virtue of "I got there first, sucks to be you."
There's no good reason to encourage value generation through inaction. That's one of the many good reasons to have abandoned deflationary currencies.
If you held a Scottish pound, you typically held a piece of paper from the bank that you got in return for making a deposit.
From the banks point of view, funds in checking accounts and funds issued as cash were pretty much the same. Just that the cash didn't pay interest, and you didn't know who had it. And it could get lost and never come back to you. (Though perhaps similar to people abandoning accounts sometimes?)
Holding the notes issued by a bank was equivalent to giving the bank a no interest loan. The bank itself invested the funds in loans to other companies. You forewent consumption and took on some risk.
Nominal GDP was remarkably stable over that time in Scotland. In reverse that means that one pound represented about the same share of total economic activity year after year. (The absolute, real amount of economic activity increased a lot.)
While you're mentioning stable coins, it might be worth mentioning DAI, which unlike the others, is decentralized and managed by a public smart contract, instead of being centralized and managed by a single company which could lie about its reserves and could choose or be forced to shut down.
There is one small issue with DAI in my eyes. It has been trading for a premium, while at the same time you can't make a profit from owning it because the spread is always an issue. I am testing an automated contract that does 3 way arbitrage between USDC/USDT/DAI and it has never once crossed over to DAI, while USDC/USDT cross each other enough to trigger a trade, 1-2 times a day.
Given this all-caps disclaimer, I wouldn't exactly be reassured that USDC would be worth anything in the event Coinbase went out of business:
"USDC IS NOT LEGAL TENDER. USDC IS A DIGITAL CURRENCY AND COINBASE HAS NO RIGHT TO USE ANY USDC YOU HOLD ON COINBASE. COINBASE IS NOT A DEPOSITORY INSTITUTION, AND YOUR USDC WALLET IS NOT A DEPOSIT ACCOUNT. YOUR USDC WALLET IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) OR THE SECURITIES INVESTOR PROTECTION CORPORATION (SIPC)."
If you read the FAQ, Coinbase doesn't even issue USDC, Circle does, so Coinbase going out of business won't affect the balances in Circle's bank account or the redeem-ability of USDC. They also actually publish regular audits unlike Tether
Bond holders have a certain legal right to claims on assets of a company that becomes insolvent - I'm not sure what legal rights USDC holders would have.
But either way, I think most people would not tend to view something like USDC as a bond (in which the bond holder is a creditor to the bond-issuing organization, with the associated risk-adjusted return on capital), but more like cash.
Chuck-E-Cheese tokens are US regulated so... my point being of course that just because something is under US jurisdiction doesn't make it "good as gold" so to speak. The structure of the underlying implement is what matters.
Picking out a small handful of obvious failures is not a useful exercise for or against regulation. Regulation has had numerous incredibly life-chantingly beneficial effects on our lives. Thanks to the EPA, the rivers no longer literally catch fire. I'd trade one Enron for lakes of water instead of lakes of fire any day.
Regulation can be good, regulation can be bad, how you do it matters far more.
I trust it to keep the rivers from catching fire, and planes from falling out of the sky, and the front seat from falling through the bottom of my car.
Glad that you are able to figure out the shortcomings in your comments. Be constructive vs. generalizing a few negative examples and taking a defeatist attitude to things.
Bitcoin is the preferred payment method of extortionists and criminals world-wide. Accepted everywhere cash is. So yes, it has had a legitimately illegitimate use case.
I was curious about that too. The US Treasury thinks that $300bn is laundered every year. Then ciphertrace thinks $2.5bn is laundered through crypto currencies.
While BTC is tracked between wallets and that's easily measured, it's unclear how to measure wallets being transferred between people.
There's a non zero chance that your criminal extortion scheme won't end up with bill serial numbers tracked by federal authorities. Hence that's probably why 97% of ransomware uses BTC.
> Hence that's probably why 97% of ransomware uses BTC.
What payment processor would ransomware use? Credit card processors would close their account. Nobody can close your Bitcoin account. That can be used for crime, but also is a legitimate protection against the abuses of governments and banks.
And as I said that's a consequence of Bitcoin's decentralization and censorship resistance. I think the positive aspects of those features overshadow the negative.
If you are so confident, why not sit on a Tether short?
The reality is that the market expects solvency for the foreseeable future, and tether solves a market problem (liquidity in environments that do not impose the KYC laws required by the US government to trade USD), thereby allowing Bitcoin users to achieve a level of anonymity while still having liquidity. It also, of course, allows a wider variety and leverage range of financial instruments.
> If you are so confident, why not sit on a Tether short?
Because betting either way in a manipulated market is a sucker's game. Bitfinex has their finger on the scales. Why on earth would I bet in their casino?
Does anyone other than Bitfinex even allow you to short USDT? Remember those two are one and the same, and Bitfinex doesn't even have banking. What are they going to pay my USDT short in? USDT?
I'm certain that's the right decision for you. But for those who spend time understanding markets instead of mythologizing them (and assigning any unpredicted movement to a boogieman), there is absolutely alpha to be had, and the market is not so easy to manipulate as many (almost exclusively non-quants) believe.
It's popular to shit on cryptocurrencies these days, and they certainly have their shortcomings, but they are still fascinating systems and the markets are even more interesting. Instead of intellectual discussion, people seem to flood the comments with hate and jealousy, presumably because some people made more money than them due to presumed luck.
The popularity of shitting on cryptocurrencies is directly in proportion to the level of hype that never lived up to anything. They were supposed to revolutionize the world's economy. But so far they only have proven utility for speculation and light financial crime.
Is it possible that somebody will make money speculating on cryptocurrencies? Sure. Some people make money from MLM schemes too. But ultimately these are negative-sum activities: more money goes in than comes out. And a lot of the money going in is from suckers being taken for a ride. I think there's nothing wrong with people being negative about that.
Based on the tone of the parent, I think we can probably agree his interest is more about deriding those who are involved in cryptocurrencies (whether they won or lost in the market) than offering a warning to protect newcomers.
Like most, you have trivialized the use cases in places like Venezuela and Zimbabwe where the state backed financial system has failed. With the current state of technology, Bitcoin has no ability to replace the global payment network. Claiming that means it's a failure that hasn't lived up to anything is hyperbole. The system's very existence and self maintenance after over a decade is impressive enough to me. I also believe the financial utility of a new asset class with new properties is interesting and useful on its own, although I doubt the layman would agree.
Those are utterly irrelevant until you solve the initial distribution problem. Ready for it?
- Those people don't have money.
- The only way to purchase a meaningful quantity of BTC is through purchase on an exchange. After all, it's twice as hard to mine today as it was yesterday, and in Venezuela you'll just get your mining rig socialized (this has happened a few times).
- If you exchange within the country, then you're just moving the poops around. It's zero sum. Steve has a bunch of Bolivars. He exchanges with Alice for BTC. Now Alice has a bunch of Bolivars, and Steve has BTC. The net worth of the system was preserved perfectly. BTC did nothing for the union of Alice and Bob -- except they lost a ~$0.50 transaction fee, which is a few days wages.
- If you exchange outside the country, who on earth outside the country wants your Bolivars?! If you can exchange outside you may as well buy Gold or Dollars. Those haven't dropped 50% in the last 3 years. Even if you did buy BTC, it's still a zero net sum situation -- except they lost a ~$0.50 transaction fee, which is a few days wages.
Bitcoin is meaningless for third-world countries in aggregate until the initial distribution problem is solved.
The problem in Venezuela isn't a piss-poor currency, that's a symptom of a piss-poor government. No amount of magic beans will change that, until the people solve the problem.
> If you exchange outside the country, who on earth outside the country wants your Bolivars?!
Nobody. So you don't buy BTC with Bolivars, you sell art commissions or do some work on Mechanical Turk or grind for online game currency with a real market value, and arrange to receive payment in BTC. Then you buy stuff with BTC.
Meanwhile if there isn't that much BTC in the country, that doesn't matter -- currencies can have a different value in different places when arbitrage is restricted. So maybe BTC is worth more there. Or maybe arbitrage isn't really that restricted in practice and if it started to be more expensive there somebody would make a profit by supplying BTC in exchange for exporting boatloads of oil or coffee beans or whatever people in those countries produce.
That's covered under my point though, that if you can exchange internationally then why on earth would you bother with Bitcoin? You may as well just hold dollars or gold, you know, things that don't fluctuate 10% in a day and 50% in a couple of years. If you're already doing business abroad then forget Bitcoin.
It's because Bitcoin is digital. Neither your country's banks nor some other country's banks will give you an account denominated in dollars. You can only transact in dollars if it's physical cash. Then you can't use it to buy anything electronically.
You seem to have completely missed the point that there have been severe currency exchange controls in Venezuela for over a decade. These Venezuelans aren't trading Bolivars outside the country; they are exporting BTC mined with a mismanaged electrical grid to get food, toiletries, etc. imported into the country.
> that's a symptom of a piss-poor government. No amount of magic beans will change that,
Did it solve their government problem? No. But it resulted in a little more food in the country then there would otherwise be by allowing citizens to subvert their government's financial controls. BTC provides a base level quality of money, that basically acts as an insurance system against the worst governments. Does it have a huge use case in a country with a healthy and functional financial system? No. But if things go to shit in a country, people can still use Bitcoin and safely transfer value online instead of reverting to trading gold coins in person.
I know you want all things BTC to be bad. But try to keep it intellectual, not emotional. What about the technology -- do you think it's fascinating that a relatively simple and elegant protocol of incentives and cryptography can result in a self sustaining financial system still running a decade after its release?
Of course it can address the needs of a few by stealing power and avoid the government nationalizing a few rigs. That's utterly useless for the general population.
> But if things go to shit in a country, people can still use Bitcoin and safely transfer value online instead of reverting to trading gold coins in person.
For a small handful of people. That doesn't address the problem on a broad scale. The bar isn't "can Bitcoin address the needs of a small handful of people in Venezuela." Of course it can.
> What about the technology -- do you think it's fascinating that a relatively simple and elegant protocol of incentives and cryptography can result in a self sustaining financial system still running a decade after its release?
I think it's fascinating a single transaction expends 700kWh (enough to drive a Model S from SF to New York) and produces 87 grams of e-waste -- and yet somehow costs less than $0.50, which is due to the socialization of costs in the form of block rewards, aka inflation. Each BTC transaction actually costs about $70.
I think it's fascinating a system brought in to free us from the tyranny of a single entity's ability to freely print currency has had it's pricing entirely subsumed by an entity with the ability to freely print a currency who's symbol is just one character off.
Just because something's simple doesn't make it good.
> I think it's fascinating a single transaction expends 700kWh (enough to drive a Model S from SF to New York) and produces 87 grams of e-waste -- and yet somehow costs less than $0.50, which is due to the socialization of costs in the form of block rewards, aka inflation. Each BTC transaction actually costs about $70.
>If you exchange outside the country, who on earth outside the country wants your Bolivars?!
If they have use for them, why not? Also money are indeed a zero sum tool designed solely for moving poops around, shouldn't be a problem, and yes, BTC is money.
Tether itself is manipulated lol, even if I short it in Kraken I'm still playing Bitfinex's game. Once 30% of their reserves were seized they remained 1:1 -- there's no way to win whether I'm right or wrong.
There is a short play here: if there's ever a bank run on Tether, it'll crash to 0. The bet would be to hold onto this short and wait for this event to happen, but given how banks survive with fractional reserve banking, it's entirely possible that a bank run will never happen.
True, though I'd also have to have faith that the exchange remains solvent and that an upwards run in Tether (and it does run up ~10% from time to time) doesn't blow through my collateral -- on top of my other concerns. I think there's easier ways to make money, after all Madoff's scam took 40 years to unravel. I'm not willing to wait that long.
> Matuszewski told On the Brink's Nic Carter that the idea of tethers driving the price of bitcoin significantly higher is "not true whatsoever."
> "I say this as someone who created and redeemed billions of tether over the course of my life and specifically created it in 2017," he said.
> In short, Matuszewski affirmed that there were incentivizing events for the generation of Tethers. Bitfinex didn't print Tether out of nowhere either, since Matuszewski said he himself was one of the drivers.
> “I can tell you that billions of dollars were sent in to make it like that," he said. "I can 100%, without question, verifiably guarantee it happened. I did it, I was there...That money wasn't just being hypothecated. It wasn't just coming out of thin air, that was happening."
I worked for Circle, I worked with Dan, and I can guarantee you that Dan (former head of Circle Trade, the second largest crypto OTC desk) knows his stuff, and Tether is nowhere near as sketchy as your posts and conspiracies would have you believe.
> In short, Matuszewski affirmed that there were incentivizing events for the generation of Tethers. Bitfinex didn't print Tether out of nowhere either, since Matuszewski said he himself was one of the drivers.
Great! Then an audit should be right around the corner, yeah? Or did we forget when their last auditor quit [1].
> "I say this as someone who created and redeemed billions of tether over the course of my life and specifically created it in 2017," he said.
Tether's terms of service: "The right to have Tether Tokens redeemed or issued is a contractual right personal to you. Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves." [2]
Translation: Redemptions not guaranteed.
> I worked for Circle, I worked with Dan, and I can guarantee you that Dan (former head of Circle Trade, the second largest crypto OTC desk) knows his stuff, and Tether is nowhere near as sketchy as your posts and conspiracies would have you believe.
I'm sure the NYAG disagrees. [3]
Likely in no small part because one large market participant doesn't validate a fraud. They would be hugely incentivized to provide Matuszewski service so that he could go on record and say exactly this kind of thing. I'm sure the same quotes could be attributed to big players in the Madoff case.
To be clear I believe USDC is backed 1:1, in no small part because they're audited by Grant Thornton. [1] If those folks can do it, remind me again why USDT can't? Somehow Circle was able to overcome the seemingly impossible burden of their auditors only writing reports in Mandarin lol.
As our old friend John Maynard Keynes allegedly said, and I repeat to myself every time I’m tempted to short something I think is wildly overpriced, “the market can remain irrational longer than you can remain solvent.”
It's not about good or bad. Bitcoin is bad because a transaction takes 700kWh and 87 grams of e-waste. It's staggeringly inefficient because trust is a huge optimization.
Tether is bad. Where it intersects is it can create the impression people think Bitcoin is worth something in dollars.
The irony of talking about auditing in fiat as stock prices soar despite 20 million unemployed. Enjoy exponential exacerbation of income disparity so you can keep your BigMac at a "stable" price. NOTHING is valued correctly, RN. Bitcoin is the metric system for money.
Hold on there, we've got so many things to unpack.
> The irony of talking about auditing in fiat as stock prices soar despite 20 million unemployed.
Stock are not a proxy for the economy, as you're discovering. They're a forward-looking price discovery mechanism. The market sees an end to this, and they're pricing it in. There's no reason a stock's ticker should fluctuate day by day to reflect the current sales. That's not how stocks are priced.
> Enjoy exponential exacerbation of income disparity so you can keep your BigMac at a "stable" price.
Stock prices have nothing to do with Big Mac prices. In general Big Mac pricing is an excellent metric when estimating purchasing power parity [1].
Income / wealth disparity is a real problem, and I guarantee you, bitcoin is not the solution to that. It's got worse wealth inequality than any banana republic. "The top 2.8 percent of wallet addresses control 95 percent of the supply of bitcoin, according to statistics." [2] Income inequality isn't relevant here since income tends to follow inflation.
That's a social problem that needs a social solution.
> NOTHING is valued correctly, RN.
Things are valued according to what people are willing to pay.
> Bitcoin is the metric system for money.
In a way it's closer to the imperial system: a slow, old, backwards, deflationary when the whole world is inflationary, system. Economically speaking of course.
You are trying very hard to educate some hardened heads. While I appreciate your efforts, I should advise you to let things fail. Natural forces will establish the facts and show that cryptocurrencies have no place in the evolution of state-controlled economies of the world.
He's talking about how tether is backed. If its backed by other coins and or even itself through the smoke screen of other coins then its not really backed at all.
I think in the context here, "pricing with gold" would mean you need to find someone who will actually give you that price in gold.
Of course but one's not particularly useful without the other. 80% of BTC exchanges happened via USDT. Tether defines the price. You can't separate them.
Banks practicing FRBs have liquidity reserve limits, and are frequently audited, and have to be solvent (Value of all assets minus liabilities exceeds value of all deposits) in order to operate.
Tether is a fly-by-night con job that, to disburse USD redemptions, wires hundreds of millions of dollars to money launderers in the Carribean, who then go ahead and steal most of it.
And when law enforcement starts digging through their books, we discover that a third of Tether's 'reserves' consist of a "I'll pay you guys a few billion dollars, pinky swear", scrawled on a napkin.
It's not fractional reserve. It's straight-up fraud.
- 80+% of crypto exchange transactions aren't denominated in USD, but in USDT.
- USDT is a fictional currency invented by Bitfinex to make up for the fact they don't actually have access to banking because they're unbelivably shady.
- They got many other exchanges onboard since it effectively allows you to skirt AML and KYC regulations.
- Bitfinex is a shadowy cabal of truly dreadful market participants who mess around under the covers with Tether and use it to effectively control pricing. They print Tether and use it to buy BTC to drive the price up. They then sell BTC for Tether if they want to drive the price down.
- They promised for 5+ years that they'd get Tether's bank account audited but instead auditors up and quit.
