> Is there a there there without an underlying token that's gone up XX% in the last N months and everyone hopes will still go up XX% in the next N months?
Alternatively, even simpler: where is the money coming from? A bunch of people playing a game are a closed system, and no value is created by playing the game. If the only reason why players are earning money from this game is because more people are continually buying into the game and entering that system, that sounds more like a pyramid scheme than anything.
This is what people don't seem to understand about BitCoin. It is cashflow negative, Money has to keep coming in to keep the price up due to paying miners. It is totally fine if you think BTC is better than the USD or Gold for whatever reason. But Bitcoin is still cashflow negative. You have to keep pumping money into it to keep up its value. Where is that money going to come from? Is it coming from Tether? Is it coming from people looking to make quick money? And when BTC hits 1M/coin, then what? You still need more money coming in to keep it above 1M.
Bitcoin has a use case for money laundering, tax evasion, evading China's exchange controls, and drugs. That market turned out to be larger than expected.
Is it regular folks, though? I imagine it's mostly big whales who are probably also doing shady stuff, too. We're talking about people doing money laundering, so financially savvy.
Gold has a usecase for jewelry, manufacturing electronics, dentistry and glassmaking. Yet not even the sum of these applications can justify its market cap of $11.73T, so the difference must come from speculation. I suspect the same is true for Bitcoin.
The difference is that gold has useful applications which act as a floor for pricing and moderate fluctuations. Gold bugs can still lose their shirts speculating but a normal buyer knows the value will never be zero.
Bitcoin is in contrast a pure fiat currency with very weak backing. Nobody has a need for it which can’t be satisfied at least as well by alternatives and it requires a very expensive always-on network to perform transactions. The floor is zero and liquidity is a very real concern.
>Nobody has a need for it which can’t be satisfied at least as well by alternatives
Have you ever tried to send more than $5k, $10k or $20k before? You basically can't with your bank without having to go through a bunch of hurdles or time delays. I can easily do that with bitcoin.
Legit, real need for it that can't be satisfied with alternatives.
In addition the bank is often closed on weekends, and doesn't service you into the night. My bank site "shuts down" at night. Sorry, but my ability to use my money isn't limiting by your waking hours.
I have, actually, and it wasn't hard. It did require a out-of-band confirmation which I considered a good thing since I rarely make transactions that large and never in a case which can't wait until the next business day.
That is, of course, the flip side of that convenience: if you ever make a mistake with your Bitcoin wallet, it's gone with no recourse. Good luck!
I can and I have. I needed to fill out a PDF (digitally) and ask the recipient for their IBAN etc., but they're both magically long strings so that's equivalent to needing someone's wallet address.
After that it was a matter of uploading the form and getting confirmation in a couple days, which I'm gladly willing to accept for peace of mind when it comes to large transfers.
> In addition the bank is often closed on weekends, and doesn't service you into the night. My bank site "shuts down" at night. Sorry, but my ability to use my money isn't limiting by your waking hours.
Odd, banking apps are open 24/7 here and if it's an in-bank transfer it's instantaneous.
And how do I send money to pay a bill with pre-existing systems?
Pay a third party like Venmo, Square, etc a fee, or use my banks (also horribly designed and bad UX system) to send the money slower than watching paint dry. I'd rather pay the Bitcoin Miners that fee than a third party or even by bank.
> And how do I send money to pay a bill with pre-existing systems?
>
> Pay a third party like Venmo, Square, etc a fee, or use my banks (also horribly designed and bad UX system) to send the money slower than watching paint dry. I'd rather pay the Bitcoin Miners that fee than a third party or even by bank.
Don't forget giving them cash or a check, or a credit card, as billions of people do every day. Fees are a fair point but that's purely a cost and timeliness question: Bitcoin historically has been slower and more expensive but it certainly could be useful as a competitor to horrible companies like Paypal if it can keep the costs down and transaction times low, not to mention scaling the system by 7+ orders of magnitude.
The catch, of course, is that this is not the path to world domination which features prominently in the sales pitch. That caps the maximum value at the percentage Visa, Paypal, etc. charge and if Bitcoin ever matured into serious competition, the credit card companies have plenty of margin to cut.
Apps here (Israel) -- local Venmo alternatives & banking apps -- are as smooth as Bitcoin apps if not more. In addition, all local Venmo alternatives have 0 fees and 0 signup cost (they're all operated by banks due to financial regulations but have 100% interoperability with any bank & credit card).
If your argument hinges on the premise that being either a police officer or a politician makes someone either a paragon of morality or wholly incapable of committing crimes, then I'm afraid I have some bad news for you.
My argument hinges upon the fact that Mr Nagle has been waging a FUD campaign for some time without much contest here, through