- They had 30% of their assets seized in a money laundering sting but of course, the exchange rate remained 1:1 instead of 1:0.7
- The NYAG is suing them.
The price you see of BTC doesn't really reflect anything other than Bitfinex' manipulation. The rate of BTC inflation falling from 12.5BTC/block to 6.25/block affects miners and their ability to be solvent. Not much else.
> shadowy cabal of truly dreadful market participants who mess around under the covers
Who are the the same people, don't forget, despite repeated denials thereof, even if the same executives signed contracts between the two, on both sides.
And even when you get beyond that, you run into the 'arms length' fiduciary issues.
> They had 30% of their assets seized in a money laundering sting but of course, the exchange rate remained 1:1 instead of 1:0.7
Is the exchange rate supposed to be related to the amount of assets they hold? If you go to exchange one currency for the other in either direction and that's the amount you can get, that's the exchange rate. If everybody tried to cash out all at once then they might not have enough, but neither would Bank of America. That doesn't mean the exchange rate between physical cash and Bank of America deposits isn't 1:1.
Meanwhile they presumably turn a profit, so just because they lost some of their assets, how do you even know they don't still have enough?
> Meanwhile they presumably turn a profit, so just because they lost some of their assets, how do you even know they don't still have enough?
How do you know they have any? In order to have any semblance of legitimacy Tether needs to complete and publish the audit they promised every 6 months for 5 years.
Currently, based on their own website, the limiting factor is that their auditors only publish their reports in Mandarin, so there's literally nothing they could possibly do to release them. Even though those same auditors happily published attestations in English [1]. Before they were fired, and replaced with Friedman LLP, who quit.
The problem isn't the fact that the exchange rate remained 1:1, it's that they stuck by their claim that every USDT is backed 1:1 by USD. What replaced the seized reserves?
BoA doesn't claim to back every deposit 1:1 with physical cash. Far from it. The whole basis of fractional reserve banking is that they lend most of those deposits out to other customers. This is fine though, because the deposits are insured by a government-backed protection scheme.
If the crisis is broad enough, BoA and government will end up in the same basket: government has its own financial problems like huge national debt, rising unemployment etc.
Bad example. BofA besides having the federal government to prop it up works on fractional reserve explicitly.
Tether works on explicitly the opposite principle. One banked dollar for every minted Tether. Since they have no government propping them up, the certainty of those dollars is the only thing you can hold onto as far as Tether’s reality. Once they’re gone, the music stops.
> - They had 30% of their assets seized in a money laundering sting but of course, the exchange rate remained 1:1 instead of 1:0.7
Thsi one I don't understand: A ton of MXN has been seized because El Chapo had been using it for shady stuff, but yet nobody expects the MXN/USD pair to suffer from that.
Why would it be different? The fact that someone takes the token "by force" won't suddenly decrease their value.
AFAIK MXN never claimed to be backed by USD, but Tether claimed that USDT are backed 1:1 by USD in a bank account. We now know that there aren't $6B in that account but people still choose to trade USDT near par with USD; I guess this is analogous to how the value of the USD didn't fall when it became no longer gold-backed.
Printing new money is generally understood to devalue existing money, why wouldn't the opposite be true? I don't understand your El Chapo point or know what sort of assets were confiscated. Even if it was all cash, I'm guessing it wasn't just incinerated.
Nah it matters because the only thing the halving changes is the unit economics of mining. Each transaction requires 700kWh of electricity (and produces 87 grams of e-waste). That bill has to be paid somehow. Currently that bill is socialized across all market participants via inflation. The block reward is converted to Tether, which is then converted to fiat, to pay the electric bill.
It's a link in the chain, which makes it fair game.
No one puts a gun to anyone's head to use it. There are many stablecoins now, with various properties. USDC trades at the same value as USDT https://www.circle.com/en/usdc
Traders value Bitcoin the same in USDT or USDC, and USDT / USDC trades at parity. That implies the market trusts USDT. It doesn't matter what people on HN say, as long as the market agrees.
Frankly it's really strange to hear on the one hand:
1. ...that "the feds are debasing our currency through their relentless printing"
It is producing a measured, consistent, relatively small 2% rate of inflation over decades and decades. They are of course acting on behalf of an elected body, and ultimately accountable to that body. They're also audited.
2. ...that Tether's relentless, un-audited, 70%-at-most backed printing is fine because the "market trusts it" and "nobody's forcing you to use it."
The market trusts it because number go up, and it's in the interest of exactly zero market participants to show the world the emperor has no clothes.
It's also not fair to say that "nobody's forced to use it" when everyone is forced to use it. In 2018, 80% of all crypto exchange transactions were conducted in Tether. That makes USD transactions by far the minority. Since arbitrage bots keep the prices in sync, and the majority is USDT, even the USD exchanges follow the USDT prices so long as there exists sufficient liquidity to balance the books. [1]
Accountability doesn't mean never doing anything wrong, or even lying. What it means is that they can be held to account. I'm not saying they did or didn't, I watched your video, but nothing in your video changes anything I said at all.
The Fed determines monetary policy. The president of the United States appoints the Fed board. Ergo the fed is accountable to the people of the United States. [1]
But don’t you want to know how the sausage is made? If you truly buy into the “stable, consistent 2% inflation” story then you are eating a very, very large sausage.
The whole point of inflation is to disincentivize people from holding money in the first place. Money only has value when it moves, not when it's stuffed under a mattress. I really think we need to bring back mandatory economics classes in high school.
The idea is that you use it to invest: into real estate, into equities, into bonds, heck even a savings account collateralizes mortgages. Yes, even your magic beans represent the system working. The system is designed to encourage the continued survival of the most economically fit companies, etc, by your picking winners.
Don't hold money. Certainly not more than you need in the event of an emergency.
Guess what? Someone, somewhere, is holding every dollar in existence. Someone has to hold it. They don’t just vanish after being used in a transaction. Saying “don’t hold money” tells me everything I need to know about your understanding of economics.
> Someone, somewhere, is holding every dollar in existence. Someone has to hold it.
Yes, for very short periods of time, ideally. To the extent that remains true the effect of inflation is smoothed out. As at each stage in the transaction chain prices can adjust pricing to reflect inflation. Think of it like a continuously variable transmission. Yes, it has gears. But the effect is basically smoothed out if you do it quickly enough.
> Saying “don’t hold money” tells me everything I need to know about your understanding of economics.
No, arcticbull is right in this regard. The way Keynesian economics and encouraging the velocity of money works is that it discourages hoarding and encourages the speed at which money passes hands in an economy. It's great for the banks and rentier class but it's crappy for laborers and savers.
In such an environment you want to get rid of your USD as fast as possible and turn them into something you value, whether it be land or whatever. The money itself is by design an inflationary currency. Most people don't understand this, which is just fine with the people who print the money and the ones who distribute and loan it out.
Now, having lots of liquid cash AKA liquidity is a good thing as long as you get rid of it soon by putting it in assets. Lots of people gladly go into debt taking out loans to buy productive assets and declare bankruptcy multiple times playing this kind of game. It's kind of insane in a way.
This is dimwit CNN talking head economics. Go read what Keynes (and Mises) actually wrote instead of regurgitating an undergraduate economics textbook.
I'm not sure what is that you are missing? Many exchanges now offer a set of Stable coins. If you had concerns with USDT then you should switch to USDC which so far functions the same as USDT. I did. Many people probably also did. USDT still holds its peg and did hold its peg through some bad price swings. So either it's fully backed or they are doing some magic there.
> The market trusts it because number go up, and it's in the interest of exactly zero market participants to show the world the emperor has no clothes.
Wouldn't work on extreme market fluctuations. Bitcoin dropped 50% and USDT still hold the peg. Bitcoin then almost tripled in a short period and USDT still hold the peg. I'm not sure if they have full reserves or running some magic; but whatever they are doing is working very well.
>>> We know they don't have full reserves because we know 30% of them were seized. [1]
You suspect they don't have full reserves because you know 30% of them were seized. Presuming "full reserves" means 1:1 backing (what else could it mean, here?), your statement assumes they had exactly 1:1 reserves before the seizure. If they had more than that, your assumption could end up false.
So sure, you suspect. From what I've read in this thread, I tend to agree. But I fail to see how you know.
No, there's a big difference lol, the economy is managed and administered at the will of the people to benefit the people. This fraud is being administered by a shady cabal in the BVI with offices in Hong Kong to the benefit of themselves.
Agreed - some find it useful to have this instrument in order to move dollars to crypto, so it's really no worse than the fiat currencies that we are forced to use, and that many are deciding to move away from.
It is a fact that at present, you can't replace your entire life with cryptocurrency transactions, but the actions of the Federal Reserve over the last few months demonstrate how useful it is to have a parallel construct that actually represents an asset that isn't immediately able to be transmogrified by actions of a shadowy cabal (JPow in particular, who with his 50mm nest egg stuck in a hole at BlackRock, has a direct incentive to keep markets afloat)
Hillary didn't promise to hire an auditor over, and over for years, then hire an auditor, and then fire the auditor when things started going pear-shaped during the audit. Or, you know, have 30% of her email seized in an AML sting. My point is, the analogy falls over right quick.
I'm also not asking for proof of a negative (that Hillary didn't destroy her emails). I'm asking for proof of an affirmative. That Tether does have funds to back it's liabilities. Should be easy. Bring in KPMG, show them your bank accounts and have them attest to it.
If they do that I'll shout how wrong I was from the rooftops. I'm only asking them to follow through on their numerous, repeated promises over a half decade.
"We are aware of online discussions about Tether’s lack of publicly-available audits. Periodic audits of our bank balances have been performed by the Taiwan-based auditing firm TOPSUN CPAs & Co. The results of those audits were for the benefit of shareholders and were not in a form suitable for public consumption (to begin with, they were in Mandarin)" [1].
... they couldn't share these audits because they were in Mandarin?! Where on earth would they find a translator.
> "We are aware of online discussions about Tether’s lack of publicly-available audits. Periodic audits of our bank balances have been performed by the Taiwan-based auditing firm TOPSUN CPAs & Co. The results of those audits were for the benefit of shareholders and were not in a form suitable for public consumption (to begin with, they were in Mandarin)"
Note that they never said the audit _agreed with_ the numbers listed on the website/exchanges.
Also note that the shareholders of Tether are Bitfinex, who, in addition to being an exchange is... Tether.
I can well imagine that an audit that concreted the discrepancy would be, from Tether's perspective, the very essence of "not fit for public consumption"!
The only reason the halving is at all relevant is that it affects the unit economics of bitcoin mining, which brings into the conversation the "value" of a bitcoin, which is determined by Tether. It's all connected.
The price quoted on exchanges may or may not be influenced by Tether. However, the Bitcoin protocol itself and the monetary properties this protocol possesses are unaffected by the presence of Tether.
In other words: yes, we all understand the issues with Tether. I’m still hodling. You do you.
The only thing Bitcoin is worth is what someone is willing to pay you for it since it has no, you know, underlying value. If that number is determined substantially by manipulators, well, what good is it? It may as well say "In Giancarlo Devasini [1] We Trust" on it.
The "monetary property" it possesses is defined in Tethers. You can send them back and forth all day but if you have no baseline of what it can be exchanged for, I can just move lines in my spreadsheet back and forth too. That's not a "monetary quality."
I hope they picked the title of the article in the physical NYT paper release, and not the nytimes website, since the website is known to change the title.
If you're wondering why your friends who are into cryptocurrency are in a tizzy, it's related to a model called "Stock-To-Flow" that attempts to post-facto explain the price of Bitcoin (and other liquid assets, like gold) in terms of the rate of production.
Proposed by PlanB [1] it is a source of constant derision/hope/skepticism/dismissal by the Bitcoin community, and the halving of the reward gives it its first non-backtested novel prediction.
Roughly it predicts [2] that the price will settle into a band around 30,000 USD sometime next year.
To believe this is true, you must also believe that efficient markets do not really exist.
Imagine if a publicly traded company announced that in 1 years time, they would buy back half of their outstanding shares (not a great analogy but its the best I can think of). What would happen to the stock price?
All securities prices in publicly traded markets are essentially priced as discounted cash flows over the next 20-30 years. The current price reflects all available public information about those cash flows.
I'm not saying efficient markets is 100% true all of the time, of course the world demonstrates that it isn't, but the level of disbelief you have to have in the hypothesis to believe that a well-known public event affecting Bitcoin will result in a 3x price increase is lunacy, IMO.
> All securities prices in publicly traded markets are essentially priced as discounted cash flows over the next 20-30 years
Orthogonal, but I do enjoy how every time I see a statement like this, it comes with a different year set of years. This one is 20-30 years, saw one yesterday at 50 years, Investopedia will tell you 5-10 years is the standard [1].
Yeah I just picked a number out of thin air. I suppose it depends on your discount rate + some arbitrary threshold of when you want to say the asset has returned most of it's useful cash flow.
For example, a cash flow with a 10% discount rate will return about 90% of all it's discounted future cash flow by year 20.
The discount rate depends on the investor, and as for when you stop counting cash flow on the way to infinity, I guess that's up to you.
This is pretty funny because I remember reading this exact same argument the last bitcoin halving in 2016! I still think it's a superior form of money to USD so I'll keep on holding mine for a few years at least.
I understand the intellectual appeal of that theory, but in reality given the behavior of the stock market in March (why a sudden drop if 20 years forward looking?), or ZOOM stock going up instead of ZM, Tesla stock moving from an opinion tweet, the volatility of individual stocks, etc... should make you doubt about that "it’s priced in long-term" belief.
That's not what the efficient markets theory is. It means that the current price reflects all currently available public information, not that the price magically predicts the future and it can never change. Random events like what you described are completely different from the halvening, which is predictable years in advance almost down to the day.
The Efficient Market Hypothesis is complete BS. It's only relevant in academia, and it'll stay that way since there's no profit to be had going to academia and arguing with professors on their home turf about it.
You can see that it's BS by just looking at Warren Buffett's investment returns, all collected from exploiting long term market inefficiencies.
Look at the stock market right now, does that seem efficient? Sometimes volatility is necessary.
"Imagine if a publicly traded company announced that in 1 years time, they would buy back half of their outstanding shares (not a great analogy but its the best I can think of). What would happen to the stock price?"
The irony is that a bunch of companies are and did do EXACTLY this with trillions of dollars designed to bail out the economy.
I don't agree that this is the reason that people are in a "tizzy". To me this instance is an instance where a shock enters the system.
Think of it like a differential equation where a steady state is changed... like a spring that has been held in a certain position is released. There will be a shock as the system seeks to find a new equilibrium.
The fact that the system has been shocked means that there is some predictable craziness that will happen soon. It is basically guaranteed fun no matter how it turns out.
I've been following bitcoin a long time, and was excited for the halving. But I'd never heard of the model you described and could care less about it.
It would be more apt to say the spring is in a high viscosity fluid. It takes some time for the fluid to move away because there is some friction in the system. It's free to make small movements quite quickly but the longer ones are damped. But there is a spring in there with one end connected to something. In the case of BTC it's probably connected to a much larger mass in the fluid that can move itself, not held down like some fiats.
I completely agree with you which is why i’m replying that you should read those 2 models (S2F and S2FX). Its anonymous author says the same thing as you but goes a step further trying to meaningfully quantify it. They are honest about the fact that this is just a model but nevertheless a very interesting one. If you like math i encourage you to have a proper look at it.
Given the ultra-speculative and very volatile nature of bitcoin so far, aren't these models effectively numerology? I really fail to see how you can reasonably tie bitcoin's rate of production with its price.
After all the last halving was in July 9 2016. Since then the production has been reasonably constant while the price has been a complete rollercoaster.
With logarithmic scales and big enough error bars you can fit anything into anything.
>If you're wondering why your friends who are into cryptocurrency are in a tizzy
Being into cryptocurrency is reason enough to be honest.
What passes for "technical analysis" is rather insane, and isn't limited to the crypto community. It seems to grow around assets that are easily purchasable by the lay public, have lots of random price noise, and unclear fundamentals. Foreign exchange is another good example.
The stock-to-flow model posits a causal reason for the price: a roughly constant influx of money buying a declining rate of BTC production. This seems a lot stronger than technical analysis based on "fear and greed" psychology.
Thank you. I have a very close friend that has been doing this for some time, and it’s really painful to see him lose money to those “forecasts” that resemble more astrology than science. I see from your profile you’re a Quant. Is there any guidelines I could give him? Any recommendations to go to the more “scientific” side of finance, and stop looking at charts and draw arbitrary lines to try to come up with patterns.
Sure, I can try. My thoughts on this actually come more from my experience in prediction market betting than my work, which is hard to apply at an individual level.
I think just properly accounting for wins and losses can be good at instilling a sense of humility; I'd recommend he calculate his track record if he hasn't already. I enjoyed the book Thinking in Bets by Annie Duke, which is about the psychology of developing some habits around making bets and the cognitive biases we have. A Random Walk Down Wall St. is also a classic that is good at instilling a sense of humility in you as an individual investor.
You could add that even winning strategies can be unceremoniously smashed against the rocks of market execution failures, especially in an unregulated space like crypto. I had to learn from personal experience: roughly a years’ worth of hard-earned arbitrage profits were wiped out in the aftermath of the 50% drop back in March, despite holding offsetting positions, due to uncontrolled liquidations plus a DOS attack on an exchange.
That's literally backwards to how this works though. Just because you fire up a bunch of miners doesn't make Bitcoin's value jump - it's the opposite, Bitcoin's value jumping makes it cost-effective to run additional miners.
Its value is circular. Bitcoin miners provide social proof that someone, somewhere, is willing to burn $X to acquire a Bitcoin. That how intrinsically worthless items gain monetary value—social proof.
Firing up additional mining would split the rewards between more people causing fewer rewards per participant.
Miners engaged in mining before I arrived would have the same costs they had before, but now with fewer BTC to cover them, this would force them to sell at a higher price or operate at a loss until they drown the competition.
That's a terrible analogy. Orange supply could be infinite should we maximize orange production, this is not how Bitcoin works.
If there were only 12 oranges produced on all the trees in the world every hour & it cost $500 an hour to operate your orange farm. You therefore have to sell your oranges for at least $42 to cover costs and make a small income
However now there are only 6 oranges produced every hour (not 12), what can you do to maintain profitability?
"Force them to sell at a higher price" ... so they decide the market?
Nope.
Miners have costs to cover, mining unprofitably and holding makes no sense whatsoever (you're literally better off turning off your rig, buying on the market and holding at that point)
Turning them on to acquire bitcoins at a higher cost to yourself than the market price just doesn't make sense, investment or not, it won't help you pay down your loan.
You're better off buying them from others at that point.
First of all, you regularly consume items where the price is determined by demand, not production cost. Cars, housing, and premium products regularly sell for multiples of what they cost to produce.
Secondly, just because something’s expensive to produce doesn’t mean that it’s valuable to anyone else. This is a common problem in customized products, but also happens when market demand either fails to materialize or collapses. Your ultra premium buggy whip might be incredibly expensive to produce, but if nobody wants buggy whips you can’t sell it high enough to make a profit.
Good arguments, but irrelevant because Bitcoin is not a consumption good.
Mining is public evidence that someone is willing to burn $X in electricity to acquire a Bitcoin. For an intrinsically worthless monetary asset with no government support, social proof is the only real source of data on possible valuations. See also: Mises’ regression theorem.
> Cars, housing, and premium products regularly sell for multiples of what they cost to produce.
many multiples! this is incorrect. the luxury versions of those products you listed certainly have higher margins, but id be surpised if you could find anything with 100% proft margin, much less 3x and beyond.
No, it's not nonsense and you just kind of just proved the comment to which you are responding to.
Price is a function of supply and demand and because most markets are fairly competitive, the market-clearing price can be predicted roughly from the cost of production.
'Cars' do not sell at multiples they cost to produce, once you factor in all of the overhead of sales and distribution, margins are fairly thin. Those are 'real costs'.
Almost every single good ever produced is commoditized on some level, and therefore market prices are predictable from the cost of production.
BTC is no exception: if it costs $1 to make $2 in BTC, you can be sure a lot of people will be 'making' BTC until the cost of making BTC and it's market value start to merge.
The remaining demand for BTC ... given the fact it has no use, it's not a currency or a generally accepted store of value ... is speculative in the purest sense. It's whatever a bunch of dudes holding it want to buy and sell them as. Like baseball cards.
My original point is that market value cannot be driven entirely by cost of production. This is born out by items that are sold well above production cost, and things that cannot be sold because their high production cost is above what the market will bare. The implication being that saying “bitcoin is worth $X because we spent $X to mine it” is a nonsense statement.
What’s interesting is that you reinforced my point at the very end. Baseball cards are a fantastic example of a product that’s sold in a way that’s completely disassociated from the cost of production.
Except that Bitcoin really is worth $X because someone spent $X to mine it. There is no fundamental valuation: Bitcoin is made up Internet money. It is worth whatever people are willing to pay for it. Mining is public evidence that people all over the world (well, kind of) are burning money to acquire Bitcoin. Maybe those people are cranks, but they do have skin in the game.
No, people are willing to spend $x to mine bitcoin because they can sell it for $x, not the other way around. If I spend 2x as much mining bitcoin, the price doesn’t double. But if the price doubles, I can afford to spend 2x more mining it.
>BTC is no exception: if it costs $1 to make $2 in BTC, you can be sure a lot of people will be 'making' BTC until the cost of making BTC and it's market value start to merge.
Bitcoin is weird though because no matter how many miners there are, it's still minted at the same rate globally. If it cost a miner $1 to make $2 in Bitcoin, what would not happen is new miners joining and flooding the market with more Bitcoins until the price of Bitcoin falls. Instead, new miners would keep joining and the miners would be cutting into each other's profits until it cost them all approximately $2 to make $2 in Bitcoin.
Then you're saying people are acting irrationally or there are other non-marginal costs to consider (i.e. startup costs) in which case you're really saying it's >> $1 to mine a BTC.
But that's not really the point.
Let me put it differently: if it costs $1 to mine $1000 worth of BTC ... then, new miners will flood the market until the cost of mining reaches parity with price. This is not a BTC specific or controversial statement here.
The argument is that in most markets, this parity is reached by bringing the price down. For bitcoin, it is reached by bringing the cost up. More miners means it gets harder to mine, so it costs more.
>For bitcoin, it is reached by bringing the cost up. More miners means it gets harder to mine, so it costs more.
I think this is what you meant, but just to clarify: the cost of mining will go up, not the cost of Bitcoin. (Miners joining or leaving shouldn't directly affect the price of Bitcoin. The same number of Bitcoins exist and get minted regardless of the number or activity of miners, as long as it's nonzero anyway, so miner activity doesn't directly affect the supply and demand of Bitcoin.)
Or your both correct. There are two sides to the coin. Miners are more likely to enter or expand in a profitable market. Profitability is measured by income - costs. Thus, costs -- in this case, electricity, real estate, equipment price -- set a long-term price floor for bitcoin.
They can be mined at a loss temporarily, in order to drive out competition, but at some point, a miner operating at a loss will go bankrupt. This is no different from the oil industry, where capital outlays so high that most players continue to produce at a loss, temporarily. But long-term, the price must at least match costs of production.
The cost of mining doesn't set a price floor. If the price of Bitcoin falls so that the revenue of mining falls below the costs of mining, then miners will drop out until the cost of mining falls enough too.
Bitcoin is minted at a predefined global rate; the amount minted doesn't depend on the number of miners. Miners compete with each other for a share of the predefined minting action, so some dropping out does not decrease the minting rate of Bitcoin, but instead makes it more profitable for the remaining miners.
If Bitcoin's price fell so it becomes unprofitable to mine, that will not cause Bitcoin's price to go up until it is profitable for miners. Instead, what will happen is that miners will drop out until mining becomes profitable for the remaining miners.
That effect goes the other direction though. The price has to go up for people to bother to produce. If the speculation dries up a bit, the price won’t increase and this halve reward will wipeout miners with low margins and the remaining will still keep producing the same amount with a higher cost.
Remember, production is built right into the protocol. 10 miners could keep the network going at the same pace.
> Remember, production is built right into the protocol. 10 miners could keep the network going at the same pace.
A network with only 10 miners could easily be attacked with minimal effort. The only thing stopping the attacker would be the fact that it's a waste of time, because a cryptocurrency with only 10 miners is worthless.
Wiping out too many miners at once is dangerous business.
That's not a good illustration of LTV, which is not discredited at all. For traditional software, the vast majority of the labor involved takes place at the initial creation. The rest is (much less costly, in LTV terms) distribution and licensing.
There are some pretty well-mounted contemporary (i.e. last 20 years) defences of Marx's formulation of "the labour theory of value" (the terminology is up for debate, since Marx never used that phrase himself, and his theory is distinct from Smith's and Ricardo's) and the theory's normative conclusions. These defences come from philosophers and heterodox economists alike.
There's a Reddit comment here[0] with links to them, but it's up to you to decide if they're worthwhile or not. I have some doubts, but I would not go as far as to throw the word "discredited" in so casually. The comment also includes links to research against the "LTV".
The reddit post still describes an intrinsic value theory. All intrinsic value theories are discredited, not just this or that formulation of the LTV.
It's fairly trivial to reason from any given intrinsic value theory to absurdities, this is basically the foundation of marginalism and the last 150-odd years of economics.
Yeah... it’s sad, there is actually a really rigorous and sound theoretical core of economics that some incredibly diligent and thoughtful people came up with between 80-150 years ago. Sadly, most of this fails to make it into modern economics courses and is utterly absent from public economic discourse.
Somewhat ironically, the only people who still make discourse concerning value theory are heterodox economists and philosophers who disagree with marginalist value theory, and mainstream economists tend to have very little engagement with them, either in agreement or disagreement. The debate rages on (though much more quietly) with strong normative implications. Paul Samuelson himself was arguing the point in the 70s and 80s. The real shame is that people think these issues are at all settled in economics simply because many economists believe them, or don't concern themselves with them because of their abstractness.
I've had this argument before, as to what "intrinsic value" really means, and why the labour theory of value as advanced by Marx is not an "intrinsic value" theory; for Marx there were very few things truly "intrinsic" to history or value. Marx describes labour-value as having a "phantom-like objectivity". The question is not of being intrinsic, but of being objective. Almost all the authors cited in the Reddit comment are written after marginalism, and some even rebut the old marginalist arguments against theories of value like Marx's.
The fact that products have prices is an empirical fact; Marx's argument is that this fact is only one premise in his 'proof' (using the term loosely) of the "LTV". According to Marx, a good does not have "intrinsic value" any more than it has "intrinsic price". We still say that price determines what goods sell for (even if that sounds tautological).
You're right that intrinsic isn't really the right word, but the problem with pre-marginalist theories of value isn't that they're intrinsic per-se, it's that they're objective.
It's exactly that products do not have prices that is the problem. The apparent 'price' of a product is an epiphenomenon of a particular market, a side effect of the unequal subjective values of the participants (and it's trivial to observe that these clearing prices are determined at the margin, not on average, which makes aggregate LTV even wronger than the regular kind)
In a well-functioning market all products have clearing prices that are easily measured and compared to one another, but this is a mirage that requires constant arbitrage to maintain. The slightest change in unrelated market conditions turns dirt into ore or crude oil into toxic waste, with no objective change in the material itself, only changes in the subjective needs of the participants.
Which ironically is one of the underpinnings of Marxism.
Edit: it’s literally the second sentence in the Wikipedia article:
> LTV is usually associated with Marxian economics
The irony is in a Bitcoin investor and Marxists sharing some economic common ground for their beliefs, since otherwise those groups rarely have much in common.
Isn't that supposed to be an equilibrium? As in, if the price of bitcoin increases (because the economy expands, assuming that it's the main currency) then miners make more money, so more miners enter the competition which means fewer rewards for individual miners and we're back to equilibrium?
Given this feedback loop, how do you establish what's the proper equilibrium? What's the total amount of hardware bitcoin is supposed to stabilize on? As a thought experiment, if BTC stabilizes at $30k, that means that the total value of all bitcoins will be about half a trillion dollars. How can that work if Bitcoin becomes the new dollar? Clearly the entire world ecomony is more than that.
Normally I'd assume that I'm missing something and the people who came up with that model know more than I do, but then again we're talking about cryptocurrencies so...
>As a thought experiment, if BTC stabilizes at $30k, that means that the total value of all bitcoins will be about half a trillion dollars. How can that work if Bitcoin becomes the new dollar? Clearly the entire world ecomony is more than that.
If people overall wanted to purchase enough Bitcoin to have more than half a trillion dollars in Bitcoin, then demand would outpace the supply and the price of Bitcoin would go up, making it possible to have whatever amount of value in Bitcoin. It's nonsense to presuppose the price of Bitcoin staying still while demand outpaces the supply. No one sets the price of Bitcoin but supply and demand.
Exactly, just like how workers get paid a salary in accordance with the real-world costs they bear in order to produce their output...er wait, this isn't how prices work is it?
You could have said that in every bull run. You could also say that about the S&P, if it's going to be worth more later why isn't it instantly that price now? And it's because it simply isn't worth that now plus different investors have different investment periods.
But you can invest in the S&P like that (through index funds), because the S&P tracks the performance of a rolling selection of stocks, not the backdated performance of a future selection of stocks that is unknown in the present.
Exactly, this is a fundamental fallacy of index investing—you can’t “buy the market” and any ETF that claims otherwise is a cleverly crafted leaky abstraction. The problem with leaky abstractions is that you usually have no idea that they leak until everything collapses...
BTC is different because it isn't backed by something like ownership in a company.
Also, there are different risks than equities. Equities have the risk of the company failing or being significantly impacted by many different things happening, while there are existential risks with BTC I feel these are often ignored or accepted as not applicable to most BTC investors.
Bitcoin isn’t a security, so it’s hard to say what it even means for something to be “priced in”. Everyone who buys or sells Bitcoin has a unique value thesis and the current market price is the net result of those competing theses. But at the end of the day, the value truly is whatever people think it is, unlike a security which has fundamentals i.e. cash flows that give it some firm ground to stand on.
They already got wiped out in early March when the price dropped 50% in one day. Trust me—I was there at 2am when BitMEX suffered a DOS attack right when the price bottomed and rebounded $1000 in less than an hour.
> Roughly it predicts [2] that the price will settle into a band around 30,000 USD sometime next year.
No, it predicts it will be at $30k at the end of this year, and $100k this time next year [0]. I'm pretty comfortable saying that no, it wont. If I though there was a reasonable, legitimate way to trade against that outcome occuring, I absolutely would. For reference, in the past year, BTC has increased in price by ~$1450 or 20% - getting to $100k would be over 1000% increase.
You cant see price data without creating an account that requires a social security number and government ID, which is a bit suspicious. Looking at a different, larger exchange, I see virtually no action to be had at high strike prices: https://www.deribit.com/main#/options?tab=BTC-25DEC20
Call it suspicious or whatever you want, but they are licensed in the US. My experience with their platform is that cater to much more passive investors than the typical crypto exchange. For example, people who want to hodl but sell some OTM calls to generate income from their holdings.
According to my theory based on BTC history the next peak will be $225038 or a 1020% increase over the previous peak. That's kind of conservative. My last estimate for the next peak was only $8903 but it hit $20089 or 1681% increase over the previous peak. I don't own any BTC but I just did this little sheet for fun lol :) also I don't try to predict when this happens, just a very rough estimate of the next peak level based on its previous history.
The problem with that analysis is that it assumes past performance has something fundamental to do with future performance - it takes a lot more investment to move the price of BTC from $10k to $100k than it did to move it from $0.10 to $1.
Apple stock has increased 100x in the past 15 years, but that doesn't mean it will increase 100x in the next 15 years (which would put its market cap at approximately 5x US GDP).
2017 was definitely unexpected. I assumed the % change since previous peak would have gone down each time as your theory would suggest instead of up nearly 3x as much. The interesting thing is that the number of bitcoins in circulation (currently only 18,375,312) has grown so slowly and steadily as it is designed to do. I'm curious how many bitcoins are lost forever in inaccessible wallets.
Nope have not. When I started this sheet back in the day I considered it a new modern currency actually, it was before the government started taxing it as if it were a stock, etc. It really is nothing like any existing stock, security and should not be compared to those.
I suppose my instinct is to think just because you were right once or twice about BTC using this model doesn't mean you'll be right about it going forward. What intrinsically about this model should give me confidence in it?
My level of confidence can be described as (confidence != 0) lol. Really the only thing that will make it continue is if the scarcity continues to increase and it continues to be used to trade for things then it should continue to rise but I don't think zeroing out is possible.
Another key factor which these models often ignore is the rate of "Tether" printing, which is often used to buy bitcoin and is not subject to limits.
My own prediction is to observe that the price has been in a wide band around $10k for the past year, so will continue to hover around that, with gradual upslopes and sudden dropoffs of 5-30% for no apparent reason that cannot easily be post-hoc linked to events.
If you didn't draw it in a log scale, you wouldn't see the patterns when they occurred in the lower levels since the size of the later movements would dominate the graph.
Basically it is a way to show that there is similar movements in the value even when the ranges they move in are completely in different scales.
But doesn't this effectively just massively under-represent the actual deviation between the price and estimate and the error bounds. If you convert back in to real numbers this estimate is like saying APPL will be between $100 and $1000. I'd be interested to know if there are any other traded products that we view on a logarithmic scale.
If APPL is currently at $90, that prediction says you'll make somewhere between a lot and a ridiculous amount of money. It's not at all precise, but the action you should take if you believe the prediction is clear.
> If you're wondering why your friends who are into cryptocurrency are in a tizzy
I'm not wondering that, because none of my friends are in a tizzy. Are your friends in a tizzy? Am I just outside the social connections to the tizzy club?
The event is known as the “halving” or “halvening,” and occurs every four years, where the rewards for those who support bitcoin are slashed, quite literally, in half.
So-called bitcoin miners expend tremendous amounts of computing power to verify transactions and link them, digitally into a block, hence the term blockchain. Miners on the blockchain — the digital ledger technology that underpins the currency — receive a precise number of bitcoins for their efforts in solving a complex puzzle.
That computing effort is at the very heart of the digital currency that was created 11 years ago by a person, or persons, identifying themselves as Satoshi Nakamoto.
"Mining" is a brute force search for a solution to a cryptographic math problem. The difficulty of that math problem is adjusted so a solution is found about once every ten minutes.
Whomever solves it get's a reward + whatever transaction fees happened since the last solution. That reward was initially 50 BTC, it has halved 4 times now, 50,25,12.5, now 6.25.
Something like a lottery that gets drawn every ten minutes, but instead of somebody rewarding you, you just have to show the network that you found the solution.
After the halving, the reward per round is... well cut in half.
This affects mining profitability. Puts lots of hardware in locations at negative profitability so they'll have to shut down and buy new hardware, find cheaper electricity, etc.
Whatever happens, difficulty will be adjusted so the same 10ish minute block reward time is maintained.
What does this do to value? Eh, the bitcoin market isn't very rational or consistent. Miners will have less to sell, certainly, but people will have all sorts of ideas of what it will do to the price of bitcoin and since so much of bitcoin is speculation and so little is using it for any real transactional purpose, who knows?
> Whatever happens, difficulty will be adjusted so the same 10ish minute block reward time is maintained.
How is this calculation distributed and agreed upon?
Is there really some constant "10 minutes" hard-coded into all mining clients, who then must all compute the difficulty based on how long the previous block took?
Or is the "10 minutes" an emergent property of some other calculation?
The Bitcoin code is set to halve block rewards every 210,000 blocks. If a miner attempts to mine a block with a too-high reward, the network nodes will reject it as invalid.
It's built into the protocol. After X number of blocks mined, the reward paid for a mined block halves. This repeats every 4 years until all blocks are mined (about 100 years from now).
The markets for a lot of esoteric commodities are dictated by the whims of a select few organizations. It's partially how so many of these end up being control by cartels, the demand for cranberries or topaz is just no where near that of soy beans and oil, making it relatively easy to corner the market.
> Bitcoin lies in the same economic category as financial games like poker, roulette, and the lottery. These are all zero-sum games. The property binding all zero-sum games together is that the amount of resources contributed to the pot is precisely equal to the amount that is paid out. Because nothing additional is created in a zero-sum game, for every player who wins something from the pot, there must be a loser.
It didn't work. It doesn't function as a currency. Whatever the intention, it's a speculative, high-volatility commodity with no use value traded in an unregulated market.
I’m not sure why you’re confused about it being downvoted.
1) Whether or not it meets the (or someone’s preferred) definition of currency is wholly incidental to the answerer’s explanation, so even if correct, this is not the place to make the point.
2) Bizarre non-sequitur that equates finiteness of currency with zero sum utility which is a real stretch and easy to find counterexamples for (eg chore tokens).
For the cherry on top, it links Medium as a main source.
Sure, everything can be used as a currency. Gold, bitcoins, fiat cash, snackpack puddings at lunch, seashells, etc.
Then there are qualities that make something a good currency, by modern standards. As others have pointed out with links to examples, being deflationary, irreversible, volatile, and having low coverage with unpredictable fees are traits that make Bitcoin not a very good currency. Yes you can hand wave about future promises to be a great currency or chore tokens, but that does not reflect the utility of Bitcoin right now as a good currency.
I wasn't addressing whether bitcoin is or isn't a good currency. I was explaining why I downnvoted a comment that argued to that effect.
Are you saying that every comment whose conclusion happens to right should be upvoted (or at least not downvoted)? If so, that would be a mistake. If you present bad reasons to believe correct conclusion X, you are hurting the discussion just as much as if you argued for not-X. And the reasons given in that comment (fixed quantity implies zero-sum utility over such transactions) are bad reasons to believe bitcoin is not a currency.
Furthermore, there's still the fact that the commenter was latching onto a minor, tangential point and blowing it up to be the focus of the discussion. That's also an anti-pattern.
If you want to argue that bitcoin makes for a bad currency, great! I would just encourage you to bring it up in a place where it's actually relevant to the article or comment it replies to, and do so with reasons that pass simple sanity checks.
So you’re saying someone can make the comment stating it’s a currency but it can’t be refuted? Where then should this statement be discussed if not here? Should we start another thread to discuss the this specific comment and it’s reply? Further, the entire downvote system harms the conversation more as people leave or sit out conversations due to their voice being stifled by some random(s) on the internet. Lastly why is medium a bad choice? Legitimate articles have to be posted somewhere and most people don’t want to go through the trouble of setting up their own domain. If there were a custom domain in front of that medium link would you have cared?
>So you’re saying someone can make the comment stating it’s a currency but it can’t be refuted? Where then should this statement be discussed if not here? Should we start another thread to discuss the this specific comment and it’s reply?
No, I'm saying that if the bit about it being a currency was incidental to the core point, then you shouldn't turn the thread into a debate about whether it is a currency; you should use replies there to address what was the commenter's core point, which began as explanation of the mechanics of the halving.
Are you seriously saying that that there are no other comments on this discussion where it's actually relevant that Bitcoin is a currency and you can't bear to take those discussions there?
>Further, the entire downvote system harms the conversation more as people leave or sit out conversations due to their voice being stifled by some random(s) on the internet
The comment also gave a very bad reason to believe that bitcoin isn't a currency, and yes, that was polluting the discussion. No one has yet stood up to defend that argument, so I think I was on the right track.
>Lastly why is medium a bad choice?
Because it's an annoying site with every UX and privacy anti-pattern. ("Excuse the interruption...") But again, that was just on top of the two worse sins -- changing the core discussion, and presenting a poorly thought reason.
If you want to be Big Mad at somebody, pick the guy who introduced the notion of bitcoin-as-currency as part of the explanation. But once that was introduced as part of how to value it, it was reasonable to reply to it.
Are you familiar with the idiom "cherry on top"? There were two much more important reasons before that one. If you want to defend your comment, start with those.
And if you were correctly representing the Medium article, then it's still a bad argument for the reason I gave. I would recommend using a different argument, or finding a more correct point to draw from that article.
But then, as mentioned before, you were still blowing up a tangential, non-central point (whether bitcoin is "a currency"), and that still makes it an unhelpful comment, for making the point there. The comment would have communicated just about the same thing if it said, "bitcoin's value, like any financial asset, is determined by the market"; nothing in the comment was making major inferences specifically from bitcoin's status as a currency.
Would you say the same thing about gold? Genuinely curious, since obviously Bitcoin is frequently compared to gold as a store of value instead of a unit of exchange.
The most persuasive defense of Bitcoin as a store of value is that the world needs precisely one digital store of value, and game theory may dictate that it will end up being Bitcoin.
But yes, Bitcoin is obviously ridiculously volatile. I tell friends that there is money to be made, but you need to have a very strong stomach for it.
Would I say what? That it's a "speculative, high-volatility commodity with no use value traded in an unregulated market"? No. Gold has use value and is generally traded in regulated markets.
If something is volatile and great for speculation, it's a bad store of value. So I don't think Bitcoin qualifies as that either.
Whenever I see things like this, it reminds me of articles about VR being dead and how its obviously not actually useful or interesting.
It has always had potential to be a currency, but it requires a context of use in order to actually function as a currency. That context is still being established, and until it is, any basic evaluation of "is bitcoin a currency" will result in a "no".
An illustration could be McDonald's offering of a burger for $1, where you'd prefer burger and McDonald's would prefer $1. If you give them $1 and McDonald's give you the burger, both of you would be better off.
The underlying assumption is that your utility of the burger is greater than $1. Which is true because MacDonald is very, very efficient at making burgers (compared to you).
With bitcoin, it's a speculative trade. Everybody is "equally" good at making a coin. So the trade is happening purely due to an expectation of future utility, which may or may not come.
> due to an expectation of future utility, which may or may not come.
It's been 11 years and there's not an even idea of what legit utility it might have that existing tools and protocols do not fulfill. A significant proportion of suggestions could be done much better with git of all things...
Isn't it the opposite, that any free market is not zero-sum? If two parties trade it means that each offers the other something they value more, so both parties end up in a better situation than before, thus increasing value.
The last statement, yes. Miners receive less new Bitcoin for each block, which, of course, assuming the price stays the same, means that their mining becomes less profitable. The price itself isn't directly tied to the block reward, though the market has recently been more volatile in anticipation of the halving.
It's a little more nuanced than just getting paid half as much to mine. Miners earn income form two sources, a per-block "subsidy" (source of the mining analogy, this is simply materialized and given to the miner), and per-transaction "fee" for each transaction included in a blocks (these fees are paid by the transaction initiator). Only the subsidy is getting halved. I think the long term vision was the fees would be the main source of income, but they've never made it past around 30%, and are currently only about 5-10% of the total reward.
I don't think so, after all there was a soft-fork (SegWit) and a few hard-forks (Bitcoin Classic most famously) just to address the high volume of transactions. I think the creator did not anticipate bitcoins becoming so valuable. The high value means that people are only willing to pay small fractions of the block reward as fees, because that's worth a lot of money.
It becomes less profitable to mine, so probably less people will mine it. It reduces the potential amount of BTC that miners have to sell to recover their costs. The idea is that less selling will increase price.
Actually the transaction fees accounted for over 12% of the block reward for block 630000
Also, it may help to think about it this way: you don't mine the subsidy, you mine the transactions and reap the transaction fees. The subsidy, which halves ever 210000 blocks, is just that, a subsidy.
Imagine if more subsidies (like the US subsidy for corn that still exists since the first great depression) had been hard coded to expire?
Completing the mining of 1 block of bitcoin now rewards half as many bitcoins as it used to. Bitcoin hyper-bulls think this is a massive event and believe it will lead to Bitcoin rocketing to $300K-$500k by next year. Bitcoin increased in value by hundreds to thousands of percent after the last 2 halvings but whether this is a cause and effect relation is not clear. Both were during the Bitcoin Hype train.
Does this mean the end of businesses that seemed to exist only to mine using custom computers and GPUs? Because their revenue stream has been cut in half?
The block reward has been cut in half. So if they were mining for 0 transaction fees then their revenue would be cut in half, but nobody does that. The actual change will thus be less than half, and it's possible transaction fees will increase.
a halving has nothing to do with its value. demand stays the same, supply cut in half. analogy fits no matter which asset class you happen to respect more
Yes, supply growth. A semantical distinction not used in any other asset class so why here? Maybe it does better help someone understand, here's to hoping.
But in any case, BTC does get burned in a variety of ways - immovable unable to be spent - in predictable ways based on the poor but improving user experiences. When it isn't burned, people look at the days destroyed metric to understand the actual supply.
This is an ignorant question, but maybe someone can finally explain this to me...
"So-called bitcoin miners expend tremendous amounts of computing power to verify transactions and link them"
If this is true, shouldn't the ability to mine be limited by the computational resources needed to perform these tasks? Instead, it seems people increase computing power with no apparent limit in order to mine, and the "demand" for that power is never met.
All the work in Bitcoin mining is going toward making it harder for someone to rewrite the history of Bitcoin transactions (which would allow them to take back sent Bitcoin). More miners means it's harder for any attacker to rewrite the transaction history. The protocol incentivizes people to mine (and simultaneously solves the problem of deciding who to distribute newly-minted Bitcoin to) by distributing the fixed amount of newly-minted Bitcoins between the miners every ten minutes.
Bitcoin's security relies on the true blockchain having more Proof of Work in it than any attacker could create. A Proof of Work value is a proof that you had a computer spend about a certain amount of processing time tied to a specific input value. Someone with one computer can't produce Proof of Works as fast as someone with multiple comparable computers. Someone trying to take-back a Bitcoin transaction and create an alternate blockchain with their transaction removed can't create Proof of Works as fast all of the world's Bitcoin miners working together (unless they have a secret god-tier supercomputer, or somehow convinced most of the world's existing Bitcoin miners to work for them instead).
We mine Bitcoin for the same reason we mine gold, it's extremely difficult/expensive to make gold. Gold has verifiablity at a molecular level. Bitcoin is verifiable at a level of entropy.
I think Satoshi maybe liked the idea of having these big “events”.. sort of like the olympics? It also helps give everybody a speculative target to try and hold bitcoin until. And one that’s typically far enough away to seem like it might not be priced in but not so far away as to be unreasonable to target. Like four years of high school until graduation, or four years of college..
the top comment on the 2012 one was about someone seriously concerned about the 2.8GB blockchain download to get started, and a debate about the scalability of bitcoin.
since then:
- light clients have been created. no mobile or desktop user worries about blocks, keeping only references to a few prior blocks.
- merchant services which are full nodes use pruned clients, which mean their servers only use 25gb or so. (while the blockchain is 10 times larger)
- compression of transactions have improved, so each tx takes up less space on the blockchain.
- validation time of the blockchain is much faster, even if you have to download the whole thing from scratch
- there is still a large and growing community of actually full nodes that do invest in the appropriate hardware for decentralization.
- and mining full nodes and their pools have fierce competition to keep their constituent miners, continually distributing transaction validation even if the pool operator is just a centralized single full node.
Most of the criticisms seem to be around the -coin and -currency monikers, not noticing those are skeuomorphs.
People get seem that it is an asset, but confuse themselves over its monetary branding instead of what people can and do with it.
Many do then move the goal post to "there is no demand or intrinsic value", which may more easily retain durable consensus with them, even though most of the criticisms elevate this asset class to a standard higher than any individual asset class in existence. But still related to the exchange rate, instead of what people can and do with it.
Does anybody actually use bitcoin? And by use I mean transact actual business, and not just speculate. You know, buying and selling real world goods and services.
Or is it like gold reserves, people just hoard these digital numbers until they are ready to cash out.
I'm really curious for the hoarders, if they're doing it as a hedge against global financial collapse, how exactly do they expect to redeem their bitcoin for anything tangible?
These are serious questions, I've given bitcoin only a minimum of thought. It seems a great way to move value out of a closed economy like China, or for drug dealers to move cash across borders, but who else uses it?
I've held for several years now (~7 or so). My logic is this:
1. This is all 100% speculative at the moment. Anyone who tells you otherwise is a charlatan. You may make someone money if you're patient, but the point is acquiring a decent stake while it's still affordable on the off (IMO, not 0%) chance that Bitcoin or one of its derivatives become a secondary and then primary spending currency. Realistically, I see a boondoggled attempt by governments to create their own digital currencies with Bitcoin being used primarily as a store of value, a la gold.
2. Technologically, Bitcoin is an intelligent solution to the financial problems created by government mismanagement and greed. It's not perfect, but it's pretty damn creative. With time, most of the major issues seem to be fixable.
3. Also technologically, Bitcoin is not ready for the prime time. The lightning network being implemented at a large scale would be the first warning shot that Bitcoin could see massive, stable use. Until you match transaction volume of Visa, Amex, etc., it's not going to take.
4. The likely timeline this plays out will be loosely correlated with the government's intervention negatively impacting the purchasing power of the dollar (speaking relative to the U.S.). The current situation is actually surprising; I didn't expect anything like this to happen for at least another 2-3 years.
5. Due to the way that humans tend to overestimate change in the short-term, the likely timeline for this to all play out is throughout the 2020's and early 30's, with the mid-to-late 2030's being the "even grandma pays with Bitcoin" moment. I'd say right now is the 97'-98' era for Bitcoin if we're using the internet as a parallel.
6. The current marketing and messaging of Bitcoin is, to be blunt, a freakshow. Painful as it may be, normal folks don't want to be associated with things that seem grimy, shifty, or subversive. The only way to overcome this is to demonstrate that using Bitcoin is easier than the current payment options, or, not having it would mean seeing all of your financial assets rapidly devalue downward toward 0 (which means the U.S. is collapsing and is a whole other bag of chips).
The fact is that adoption times for new technologies have only become shorter over time. Modern smartphones came to the market at about the same time as BTC, and they have been ubiquitous for years now. Docker was first released 2013, and has been everywhere for a couple of years. If Bitcoin were actually useful, someone would have figured it out by now, and it would be widely adopted. But it's not, because it is fundamentally flawed in a way that cannot be fixed without starting over completely, if at all. It's a barely functioning CS experiment with little to no real world usefulness. And pretty much everything that came after has turned out to be either even more broken, or was an outright scam.
> Technologically, Bitcoin is an intelligent solution to the financial problems created by government mismanagement and greed.
That is complete nonsense. Bitcoin solves no actual problems, and instead tries to revert back to a previous monetary system that was abandoned because it was failing. The consensus among economists is that a deflationary currency is a terrible idea. This is the equivalent of medicine going back to routinely performing lobotomies: it doesn't solve anything, but causes a huge amount of harm.
Zero downtime since 2013. Visa has ten hour outages across entire continents.
> Bitcoin solves no actual problems
It's been moving billions of USD daily without fail for years. That's a non-trivial amount to anywhere on Earth. Try transferring money from say former Soviet bloc countries to Africa.
> The consensus among economists is that a deflationary currency is a terrible idea.
Bitcoin is inflationary until 2140 and then stops inflating. It's not a deflationary currency. Perhaps you meant to word this differently?
That would only be true if the demand for bitcoin was almost non existent. If it will ever be used as actual currency on a significant scale the demand for bitcoin would have to be magnitudes higher than can be produced by mining making it extremely deflationary.
> The consensus among economists is that a deflationary currency is a terrible idea.
How many currencies have failed due to deflation over the last <pick your time period> years?
Now how many currencies have failed due to inflation?
Look, economists know a thing or two that I don’t, I’m sure. But for all they claim to know, it sure does feel like they get things wrong on a pretty regular basis.
> That is complete nonsense. Bitcoin solves no actual problems, and instead tries to revert back to a previous monetary system that was abandoned because it was failing. The consensus among economists is that a deflationary currency is a terrible idea. This is the equivalent of medicine going back to routinely performing lobotomies: it doesn't solve anything, but causes a huge amount of harm.
There are economists I respect that hold cryptocurrencies in good regard. Exhibit A: Jeffrey Tucker.
>If Bitcoin were actually useful, someone would have figured it out by now, and it would be widely adopted.
Diffuse benefits, concentrated costs, and a set of governments which gain much of their power through monetary policy blows this assertion out of the water.
>The consensus among economists is that a deflationary currency is a terrible idea.
There are a few fiat currencies that have negative interest rates. They are not going anywhere. Most notably the European central bank.
But the euro is not deflationary. Negative interest rates actually have an opposite effect of what you're assuming, they should discourage hoarding and encourage borrowing which results in a higher money supply.
> and instead tries to revert back to a previous monetary system that was abandoned because it was failing. The consensus among economists is that a deflationary currency is a terrible idea
Much like how usury (aka interest) is such a great idea? It's no wonder those economists will say that, in order to push a corrupt and parasitic economic system which religions have warned about for thousands of years now. Building an economic system on usury is not sustainable, and we're seeing it today.
The previous monetary system worked just fine, it's just that it didn't sit well with the greedy who need interest to live and profit off of people's hard work.
You are probably forgetting its purpose as a digital gold. It is more practical than gold thanks to its easy splitting to milliBTC, microBTC, ... an can be transferred world-wide in the matter of minutes. Both real gold and money takes hours or days to transfer. There is also some amount of anonymity and greedy governments or bankers can't touch it.
It is used as a toy, as speculation, for criminal activity, and for money laundering.
There is not much actual legitimate usage. It is pretty bad for privacy as the whole idea is that the entire transaction history is public and permanent.
There are lots of trading bots shuffling amounts back and forth without actually buying anything. High speed trading is no different, it's not like the computers are buying, say, actual physical bananas; they are just trading back and forth.
No -- since the early days of the "World-Wide Web", there were plenty of uses: colleges all hopped onto it, entertainment websites popped up, the first version of IMDB was mind-blowing, Yahoo! v1.0, James Berardinelli's movie reviews site... the list goes on and on.
Anyone saying it was just porn and drugs would just be disingenuous.
But Bitcoin, I'm not sure I've encountered a single "Pay with Bitcoin" option in any online shopping I've done. So where are the legit use cases hiding?
I've seen it from time to time. For a while, Dell was accepting BitCoin transactions, so you could, say, purchase a laptop with BTC (they seem to have since shut it down)[1].
More recently (last year) I came across a VPS provider accepting BTC. I think there are VPN providers accepting BTC, but I'm not familiar with that market space.
That's just what I've stumbled across. Google searches seem to bring up more, but... yeah. Seems to me to be a pretty large chicken-and-egg problem. Something that could take off, but needs a substantial catalyst.
I sold a motorcycle over craigslist a couple years ago and I would have much preferred to have the buyer send me bitcoin instead of giving me stacks of 50s. I wasn't able to demand a cashiers check and I wanted to make sure the sale would go through that day. Cryptocurrencies are amazing for large (legit) p2p transactions.
Exactly
1) possibility of a miscount & time it takes to count all those bills
2) fear of forgery/fake bills
3) carrying the cash on my person to the atm while living in a sketchy neighborhood
4) no “proof” of how much he paid if it came down to a court/tax dispute
Sorry, I am not saying early WWW was for porn or drugs. I am saying that was what ordinary people thought of internet. Similar concept is happening for Bitcoin as well.
> It is pretty bad for privacy as the whole idea is that the entire transaction history is public and permanent.
Yeah, I get that there aren't a lot of options besides Bitcoin for unbanked transactions, but there are a lot of potential ramifications around the radical publicity inherent in blockchain-based currency.
If whoever held the coins 3 transactions ago ends up getting in big-time hot water, should I expect the feds to try to confiscate them? I would at least be under additional scrutiny in order to determine what association I had with the illegal enterprise, being so close in the chain. Bitcoin tumblers and mixers only do so much to prevent this, especially as people have started discriminating against "tumbled" btc.
Minor correction: Radical publicity is not inherent to all blockchain-based currencies. Take Monero as a counter-example. AFAIK in Monero no one can query the balance of any address except the key holder for that address, and no one can see the sender, recipient, or value of a transaction except those party to it.
I believe I've read about people in developing countries with high inflation in their government's currency rely on bitcoin but I don't know how true that is. I've never bought anything with bitcoin and I hope I never have to.
Which in most cases wouldn't be legal locally, which fits under money laundering. Morality might be a little more indeterminate depending on the situation.
It's only money laundering if you're using cryptocurrency to get out of paying taxes or to hide criminal activity. It's not money laundering to buy something instead of keeping your money in a currency undergoing inflation.
Money laundering is attempting to hide the source or destination of funds. Hyperinflation states will usually have strict currency controls in place and Bitcoin is useful in that situation to get around those controls, the whole idea being... its usefulness in hiding the flow of funds.
I use USD-C and DAI to give out grants to a team of international volunteers. Could not get payments to a guy in Turkey through venmo, paypal, square cash, or transferwise. Now we just send everything via stablecoins.
Curious what products to use to send the stablecoins with?
Working on an app that lets you send USDC to any email or phone number globally. Let me know if you want to hear more.
No, the maintainers have purposely neutered its usability in favor of it becoming a "digital gold" or a "digital reserve". Fees are far to high for common uses, and this is entirely intentional. If you are looking for usable crypto currencies, you should look at Ethereum, Bitcoin Cash, Monero, or many others who have set up their chains to accommodate actual day to day use.
Average != actual, though. You can pay whatever fee you want.
I'm pretty sure that if you set a fee of $0.10, your transaction will be verified much sooner than you might think. It would be interesting to quantify, at least.
Waiting more than a few minutes eliminates all in-person, food delivery, and probably most same-day delivery transactions. Who’s going to wait an hour for the purchase to go through for an Uber Eats or Prime Now delivery?
A vast majority of transactions don't need to wait for a full confirmation, simply existing in the mempool is enough. Just like my electric bill doesn't need to wait for the ACH transfer to complete before it's considered paid.
But that's because a company is extending credit to you, the customer, that money is being deposited next day or a few days at most into the merchant account. Without someone willing to be left holding the bag (credit card company) it's a bit of apples and oranges I think.
The blockchain has no support for this kind of feature. That's rather antithetical to Bitcoin. How do you propose to achieve this without a central bank figure?
The "blockchain" doesn't need to support this - the GP's point is that transactions don't need to irrevocably settle for all transaction types. If you're spending $5 to buy coffee, the chance that you are going to defraud the store is low, and there are a number of less complex ways you could accomplish this anyways (just take the item off the shelf, and leave without paying).
And I'll note that there are other ways to accept bitcoin payments without high fees or long wait times (lightning).
I strongly disagree. I think you are overestimating the morality of the common man. If you enable anonymous purchasing of items with no proof of funds being sent, it will be abused. A lot. No storefront will sign up for this. This is very different than physical shoplifting.
It's anonymous enough if you never reveal your identity. It would be like driving somewhere, paying cash, then later the cash is revealed to be fake. And there's no way for the storefront to test for legitimacy until an hour later.
1. Credit card fraud is an extremely small percentage of credit card activity. What you are proposing would likely not be.
2. Chargebacks are disputed, and as a storefront you can prove that you are not liable. Merchants can review the identifying documents of the cardholder for legitimacy and take other security steps, like using a chip-enabled card terminal, to further confirm the validity of the purchase. If they follow the process correctly, they are not liable for fraudulent purchases, the cardholder’s issuing bank is. Visa and MasterCard’s contracts generally put the burden of fraud reimbursement onto the bank.
People certainly used to use it before transaction fees became too high. It saw a lot of real use in dark net markets which AFAIK now use more privacy-preserving coins, since the bitcoin blockchain is simply pseudonymous. For regular payments Bitcoin has some tradeoffs, theoretically the high hash power makes it "safer" (though it's quite consolidated), it's somewhat less volatile than other coins due to trading volume, but its fees are quite high. It's basically dead for on-chain transactions under a certain amount.
Personally I think Bitcoin has great historic value and may become a collector's item similar to how a denarius still has value now, but its properties make it pretty bad for everything you would want a currency to be, except that it's deflationary and well-known. For anything you would want to do with it other than speculate, there is probably a better cryptocurrency (based on the actual tech/design of the currency) or non-crypto tool - it's like the Model T of crypto.
that's why there are thousands of altcoins which always have seen a spark of popularity and their slow decay while Bitcoin still being #1 cryptocoin today
I use Bitrefill to buy pre-paid credits from my daughter's mobile phone. Paying with Lightning gives me a small discount and the payment process is easy. I use the "Bitcoin Lightning Wallet" app on my Android phone (BLW). I had to transfer some coins into the wallet initially and then use some of those coins to "open a lightning channel". Once that's done, paying for something on Bitrefill takes a couple of touches. The transaction completes nearly instantaneously (like less than 10 seconds) and the fees are small (0.1% fee on 15 USD payment).
Ease of use for Lightning is not to the point where I think it is good enough for the average user. However, in the early days getting on the Internet was also not easy (remember dialup, PPP and SLIP? I do). I think Lightning is interesting because anyone has the ability to set themselves up as a merchant and receive payments. Right now it is complicated and a bit clunky but it is actually possible.
I'd guess a lot of "hoarders" of BTC are in a similar boat to me: mined/bought some in the early days (pre-2013), and have recouped their initial investments and then some, and still had some left over. I'm not holding it as a hedge per se, but more as part of a diversified portfolio, with set exit points to rebalance into other assets.
I used some of the lumens that I got through keybase. Mostly because I was buying something online and saw crypto as a payment option.
But out of all the people I know with crypto, they treat them like potions in Skyrim. One day, I'll need all of these different coins. Until then I'll just hold them in my wallet.
According to BitPay–a merchant/consumer Bitcoin processing application—they've been processing >$1B in transactions for the past few years.[1][2] That is just from one centralized service, and there are many other similar ones, private transactions, etc.
So, to answer your question, yes, apparently a lot of people use BTC for conducting actual business.
Lots of people use it for legitimate business. It's not that uncommon to see it as a payment option online and I use it because it's more convenient and more secure than a credit card. For example, I frequently use Bitcoin to pay for domains on Namecheap.
In the early days, Nakamoto wrote to somebody and said Bitcoin can scale larger than VISA for a fraction of the cost. Was he wrong about that, or has something changed since then?
VISA scale is roughly 10,000 transactions per second. If you count Lightning network, that's theoretically possible, but I don't think the network is currently doing anywhere near that and has some scaling and liquidity issues from what I understand. Maybe it will get there, but it's not there yet.
As for fees, however, Bitcoin does not care how much BTC you're sending in a single transaction, whereas VISA charges 1-2% as a fee. So, if you want to transact in large amounts (tens of thousands to millions of dollars) across borders, it's hard to beat Bitcoin.
Personally I have more faith in Ethereum community to solve the scalability problem with blockchain vis-a-vis zkRollups, Optimistic Rollups, and Sharding. Ethereum already scales to 2,000 TPS and after ETH2 is launched, will exceed 100K transactions per second.
> So, if you want to transact in large amounts (tens of thousands to millions of dollars) across borders, it's hard to beat Bitcoin.
No, it's actually very easy. Moving 100k across borders with a SWIFT transfer would cost me $20-30 (and I'm a nobody, someone doing that a lot would switch to a business account and pay maybe half of that). And if you time it well (i.e. during office hours for the emitting, intermediary and receiving banks) it shouldn't take more than a couple hours.
And that's using USD. Switch to Euro as your medium and now it's costing you literally nothing or a few cents.
> it shouldn't take more than a couple hours
That's simply not true. It takes days for most banks to "settle their books", before which any money they've transferred hasn't really gone anywhere.
For day-to-day expenses for us common folk that's not really a concern but for big sums of money the recipient will want a little more certainty of the transaction having completed.
This is another good point. Even for day-to-day transactions, VISA is not instant. The only thing that's instant is the authorization that you can spend X amount of money. But the actual transfer of funds from customer account to merchant account takes days. Whereas, again, with Bitcoin or crypto, it's minutes to settle.
> As for fees, however, Bitcoin does not care how much BTC you're sending in a single transaction, whereas VISA charges 1-2% as a fee. So, if you want to transact in large amounts (tens of thousands to millions of dollars) across borders, it's hard to beat Bitcoin.
Bitcoin was designed to have lower fees than traditional payment processors. From the introduction of the Bitcoin whitepaper:
> The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions, and there is a broader cost in the loss of ability to make non-reversible payments for non-reversible services.
The current narrative of BTC being "digital gold" and "only for big transactions" is not what it was originally designed as. In this sense Bitcoin Cash (BCH) [1] split from BTC to follow the original plan of electronic P2P cash that works for transactions of any size, including cents.
No, he was right.. what changed since then was who maintains bitcoin. They stubbornly refuse to raise the max block size past 1MB, despite Satoshi putting it in as a temporary bug fix back when the average block size was more like 1KB. Bitcoin could easily scale larger than visa with sub-penny fees today simply by upping or removing a hard-coded constant. It’s insanity imho.
You refer to Bitcoin Cash (BCH) [1]. You are right that it split from Bitcoin BTC to follow the original scaling plan: increase the maximum block size and improve the software to make such bigger blocks work in a P2P network. Its adoption has been slow, but don't forget that it had to begin from scratch, as BTC was the one who retained the network effect. That's one of the difficult problems of cryptocurrencies: bootstrapping.
The big question for me is where would we be today if Bitcoin BTC hadn't sidetracked the original scaling plan and its adoption hadn't stopped in its tracks 3 years ago. Remember when Steam accepted Bitcoin? Microsoft Xbox Online? Dell? NewEgg? It was almost every week I read about some big company starting to accept Bitcoin. Then when they realized people were not using it because of the raising transaction fees and long confirmation times they dropped it.
>Was he wrong about that, or has something changed since then?
Nope he was right about that. What changed is blockstream took control of bitcoin development. They dont agree that on chain scaling is possible, and instead push proprietary alternatives to scale bitcoin where they can extract fees.
I have friends in VZLA that use it in the current cash crunch / hyper inflation. Also know people in Peru/Colombia that use it as a transport layer to get money home into Venezuela.
Recently a shop had a ~15% off sale if you paid in Bitcoin. Considering taking advantage of it, I did some research and even bought a small amount of Bitcoin to test it out.
Purchasing Bitcoin legally is a pain. If you have an online bank account, most of them do not allow cryptocurrency purchases via debit or credit. Even some traditional banks will not allow cryptocurrency purchases via debit or credit. If you have to go the route of bank transfers, you'll have to pay transfer fees and sit through 1 - 3 days of BTC price fluctuations. If you want to use cash or bank deposits via LocalBitcoins, you'll be paying a significant markup over Bitcoin's trading price, and most sellers have a KYC policy that would allow them to easily steal your identity.
Say you have a credit or debit card that can be used to buy cryptocurrency. Registering with an exchange is a hassle requiring a camera, a phone and multiple forms of photo ID. There is a waiting period before being allowed to purchase cryptocurrency. Exchange fees are high, as are transaction costs. I bought a small amount of BTC and wasn't allowed to transfer it from the exchange for 24 hours because of fraud protection.
I did the math and I would lose more than the 15% discount would have saved me just by buying and transacting with Bitcoin. On top of that, the entire process was unpleasant.
Bitcoin is useful for when other payment methods are made impossible by financial censorship. For example, if you want to buy a 4chan pass you must pay with digital currency (Bitcoin, Bitcoin Cash, Ethereum and Litecoin).
I _have_ used it - for example, Visa/Mastercard won't allow you to buy marijuana seeds, even in jurisdictions where it's legal, so crypto is great for that.
But over the last few years, bitcoin has gotten _harder_ to use for transactions, as the blockchain has gotten more crowded. In theory, the "lightning network" is fixing that problem, but at this point I usually transact in other cryptocurrencies - there are plenty of them that have stable enough prices for that! But I still own bitcoin as speculation and as a sort of savings account :shrug: It's been a good investment so far
I bought my wife a painting (~$3k USD) with Bitcoin. I also receive part of my salary in Bitcoin. Primarily, I hold it because it's better than holding USD.
Does anyone actually use stocks? I mean, it's not like I can show up at AAPL and demand their espresso maker because I own enough shares of their stock. The "partial ownership of the business" is a complete myth. In reality, unless a corporation pays a dividend, or goes bankrupt and is liquidated and shareholders are paid, stocks are just liquid vehicles of speculation.
The question about gold is more fair. There have been times when actual gold coins were used as currency, and until 1971 the dollar was on a gold standard, meaning dollars gained at least some of their credibility from the fact they could be traded for a fixed amount of gold; i.e. paying in dollars was in effect paying in gold.
But now, no, gold's status as a "currency" is mostly from tradition. Still, it's relatively easy to use and its value is comparatively stable. And people can't just up and make a new one at any time.
Over time I think it became clear that Bitcoin was misnamed. If it's like any coin, it's a $1700 1 oz Gold coin - not the nickels and dimes people generally think of. It's a great store of value (if you have a strong stomach to short-term fluctuation) but not great for small transactions.
> Well, yes, and the same could be asked about gold…
>Does anybody actually use gold? And by use I mean transact actual business, and not just speculate.
Well, in some parts of the world (most notably South Asia, but elsewhere too), gold is used to varying degrees to "transact" marriages, so there's that. I've never seen a wedding ring made of BTC, but that would be an interesting bit of performance art ;)
Well that's the point. The right way to think of bitcoin is a digital version of gold. It's mostly being used for speculation and as a store of value by some.
Bitcoin is "hard money", the hardest the world has ever seen. People prefer to spend softer money (like paper currency) and hoard hard money (Bitcoin, gold).
If there was money less trusted than the US dollar that was widely accepted, and US citizens had it, they would choose to spend that money before US dollars.
In countries with very poor fiat currencies, people will hoard USD and spend their local fiat currency where ever they can, only spending their USD when they are forced to, because it's better money.
There's more to money than spending. Saving is a valid use case for money. Turns out that Bitcoin is a best fit too. The daily tx limit doesn't really concern this use case too much. The spending use case is much more impacted by it though.
One might suspect that if there is enough demand for the spending use case, then some other solutions might develop to increase the transaction throughput for that use case.
>One might suspect that if there is enough demand for the spending use case, then some other solutions might develop to increase the transaction throughput for that use case.
The only valid solution is to increase the block size limit, as stated in the conclusion of the lightning network whitepaper. A layer 2 is still constrained by layer 1.
Maybe the "spending" use-case doesn't need the hardness properties that Bitcoin has, but the "saving" use-case does.
I don't like the idea of undermining the latter to promote the former, when it's not obvious the former is even in high enough demand, and when it can be done in alternative ways (L2 solutions, sidechains, custodians etc).
Increasing the block size limit is not a solution to anything.
People hold gold in order to protect themselves against “unprecedented times”. You don’t need a full monetary collapse to make a profit. They are volatility harvesting and cashing out many times over a long period of time and rebalancing into other assets.
Modern portfolio theory says you can’t predict the market; however, you can be absolutely certain people in a group will overreact and over buy or sell an asset group. This is a well studied fact. You can capitalize on this. It’s called volatility harvesting. Look into risk parity portfolios. That said if everyone did this, the hard stance on modern portfolio theory would hold true. At this time humans aren’t capable of acting rationally as a total group.
I've bought a handful of ordinary things (bookshelves, a t-shirt, tire chains, coffee and pastries) with bitcoin, just for the heck of it. These are real-world things I would have spent other kinds of money on if I couldn't pay with bitcoin. I used bitcoin for its novelty.
Bitcoin itself is obviously unsuitable to replace cash (or banks, etc) in general, but I've been fascinated by cryptocurrencies since the David Chaum days, so I like to play with it. Speculating on it is more effort than it's worth, to me.
My USD$25 in bitcoin holdings did require me to check a box on my tax forms this year, though...
> I'm really curious for the hoarders, if they're doing it as a hedge against global financial collapse, how exactly do they expect to redeem their bitcoin for anything tangible?
You can sell and buy in OpenBazaar [1] or Purse.io [2] for example. In my opinion growing the native cryptocurrency economy and decoupling it from fiat currencies is the most important step to take for their adoption.
In any case, there is a number of ways to spend cryptocurrencies without having to go through exchanging them into fiat, which was the point I wanted to make to OP.
It's basically like gold with extra features, such as being cheaper and faster to move than physical gold and also it requires much less physical security (which is expensive). You can't encrypt a bar of gold.
The value of gold, bitcoin, land, etc is simply there is a stable amount of it. The price may jump wildly due to speculation but it's more likely to go up than down over the long term just because the amount of fiat in circulation is constantly increasing.
I put $200 in, and pulled $600 out, and bought my Pixel XL on it. The entire time (6-12 months) I regarded it as a learning exercise in gambling, post-hoc reasoning about value, addictive behaviour, speculation.
I was unable to buy the pixel in bitcoin, I wish I had been able to. The fragments left behind I donated to charities online (the FreeBSD foundation)
No I didn't. I declared it and showed all transactions and my accountant factored it into my tax return. I kept a diary of all transactions. Casual Bitcoin with no intent to derive a long-term investment income and for sums below 1,000 do not necessarily incur capital gains tax. If you used 'know your customer' aware FinTech it's next to impossible to hide income from the ATO these days in australia and that's not a bad thing either.
HODLing is using bitcoin. It is probably the primary motivating use-case for it. To HODL is not necessarily to speculate, but simply to save money. Money is multi-purpose, and saving is a valid use case as much as spending is - although modern monetary theorists think that saving is not a valid use of money, and thus have fixed their money systems to making saving impossible.
There is a distinction between HODLing and merely speculating, although there is overlap in these uses. A speculator is typically somebody who wishes to see their USD holdings increase in the short to mid term as a result of exchanging bitcoin on the market at the right time. A HODLer is somebody who expects their 1BTC to still be 1BTC in 1 year, 4 years, 40 years, ...
There is no implication that there needs to be a financial collapse. There is only the implication that fiat money is guaranteed to be devalued through inflation, which is decided upon by self-interested, unelected, unaccountable men in the shadows, who benefit from being the issuers of new money at the expense of the later recipients of the new money (The Cantillon Effect).
If $1 now is worth more than $1 in 1 year, or 4 years, or 40 years, then anybody of sound mind is not going to save in dollars because their purchasing power when they come to spend the money will not be worth the effort they underwent to earn it. One option for people wishing to save over a long period is to invest in risky enterprises - which is speculation, as much as any investment in bitcoin is. Those other markets are also subject to manipulation, insider-trading and other ill-doings which don't benefit regular savers.
But bitcoin presents an option which is intrinsically different from all of the others: it has an absolute maximum supply which is directly measurable by anybody, which means that its value is subject only to the subjective opinions of market participants trading bitcoin for other commodities and any shadow bankers are absolutely powerless to change this.
The BTC/USD exchange rate is not what is interesting. There are potentially infinite dollars, but there are potentially only a maximum of ~21M bitcoin and no more, ever (but possibly less). There has never been such a hard form of money in history, and even the closest analogue, gold, has been subject to inflation on the discovery of new gold mines, or even through manipulation of the matter (fools gold, coin clipping, etc). Unlike gold, Bitcoin is also easy and cheap to verify for anybody.
It gets more difficult to release new bitcoin with time due to this block subsidy decrease. There is a race to accumulate as much as possible as early as possible under the concern that it will cost you much more later (either in money, or in labour) to obtain the same amount. You're effectively bidding for a share of the potential maximum of 21M, and those shares are getting harder to obtain. To give a historical account: if you had purchased 1 BTC in dollars 10 years ago, it would've only cost you 1/8000 the amount now. Translate that into labour, and it means you'd be working for several months to years to obtain the same share which could've been obtained for 5 minutes of work if you'd done it sooner.
There's still ample possibility that Bitcoin could see 10x, 100x or even 1000x gains over the next years/decades. If you hold fiat money in a bank account, you are risking missing out on all of that. Are you willing to take such risks? How is holding dollars no less of a risk than holding bitcoin?
For anyone interested in the code behind the halving, I had some fun dissecting the GetBlockSubsidy() function that takes care of halving & ending of block subsidy [1].
It continues to amaze me that I struggle to set up a 5-node database cluster without one going out-of-sync or split-braining every few weeks, yet the bitcoin network manages to keep thousands of miners in-sync. This has to be the best example of eventual consistency in a production network.
This is why Blockchain is such an elegant solution to distributed consensus.
I prefer calling it a distributed mechanism for emergent consensus. Consensus is not achieved explicitly - there is no election or fixed moment when consensus occurs. Instead, consensus is an emergent product of the asynchronous interaction of thousands of independent nodes, all following protocol rules.
One of Bitcoin's main goals is to fix the unpredictable and arbitrary emission in fiat currencies. But its finite supply, said to be modeled after Gold's, is questionable.
Gold may have a finite supply, but it's been mined for millenia and has slowly increased its supply rate over time, and will likely continue to do so in our lifetime.
In contrast, Bitcoin's emission which ranges from 2009 through 2140 is heavily tilted to the first few years.
Its final century from 2040 through 2140 accounts for only about 0.5% of emission.
The only point of the halvings is to be able to claim "finite supply". A constant reward would still have the yearly supply inflation rate (stock to flow ratio) going to 0, albeit more slowly. So crucially, supply would still be scarce, would be more predictable (time independent), more fair to late adopters, and be much closer to Gold's emission over our lifetime.
It would also avoid the inherent instability [1] of mining rewards dominated by transaction fees, and avoid lengthening confirmation times to maintain security against doublespending [2].
If we further consider the fact that coins inevitably get lost, then even a constant reward will yield a softcap of supply, where yearly emission merely serves to balance the yearly losses.
Unfortunately, practically all cryptocurrencies subscribe to the notion that early miners must receive greater rewards, even when they often already enjoy lower difficulty.
The whole idea that Bitcoin will have a finite supply is nonsense. There's already dozens of Bitcoin forks, some of which lay claim to be the "one true Bitcoin". If the majority decides that whatever is now referred to as the Bitcoin blockchain should not have a limited supply, so it will be. Ultimately, the ones calling the shots here are the same people receiving the block reward, so if transaction fees don't make up for loss in block reward, what's to stop them?
On a secondary note, who can claim that it is a good thing that money can't be printed if necessary? The crisis of 2008 was a liquidity crisis, without the ability to print money it could've turned into a great depression. Making the money supply fixed is just throwing out one tool out of the toolbox.
>> The whole idea that Bitcoin will have a finite supply is nonsense. There's already dozens of Bitcoin forks, some of which lay claim to be the "one true Bitcoin".
But there is a limited supply of user attention to be divided up between all available cryptocurrencies and it's not divided equally by any measure; so cryptocurrencies are constantly competing with each other for that attention and this is where they derive essentially all of their value.
Underlying technology at this stage has almost no value.
In our economy, even an untalented fool speculating on random projects can generate a profit if they have capital; this fact makes talent worthless and means that capital and network effects are EVERYTHING.
I'm not saying there will be yet another Bitcoin fork that just gets rid of the block halving "as a feature". That would be nonsense.
I'm saying that the official Bitcoin blockchain is going to get rid of the block halving, the minority fork will keep the limit "as a feature" and will be called "Bitcoin Classic" or something.
There is no official bitcoin blockchain. There is only the chain with the most accumulated work, and orphan chains. Anybody attempting to remove a limit which may cause the holdings of all bitcoin users to be devalued will simply be ignored by all other users.
Conversely, lets say I put out a proposal to tighten the limit, increase the rate of disinflation and reduce the maximum total supply that could ever be mined to 20M rather than 21M. This proposal might actually gain some interest among bitcoiners because if price speculation so far has been under the assumption that there will be an eventual ~21M bitcoins issued, and this gets scaled back to ~20M, then the 5% reduction in overall supply, without corresponding 5% reduction in demand, would cause all existing bitcoin to gain value.
This could also be implemented as a soft-fork and be compatible with all existing software - because the software checks that the amount paid in a coinbase is less than or equal to the subsidy plus fees. It is technically possible to mine blocks which don't release all of the available bitcoin for that block. (This has been done, and such bitcoin are permanently unavailable and reduce the theoretical maximum 21M supply).
To relax or remove the block subsidy, one would need to hard fork the protocol in order to defeat the "less than or equal" check. You would have to convince the vast majority of bitcoin users that they aught to download and install alternative software which may cause inflation and devalue their holdings. Keep kidding yourself that this will happen.
Let's just say there is consensus over what the Bitcoin blockchain is, versus whatever the "Bitcoin Cash" or "Bitcoin ABC" blockchain is.
> There is only the chain with the most accumulated work, and orphan chains. Anybody attempting to remove a limit which may cause the holdings of all bitcoin users to be devalued will simply be ignored by all other users.
Most users of Bitcoin perform no work whatsoever. Miners perform the work. Users can't ignore the interest of miners, even if miners are a tiny minority. Miners may not even have any holdings.
A core value proposition of Bitcoin is that it's the "most secure" network. If a majority of hashing power is priced out of operation because of low block rewards and low fees, that security flies right out of the window. This situation would have a far more significant impact on price than a little bit of controlled inflation.
> To relax or remove the block subsidy, one would need to hard fork the protocol in order to defeat the "less than or equal" check. You would have to convince the vast majority of bitcoin users that they aught to download and install alternative software which may cause inflation and devalue their holdings.
It's not going to be alternative software, it's going to be a software update, through the official channels. It also likely would only affect full nodes, and the majority of Bitcoin users haven't been running full nodes for a while.
It's really up to a few key stakeholders, not Bitcoin users in general. When faced with the decision of giving up network security versus maybe losing a little bit of value to inflation, they will choose the former, because they're not that stupid.
> Keep kidding yourself that this will happen.
A similar thing already happened with Ethereum, the rules were changed mid-game in the official client, the loser fork (Ethereum Classic) was the one that kept the old rules intact.
> Let's just say there is consensus over what the Bitcoin blockchain is, versus whatever the "Bitcoin Cash" or "Bitcoin ABC" blockchain is.
The consensus is the chain which has the most accumulated work. And also, the one which is backward compatible with the one which previously had the most accumulated work. A backward incompatible fork is a shitcoin.
> Users can't ignore the interest of miners, even if miners are a tiny minority. Miners may not even have any holdings.
You have this backwards. It is miners who cannot ignore the interest of the users. Miners can only profit by selling the bitcoin that people want to buy, and the bitcoin people want to buy is the one which is inflation-free. The market decides the correct chain and the miners follow it.
Miners can't orchestrate a fork because they need consent from the users, and they won't get it. If a majority attempted to mine a forked chain, the minority chain would just become unfairly cheap to mine (due to difficulty reduction), and cause more people to mine it again. In the mean time, the miners who forked away would be making nothing, as they have no market to sell their shitcoins into.
> A core value proposition of Bitcoin is that it's the "most secure" network. If a majority of hashing power is priced out of operation because of low block rewards and low fees, that security flies right out of the window. This situation would have a far more significant impact on price than a little bit of controlled inflation.
If bitcoin cannot be sustained by fees alone, the experiment is a failure. There is little advantage to "digital fiat" which cannot be done in other ways without the inefficient blockchain.
However, there is also the acute possibility that mining is not profitable, but still performed. The reason is simply that it is a way to recover some money from energy which would otherwise be completely wasted. Consider production flaring in the extraction of crude oil. Energy companies can recover some of the loss by deploying mobile bitcoin miners, which already exist on the market today. There is also the potential for miners to be data furnaces, whose electricity costs can be partially recovered through fees, which may be utilized anywhere that heating is required.
> It's not going to be alternative software, it's going to be a software update, through the official channels. It also likely would only affect full nodes, and the majority of Bitcoin users haven't been running full nodes for a while.
The majority of users don't need to run full nodes, but there are sufficient full nodes that they don't have to. It also happens that the people running full nodes are the bitcoin maximalists who understand bitcoin and are even less likely to accept any inflation attempts than those who are running SPV nodes.
> It's really up to a few key stakeholders, not Bitcoin users in general. When faced with the decision of giving up network security versus maybe losing a little bit of value to inflation, they will choose the former, because they're not that stupid.
If multiple software clients are running on the network, then none of them will have an absolute majority. It is questionable whether developers of Bitcoin Core will roll an auto update feature into the software, which means there will always, very likely, be a majority of users running old software. The new software can only introduce backward compatible features or it will fork the minority of users who upgrade away from the network. Auto-update is an implicit backdoor and unlikely to be installed by competent users, especially where significant amounts of money are concerned.
> A similar thing already happened with Ethereum, the rules were changed mid-game in the official client, the loser fork (Ethereum Classic) was the one that kept the old rules intact.
That's because Ethereum is a personality cult and not an experiment in sound money.
Bitcoin maximalists have developed a culture of weeding out such personalities.
It is unlikely that a hard-forked bitcoin will ever gain traction. The SegWit rollout demonstrated that it is possible to perform sophisticated upgrades without breaking backward compatibility, and this mindset is now the default for all developers left on Bitcoin. Those with the mindset that they are in charge, rather than the market, have all left.
> You have this backwards. It is miners who cannot ignore the interest of the users. Miners can only profit by selling the bitcoin that people want to buy, and the bitcoin people want to buy is the one which is inflation-free. The market decides the correct chain and the miners follow it.
The Bitcoin people will want to buy is the one with a network that hasn't collapsed. That's far more important than a little bit of inflation. Other cryptocurrencies without a fixed supply are successful as well, it's not the most important factor.
> If a majority attempted to mine a forked chain, the minority chain would just become unfairly cheap to mine (due to difficulty reduction), and cause more people to mine it again.
If a majority is priced out of mining, the network would be vulnerable to a 51% attack and blocks would take long time to mine until difficulty adjusts. What's that going to do to the value of Bitcoin, the "most secure" of all the networks?
> If bitcoin cannot be sustained by fees alone, the experiment is a failure.
If Bitcoin cannot be sustained by fees alone, block reward will return. What else do you think is going to happen, everyone will just give up on Bitcoin and make it become worthless, rather than accept inflation?
> That's because Ethereum is a personality cult and not an experiment in sound money.
The market has decided Ethereum Classic is not the way to go. I don't think that's down to a personality cult. The "code is law" attitude on the other hand is pure ideology.
> It is unlikely that a hard-forked bitcoin will ever gain traction. [..] Those with the mindset that they are in charge, rather than the market, have all left.
It will gain traction through the market if the situation that I described should arise.
> What else do you think is going to happen, everyone will just give up on Bitcoin and make it become worthless, rather than accept inflation?
Precisely. Bitcoin with inflation is just fiat money, but less efficient. If there is a cabal which can set an inflation policy, then it would be more efficient to just let them run the show and do away with the mining process. Would be kinda like what we have today.
Bitcoin will only succeed if it is superior money to fiat, and the way that it is superior money is its hardness to inflate.
In fact, if a policy of inflation were to be necessary, then better than what we have today would be one where people can vote on the policy, or at least, elect those who decide it. What we have today is a system where the people making the decisions are unelected and unaccountable. Bitcoin with a cabal of miners deciding the policy would be no improvement whatsoever.
> Bitcoin will only succeed if it is superior money to fiat, and the way that it is superior money is its hardness to inflate.
Currency that can't be inflated in times of a liquidity crisis is inferior. That's exactly what happened during the great depression - the gold standard only exacerbated the problem.
Sure, some Bitcoiners have such a narrow understanding of economics that they think the permanently fixed supply is somehow really important. It's not.
Think about it, why would you not want inflation? Because you want a stable currency! There's no other reason. Yet, for cryptocurrencies, the amount of inflation barely affects price at all.
What affects the price is mainly speculation. It's far more important that the system be stable than the fact that maybe over 10 years the supply of Bitcoin grows by another 10% or 20%. It's far more important that people actually use the system to conduct trade, creating actual demand for Bitcoin. Long-term inflation just doesn't matter for trade. It may matter for investors, but investing long-term in a currency is total nonsense.
I think your definition of failure is "people who believe in certain things abandon it". Sure, maybe that'll happen, but that doesn't mean the network is going to disappear or that Bitcoin will become worthless. It's going to adapt against beliefs that threaten its survival.
> Currency that can't be inflated in times of a liquidity crisis is inferior.
Inferior to whom?
The problem of MMT is it thinks that the collective is more important than the individual.
Individuals who save money for a rainy day don't need inflation - they've already accounted for potential liquidity crises. The fact that the rest of you can't save is not my problem, it is yours. Please deal with it without devaluing my savings, thanks.
> Sure, some Bitcoiners have such a narrow understanding of economics that they think the permanently fixed supply is somehow really important. It's not.
It's not important to you. What you lack in understanding of economics is the most basic tenet - that value is subjective. The entire field of Austrian economics, which largely gets ignored by mainstream "economists", is based upon this.
Fixed supply is important to savers of money, who don't want to see their savings devalued. Instead of their savings decaying with time, there's fair chance that they'll appreciate in value due to increased demand and deflation due to lost wallets.
> What affects the price is mainly speculation. It's far more important that the system be stable than the fact that maybe over 10 years the supply of Bitcoin grows by another 10% or 20%. It's far more important that people actually use the system to conduct trade, creating actual demand for Bitcoin.
You're still ignoring that saving is a valid use of money. Demand for bitcoin is almost entirely driven by people wanting to save and/or profit from the market for exchange. The "spending" use case just doesn't really exist yet - there's little demand because people can already do this with fiat money. Bitcoin just doesn't bring big enough benefits for spending yet, and people don't want to spend it because it is harder money and they'd rather spend the softer money first (Gresham's Law).
> Long-term inflation just doesn't matter for trade. It may matter for investors, but investing long-term in a currency is total nonsense.
Saving is investing. You are investing in the medium of storage retaining its purchasing power over time. When you hold a stack of USD, you are investing in the dollar. If you suspected that the dollar was not going to retain its purchasing power, then you would certainly not invest in it. The dollar is just a commodity like any other.
Saving in BTC and saving in dollars are the same kind of "investment", except one of them is very likely to always lose some purchasing power over time and makes a poor investment. The other one is risky for now, but it's purchasing power is subject only to conditions of the market and not the decisions of unelected bureaucrats.
> I think your definition of failure is "people who believe in certain things abandon it". Sure, maybe that'll happen, but that doesn't mean the network is going to disappear or that Bitcoin will become worthless. It's going to adapt against beliefs that threaten its survival.
The issue is, as you've suggested yourself, that bitcoin just isn't used that much for spending. It is not going to survive as a medium for exchange if people aren't using it as such. Bitcoin would become worthless because it no longer offers the benefits over fiat money. The "programmable money" thing is complete hogwash that doesn't need an expensive and inefficient blockchain to perform - it can be done with centralized services offering fiat.
Bitcoin is savings technology. There will be plenty of ways for people to spend bitcoin in future, but I suspect that once people become exposed to it, their time preference will rapidly decrease and they'll probably find themselves spending less.
> The problem of MMT is it thinks that the collective is more important than the individual.
Who said anything about MMT? I'm taking the monetarist position of Milton Friedman here.
> Individuals who save money for a rainy day don't need inflation - they've already accounted for potential liquidity crises. The fact that the rest of you can't save is not my problem, it is yours. Please deal with it without devaluing my savings, thanks.
I don't think you understand what a liquidity crisis is. Your view of economics seems to be that of a caricature of an early Austrian.
> Fixed supply is important to savers of money, who don't want to see their savings devalued. Instead of their savings decaying with time, there's fair chance that they'll appreciate in value due to increased demand and deflation due to lost wallets.
The point of a currency is not savings. Currencies are neither investments nor stores of value. If you want to invest, buy assets. If you want a store of value, buy gold.
If individuals are so financially uneducated that they put their savings in currency, that's not my problem.
> When you hold a stack of USD, you are investing in the dollar.
No you're not. The stack of dollars doesn't do anything. It doesn't pay rent. It doesn't pay interest. It doesn't pay dividends. It doesn't appreciate. It's not an investment.
> The "programmable money" thing is complete hogwash that doesn't need an expensive and inefficient blockchain to perform - it can be done with centralized services offering fiat.
Sure, but those are controlled systems. Bitcoin is really good for one thing: Speculating on cryptocurrencies. Sure, you can trade BTC and maybe a handful other cryptocurrencies on ordinary broker platforms, but if you want to gamble on the latest shitcoin, the easiest thing is to just deposit some BTC on an unregulated trading platform.
> Bitcoin is savings technology.
That's a narrative that people came up with to deal with the fact that Bitcoin failed as a currency. It makes no sense. Bitcoin is a highly volatile speculative asset. There is no intrinsic value, no intrinsic demand in "rare numbers" like Bitcoin, no matter how "scarce" they are or whether the supply is fixed.
> If Bitcoin cannot be sustained by fees alone, block reward will return.
Somewhere in the next 20 years, before Bitcoin has another 5 halvings (which would reduce the reward to 0.195312 BTC), I expect there will be a proposal for Bitcoin LTS (Long Term Security, sounds better than Bitcoin TE for Tail Emission) which will be a Hard Fork to end further halvings. The ensuing debate could make the 2015 scaling debate look pretty tame...
>> Unfortunately, practically all cryptocurrencies subscribe to the notion that early miners must receive greater rewards, even when they often already enjoy lower difficulty.
This habit of disproportionately rewarding early adopters is a universal feature of our economy and doesn't only apply to cryptocurrencies.
The reason why it's like this is simply because it's extremely difficult to get any project or company off the ground; the risk of failure for an early adopter is ridiculously high so rewards also need to be ridiculously high to justify those risks.
This is because most economic activity today is focused on seeking rents and building moats; so this has made the environment extremely adverse for newcomers; it lowered their probability of success and forced early adopter payoffs to skyrocket.
We live in an age where the moats are so wide that that even offering customers a solution which is 10x better isn't going to cut it anymore in terms of being able to turn any profit.
One might think that cryptocurrency would be immune to this; after all, the entire point of the blockchain movement was to fix such kinds of socio-economic problems - But having worked in the space for several years, I can say with confidence that incumbents in the cryptocurrency space have become part of the same problem which they were originally claiming to solve.
Development in the space is slow, inefficient, lacks a clear vision and the incumbents of the cryptocurrency space lack any incentives to give newcomers a fighting chance. They will happily let the most promising new projects drown in the noise of popular mediocrity.
The hypocrisy of it all is unmistakable. I've seen the ugliest side of human nature in this industry. That said I'm still cautiously optimistic but it's clear that something has to change at a social level in order to move forward.
Even better, we could adjust the rate of issue in accordance with the demand for money, thus negating the need for more than a constant, low amount of inflation in the first place.
We could call the entity that adjusts the rate of issue a "central bank" and they could perform this "inflation targeting" to keep the value of the currency stable through economic shocks.
Even, even better that "central bank" could choose winners and losers providing credit to certain participants eliminating the need for petty "price discovery" and creating a system where 20.5 million people can lose their job on the same day something called "the stock market" goes up 400 points...a pure "stable" utopia!
Good points. I haven't read the link but aren't you missing the equation of price economics? Bitcoin is only highly skewed for early miners only if they have held on to their rewards stash.
Atleast what the designer intended/predicted if I remember correctly, is for the reward value over time to be the same. This is of course not backed by mathematical equation of sort. I would way super early mining is more similar to being the first employee of a startup that pays you in equity only.
> Unfortunately, practically all cryptocurrencies subscribe to the notion that early miners must receive greater rewards, even when they often already enjoy lower difficulty.
Well, it's a great way to get people to be invested in your new cryptocurrency.
> The only point of the halvings is to be able to claim "finite supply"
The irony is that no matter what you do there will only ever be a finite supply of any currency, fiat or otherwise. It's a finite universe, so "finite supply" is inherently imposed by the laws of physics.
> practically all cryptocurrencies subscribe to the notion that early miners must receive greater rewards
That's the real objective. Like all startups, cryptocurrencies want to encourage early adoption by, among other things, FOMO. If there is no benefit to being an early adopter, no one will adopt early, and if no one adopts early, you will never get to critical mass.
Why can't I just declare that I issue "TREE(3)" of my own fiat currency? There's finite supply only in some astronomical sense that computers would have difficulty storing bank balances represented in BCD or something.
Because TREE(3) units are not well divisible. You can't give someone one and have the leftover amount representable with any reasonable amount of memory.
>The irony is that no matter what you do there will only ever be a finite supply of any currency, fiat or otherwise. It's a finite universe, so "finite supply" is inherently imposed by the laws of physics.
I'm not so certain that holds true. You could, in theory, either in a game or in real life, create a currency item that represents infinite currency. There would a finite number of physical representation of such items (if done is real life), and people would only place a finite value on it, but it would still representing an infinite number of whatever currency. You could even digitally create an infinite number of such infinite currencies.
Depending upon exactly how they behave, it would quickly make the currency worthless about as fast as people conceptualized what infinite means, but at the core there would be an infinite amount of money.
A critical relevant fact is missing to help explain this. It screws up currency analogies, and that may be why people have asked for clarification.
Bitcoin (BTC) is classed by the US Federal Gov't (IRS) as property, not currency.
That wasn't some kind of mistake or tax technicality on the IRS' part - a lot of analysis went into this in 2013, along with DHS and FinCEN. This is the definition for BTC in the US.
That means what happened today could be described as:
The first and oldest decentralized, distributed, cryptographically-secured record of digital property ownership (Bitcoin as a network) is producing cryptographic keys (the property, BTC) at half the rate it was yesterday. There is now less of the digital property (BTC) being created by the network daily, and this is due to an artificial scarcity strategy built into the Bitcoin source.
Another way to analogize: imagine the westward expansion of the USA also being subject to "halvenings" like this. In years 0-9, settlers were encouraged/allowed to settle on 1000 miles worth of land (counting linearly westward), then years 10-19 only 500 miles further, than yes 20-29 only 250 miles further, etc.
Early settlers are incentivized to grab large swathes of land quickly and cheaply, to get the system bootstrapped. Later settlers have to fight over smaller tracts of land, because after all the land is finite (you eventually reach the ocean). However, the land is also nicely divisible into smaller and smaller sub-plots, so units can be adjusted as needed.
The rules by which this "westward expansion" are governed are written into the Bitcoin protocol. But unlike land and the ocean which are natural facts for the most part that we take for granted a priori, with Bitcoin the "border"/limit here is also defined as a theoretical construct (and hence, could theoretically be changed, but this would be a hard fork and people would have to reevaluate the value of a new network with a new set of boundaries/rules).
So, pre halvening -- the average block reward was worth about $100,000. Fees totaled about $5,000.
I don't really understand the economics of this, but it seems there are a few possible outcomes:
A) Prices double because miners refuse to sell at a price that gives them less than $100k a block and demand for coins is inelastic.
B) Fees go up 10x because miners now need to make $50k in transaction fees instead of $5k per block to make up for the lower block reward, and demand for transactions in inelastic.
C) Difficulty and prices drop because neither transaction demand nor coin demand is inelastic, and miners will begin turning off rigs that are no longer profitable at $50k per block.
It's pretty genius system if you think about it. Each of these halving events will shuffle the market players because different actors can be motivated by different incentives. If difficulty drops, then it might be an incentive for smaller players to enter mining again.
It's a chaotic system by design which makes it really hard to predict what will happen in the long run.
E) Most miners accept less profits than they had previously earned. Those that can no longer profitably mine shut down, causing a small dip in hash rate.
I wouldn't count on it being "small". Miners have always operated on the edge of profitability, and there's been a lot of consolidation in the cryptocurrency mining space over the past few years. It's entirely possible that this halving will force some major operators out of the market.
Price dropped 50% recently and then tripled. There is no difference to miners between a 50% price drop and a halving. At least the halving is predictable but 50% discounts are not. People who are in this business are ready for volatility.
you should consider what the price to mine is vs the reward. as long as the reward > price to mine, the miners will keep mining. once it drops, you will either have miners dropping off the networks or the difficulty decreasing until another equilibrium is reached. once you have less miners it's possible that the TX fees will increase if you want your transactions mined (the miners cannot really impose a transaction fee. it's the transactions with the highest fees that get mined into a block and incorporated into the block chain)
Either side of that equation can lead — if the price of gold rises from speculators, miners will start employing costlier means of extracting the metal to meet demand.
BitCoin is such a big disappointment. From a global way of making micropayments it became a global multi level marketing pump and dump scheme. The true believers always told how BitCoin will be the one true saviour when shit hits the fan -- well, we are during a pandemic not seen in 100 years and BitCoin is basically irrelevant.
There is no BitCoin economy, only people watching the BTCUSD sticker price because only the real economy matters.
I'm also willing to bet the network resilience is not as high as techno folks want to believe and if some governments want it shutdown it will be pretty close to shut down and the FX rate will go towards $0.
In many ways BitCoin is not an anti-globalist or anti-anything response. It is a product that exists due to globalization. And the high prices are a result of some economic stability and prosperity that allowed the population to play with shiny things. The coming depression will put an end to such trivialities.
For complete Bitcoin newbies, it is perhaps worth noting that while newsworthy, this event is not like an earthquake or a stock market crash as it does not come as a surprise to anyone:
This event was (modulo + or - a month) pre-determined from the very first day bitcoin was launched (and so is the next halvening and the one after that).
Why have a “halving” every four years, you may ask?
Having a periodic “The Halvening” ritual every four years allows Bitcoiners to reconcile and forgive each other’s trespasses for one, it also gives Bitcoin a nice bump of attention in the media and on social media, and finally it gives the Bitcoin High Priests an opportunity during the ritual to re-iterate the Bitcoin Commandments (eg. “Thou shall worship fixed monetary supply” and “thou shall not worship other consensus rules”). All this strengthens the community, and thus, the consensus, and a strong consensus is part of the main selling point: to get filthy rich.
I don't like Bananas. Instead of just not buying them at the grocery store and not eating them, I'll post a negative comment whenever someone mentions Bananas.
Bananas are bad for you! Bananas suck! Bananas are a scam!
I’m providing a sociological hypothesis for something that people usually only provide technical explanations for. If you have a novel explanation for why Bananas are purchased that is unrelated to nutrition, it is worth sharing at least.
>Having a periodic "The Halvening" ritual every four years allows Bitcoiners to reconcile an dforgive each other's tresspasses
You're going to have to elaborate on this. I don't understand how the adjustment of future mining rewards has anything to do with past "trespasses."
>it also gives Bitcoin a nice bump of attention in the media
It gives bitcoin negative media attention, because people on the outside will read the headline as "Bitcoin's value is cut in half," which is not the case.
1. All rituals have a reconciliatory nature, I think you’ll see this in many psychosocial models, (especially René Girard’s). Rituals like The Halvening distract from the hostility of conflict and gives rivals a chance to cooperate on something outside their relationship. “If you celebrate with me on this Halvening, I’ll forget that you brought up a fixed miner subsidy at the last Bitcoin Council Gathering”, that sort of thing. It’ll mostly be unsaid and subconscious.
For specific examples of who is reconciling at this specific ritual, just look at this thread! Hundreds of comments from hundreds of strangers around the world, all coming together.
2. All press is good press!
Another fact that supports the ritual hypothesis is the fact that this “event” has to be a big event every four years. Why not simply adjust down the reward at every block? Because then we’d have no ritual, and thus we’d have a weaker community.
I don't understand why this is causing almost any movement in the markets at all. It's a predictable event, so everyone's position should already take it into account. Why would this introduce any volatility?
There are some things which aren't predictable, such as how many miners are going to drop out of the race given their potential revenue has just been chopped in half, with no corresponding doubling of the BTC/USD exchange rate.
Some may be speculating that miners dropping out is bad for bitcoin because it reduces the security of the network and may give people weak hands if they're concerned that their money may not be as safe as previously assumed. Miners dropping out of the race would also release more mining hardware onto the markets at discounted prices, and some of it may go towards attempting to attack bitcoin. However, if you do the sums and work out how much it would cost to attempt and sustain such an attack, and how much can be gained from it, you quickly realize that such an attack would never be attempted for monetary gain - it is in the miner's best interest to play by the rules. The only other motive for attack is to cause temporary denial-of-service, at the expense of the miner, but this could only plausibly be conducted by a nation state due to the amount of work done in Bitcoin.
In the long term yes the halving schedule must lead to huge fees (eventually there will be zero inflation). As inflation decreases, miners have to be paid by fees to secure the network. Otherwise the security collapses.
The fees are paid by the users of the network, if the demand on network transactions is low, there will be little reward for mining.
This means that without sufficient demand for transactions, a majority of miners would have to abandon the network, which would indeed put network security at risk.
Therefore I predict that the miners will make the supply of Bitcoin unlimited, should that situation occur. They already got their way with keeping the Bitcoin block size fixed, which kept transaction fees high.
Transaction fees are driven by transaction volume. The more congested the network, the higher fees will be because there's a limit to how many transactions can fit in a block. If there's normal transaction volume on the network then transaction fees will remain the same. Miners can choose to reject any transactions but equally they'll also be miners who accept any transaction.
No. There is no causal relationship between the two. Transaction fees are driven by usage in that they increase the more the network is over capacity. Miners cannot "demand" more fees as the supply is inelastic.
"Bitcoin is an experimental digital currency that enables instant payments to anyone, anywhere in the world. Bitcoin uses peer-to-peer technology to operate with no central authority: managing transactions and issuing money are carried out collectively by the network."
Seems like an successful experiment to me. I am excited to see what next gen tech in this space will bring.
Is there speculation regarding what miners will do instead of mining Bitcoin? For example, mining another cryptocurrency instead of Bitcoin? This would seem to have implications for the mining power for these altcoins, and perhaps implications for their prices as a result. I haven't seen any discussion about this.
It balances itself out. a portion of the miners leave making it proportionally more profitable for the remaining miners, or they upgrade to more efficient hardware reducing their power costs to mine the same amount of bitcoin, or the price doubles, or a combination of all of the above.
during some periods of time the price falls and it takes longer for all of that to happen, with existing miners being slowly replaced by more well capitalized miners
Sure, but presumably the miners leaving will still want to do something profitable with their mining equipment. I'd expect to see the hashrate increase for other PoW coins. Unless there's some reason for that not to happen.
There is a market for coins with the same hashing algorithm, specifically to attract miners that can't do anything on the bitcoin blockchain.
They are all useless and don't have exchange rates to justify the electricity cost. You can launch a new one given the assumption that this is many miner's first halving.
The price to yield to electrical cost market is pretty efficient, rarely a long lasting advantage there.
Bitcoin fans claims the price should go up. Conventional financial wisdom is that the price of something contains expected future events, so the price should remain the same.
Regarding a potential impact on the bitcoin price, consider that — assuming miners sell their mined bitcoins for dollars to pay for hardware and electricity — now only 6.25 BTC per 10 minutes will be sold into the market because of the halving. That’s a reduction in the amount of bitcoin sold into the market every 24 hours of roughly $8m.
I believe this is the theory behind expecting a price increase. Whether or not it materializes time will tell.
Anyone have any news on if any major miners have said if they are going to be switching away from BTC for the time being?
As of 10 blocks past halving it doesn't look like total hash power has decreased much.
It'll certainly be interesting to see if mining power drops off in the coming month.
Long term I'd love to follow something that simply warns when there's enough rentable or assumed dark mining power that 51% attacks on bitcoin mainchain is a realistic threat.
Oh great, another site that servers machine translation of content. So I get "brownie" instead of "hash", that makes page so easier to understand. The only worse offender is the Google Play store, the autotranslated description actively prevents me from understanding app description.
Except that it is now pretty well established that money was not preceded by barter, this was just a poorly conceived hypothesis of Adam Smith's which has no evidence to support it but which happened to catch on with economists
The crusade will continue on. Many folks whom have bought into BTC at this point know very little about its technology. Not sure if that's a good or a bad thing...
Bitcoin now has a lower inflation rate than gold.
It is likely that the main seller of Bitcoin from here on out will no longer be miners but exchanges.
TLDR: mining rewards should pretty much have no effect on BTC price
We're years into bitcoin and I feel that people still don't understand the basic premise that with an adjusting difficulty it literally doesn't matter how many people want to mine. Difficulty will adjust to about the break even point for miners that can run at scale (likely in a place with cheap electricity).
The price of bitcoin is still based on supply and demand for bitcoin. Whatever THAT clearing price is will determine whether or not it is profitable to mine. If it is not profitable to mine, miners will drop out until the difficulty level falls enough that it becomes profitable again.
No, they can't sell it unless someone wants to buy it. Miners will either go out of business or get into the business until the difficulty level approaches whatever a marginal profit is above whatever the current price of BTC is
Conventional wisdom says no, decreases in the national currency value of bitcoin would reduce interest, but the halvening won't.
The reason why is that electricity for mining is priced in national currency, so interest in mining bitcoins depends on a miners future expectation of the value of bitcoin price in national currency when they sell the bitcoins to pay the electricity bill. The current wisdom is that the halvening decreases the amount of bitcoin that miners receive while increasing the USD value of bitcoin because it decreases market supply and the perception of market supply.
But halvening happens on a fixed schedule, so all future halvenings are already priced in the value of Bitcoin in national currency. So if you get half the bitcoins for mining, ceteris paribus you are getting half the dollars.
I agree if you assume all future halvenings are priced in. It has been claimed that there is a relationship between halvenings in the past and in increases in the price of Bitcoin. If true this would suggest that at least in the past halvenings are not priced in.
Likely yes but it depends on the Bitcoin price. The amount "wasted" (i.e. securing distributed ledger against attacks, providing difficult to fake notary service for transactions) is dependent on block rewards and fees. Since the block reward makes up most of that and has now been halved, you should expect less resources being put into mining (i.e. unprofitable miners will turn off their machines).
If the price of Bitcoin now doubles presumably no miners will be turning off their machines. If it doesn't double, some fraction of all mining setups just became unprofitable.
Only if mining has hit an equilibrium where it's entirely price dependent. If mining is constrained by supply (either of sufficiently cheap energy or of miners) then we wouldn't see a drop.
Fees are still not near dominating the rewards so we do expect to see miner revenue drop due to this.
Depends entirely on your operating cost and expected return.
We know that the expected return from newly minted bitcoins will reach zero at some point in the future.
We don't know if expected return from tx/fees will ever hit zero.
TBH if it ever got back to the point where I could mine a block every couple weeks with a GPU, and I had access to a GPU, power source and internet connect I'd probably start mining again.
IMO Bitcoin exists as an interesting and historical concept in too many people's minds for mining to ever stop. The real worry would be that mining drops off to the point where 51% attacks are viable on the bitcoin mainnet.
We'd potentially see that if many large miners either started renting out their services to the highest bidder or sold all their miners. Once we see more hashpower for rent or purchase than goes into honest mining we have the potential for a 51% attack.
As long a s Bitcoin has value, mining will always make sense.
First thing, even if the block reward is zero, there are still transactions fees. We are not here yet but they are expected to be the primary motivation in the future.
Second, difficulty scale proportionally to the global mining power so that one block is mined every 10 minutes or so. As rewards decrease, the most expensive mining operations will shut down, keeping the cheaper ones profitable. An equilibrium will be found.
The last point is a problem as it makes the network more centralized, potentially allowing for 51% attacks.
While I can understand the presumption that fees will rise to make it profitable to move transactions, is there any simple market mechanism for making sure transactions move safely? A slow continuous drop in hash rate could result in the network being more vulnerable to attacks.
It's a disincentive towards mining bitcoin, yes. However, everybody knew this was coming now, so any competent mining operator should have already accounted for it in their financial/business planning.
I'd assume any miners who cannot profitably operate with the new block reward * price would stop, but a decrease of new supply should cause some increase in price too.
I don't think we should expect an increase in price given that the halvening is well know and predictable. It should be priced in, if anything I think it would be overvalued because of it since lots of people are buying in because they expect a spike in price.
For all Bitcoin miners to be profitable, the global reward for mining Bitcoin must be less than the global cost. Since the reward has now halved, I think the electricity spend should also drop by half, but this may already be accounted for since miners have known about the halvening for a while and should have reduced capacity accordingly already.
> Since the reward has now halved, I think the electricity spend should also drop by half
I doubt that. Look at the recent oil production issues: despite demand falling off a cliff, and the price of oil following it, production (supply) hasn't dropped anywhere near enough to match the fall in demand. It's basically a game of chicken--keep going at full force, eating your losses, in the hopes that your competitors are weaker and will be forced to fold before you will.
Well, the cost stays the same, but the reward is halved -- so yes the effect is similar to each costing double, but that's not really precise.
It's better to consider it as miners subscribe to a lottery (for the cost of their electricity). Roughly every 10 minutes someone wins that "block". Yesterday the reward for winning was 12.5 BTC per block, and now it's 6.25... the cost of entering hasn't changed.
There's more to it of course, e.g. as the difficulty adjusts as in line with the hashrate on the network, but lagged by roughly a couple of weeks worth of blocks being mined. Fees in any given block vary, which are added to the block reward. Many miners pool rosources and each share a fraction of the reward. Etc.
Can you please not take HN threads further into flamewar like this? It's bad for curious conversation. Generic discussions that have been repeated many times already never lead anyplace new; especially not indignant generic discussions.
It's an "extreme statement" but to be honest, I'm inclined to agree. As a currency, it's an absolute failure. Far too volatile, illiquid, and unregulated to be even remotely usable/reliable. As for everything else? It's still looking for a "solution" that isn't just something hype driven.
Unfortunately, its technology (or maybe the combo of its popularity and technology) never really allowed for it to become anything but a speculative asset.
Clearly, the benefits for any energy consumption should be seen from the point of view of the consumer. They wouldn't do it if it were of no benefit.
It would be more fair for you to describe the distributed ledger clearing as of no value to you. Because it definitely has a value to some folks.
That said: some other cryptocoins do indeed provide a ledger like bitcoin, still decentralized and trustless, but without mining (and without block rewards).
the fact that I can't see a straight answer to the general question about 'what does this mean simply' or attempt at some clarity that isn't followed by some argument or pitch or slag off of something response is ridiculous and sums up the world of bitcoin
Interesting to see what will happen to Bitcoin which slashed the supply in half exactly at a time when major currencies have fully open the supply floodgates because of Covid-19.
If the law of supply of demand carries any predictive power, BTC should see a compounded rise.
It will be interesting. The amount of fiat money being created right now is a bit crazy. Whether that is "good for Bitcoin" is not entirely clear. Bitcoin has failed to live up to initial hopes. Transaction fees are too high and throughput (transactions per second) is too low. In a way, it is victim of its own success, at least in terms of price per coin. The second layer protocols, like Lighting, were supposed to solve the fee and throughput problems. I've played with Lighting and when it works, it is amazing. However, it far from a simple and polished user experience. Maybe they will eventually get there. Or, maybe people will give up waiting.
in a nutshell:
miners group transactions into block (ie mine). whoever manages to form a block (you need to solve a computationally expensive problem that has the transactions you want to include as inputs) get a reward. up until today the reward was 12.5 bitcoins. Starting today it's half of that 6.25.
speculations about what this means and where BTC is going follow from this.
There is a quite a bit of incorrect economic analysis in this thread and elsewhere. In a rational market the halving should have no impact on the price of Bitcoin because it's a well known event that should have already been priced in.
It's totally possible that the price might go up, but the reason for that rise would be the irrational behavior of other market participants and people should acknowledge that.
Perhaps this is glib, but it's worth remembering that bitcoin isn't a rational market. At no point in its history has the market reacted rationally to any event.
It only appears rational in hindsight, if at all. But "rational" implies a causal link between an explanation and a subsequent event. Those explanations almost never turn out to be true.
But the top-level comment isn't a comparison between the bitcoin and regular markets. It made a statement of the form 'assuming X, Y must be true'. The parent comment pointed out assumption X is not valid, so we can't conclude Y is true.
The "rational market" are things like bluechips and bellweathers. Coke, Pepsi, Target. They follow traditional rules, e.g., valuation, price-to-earnings, capital, dividends, etc.
BitCoin is gambling where big players intentionally alter the price and small players hope to sap some $$$ like fleas on a dog.
For others commenting here, "rational" is an economic term of art, not the way you use it in day to day life.
Rationality, for economists, simply means that when you make a choice, you will choose the thing you like best.¹ This is very different from the way we normally think about rationality. Usually when we talk about rationality we use it to mean sensible, or reasonable. To economists—as long as you’re doing what you want given your situation, you’re acting rationally.
Rational market - that's an oxymoron if I ever heard one.
Yes, current prices include anticipated future events (or at least speculation on those events, as well as anticipated behavior of market participants based on those events, yada yada), to an extent. What prices can't anticipate is the behavior of market participants at any point in the future, much of which will be irrational; or the events in future history that may or may not trigger that behavior.
Yes, there is alpha to be gained based on data collection/processing -- things like news, weather, twitter, satellite images of traffic or parking lots, etc. The more you know and can effectively analyze that other market participants don't know or can't effectively analyze, the better. But no one really knows the future, only what traders are statistically likely to do in the near future based on current events.
Miners block rewards will be reduced in half from 12.24 BTC to 6.12. In theory this reduces overall sell pressure on BTC in a key time when Bitcoin's narrative is maturing and adoption is moving forward with institutions.
When Central Banks throughout the world are printing unlimited fiat, there is no better time to hold the universe's scarcest asset.
Calling Bitcoin the universe’s scarcest asset is laughable. Leaving aside the hyperbole of invoking the “universe” to rank the scarcity of something terrestrial, there are many conventional assets that are scarcer than Bitcoin, like Picasso paintings or mansions in Bel Air. Lastly, Bitcoin is not even the” scarcest” cryptocurrency.
Even if you stand to gain if Bitcoin’s price increases, you should not be trying to generate hype for it here on HN.
This! Also ironic that the currency that would ideologically only bring benefits to the unbanked is now largely held and controlled by bank-like institutions and the crypto equivalent of the top 0.1% since most bitcoin is held in a very small amount of wallets.
Its premise is now basically to replace one shitty system for another shitty system but one that's unregulated and powered by memes and waste of electricity.
Central banks don't print unlimited fiat, they strike a balance between inflation and deflation. Anyone thinking that they can "print unlimited fiat" winds up like Zimbabwe. "Print" too much, and there's inflation. Too little, and there's deflation. But most money isn't printed, it's just balances on bank statements; the central banks control the money supply by regulating banks. With Bitcoin, there's no intelligent control, just rules that produce deflation, meaning it might be attractive as an investment but it doesn't work as currency.
The issue with a deflationary money is that it reduce exchange rate (you try to hog as much as you can), thus reducing GPD. That's an issue for everyday money (and why the dollar was decorellated from gold).
I think the blockchain is a good idea, even as a simple money ledger, but the scarcity BTC holders praise is an inherent issue that will make bitcoin less and less usefull as a currency, and while the price will probably stay high for the foreseeable futur, i think BTC won't ever be adopted by institutions, at least not long-term.
Other cryptocurrency that don't have the deflationary issue might be adopted officially though though (but, the future is uncertain)
the idea that any crypto currency is scarce is nonsense. It is only scarce by convention, so long as traders decide that one particular block chain is the One True Blockchain. There are many forks of bitcoin, as well as many other cryptocurrencies. If it ever becomes financially worth while for a group of people to turn on the bitcoin money spigot either through forking or launching a new cryptocurrency, it _will_ happen, and the value of bitcoin could evaporate over night. It's trivially easy to launch a new cryptocurrency as we saw in the last bubble.
Everything is only scarce "by convention". By convention we don't call also silver "gold" and treat the two metals as equivalent for money-like purposes, though we could-- just like people could by convention choose to adopt some radically incompatible system and call it Bitcoin, but they don't and likely won't.
Critically though, no one can force you to adopt a fake bitcoin. True, you wouldn't be very happy being the last holdout on the real thing due to network effects-- but even there you could still hold on if other people were stupid... and that's about any strong and independent as anything used as a money ever could be, because money inherently gets its value from network effect.
Your numbers are close but I'm not sure where you found them. The subsidy went from 12.5 to 6.25. It started at 50, and it's reduced by a right bit shift ("the halving") every 210k blocks:
"The universe's scarcest asset"? That would be unobtanium; there is no supply of it whatsoever. ;-)
But how do you measure "scarcest"? Hardest to develop new sources? Is the year-over-year increase in bitcoin smaller than in gold? (Year-over-year because that gives a measure of how hard it is to create/find more of the asset, which seems a decent measure of "scarce".)
Also, we can talk about this again in 30 years or so when we actually have mining products return from space, how much do you want to bet that Bitcoin is still relevant in 30 years?
Everyone thinking this seems to have resulted in it happening a couple days early. It's not yet clear whether today or tomorrow is a good time to short BTC.
https://blockchair.com/bitcoin/block/629999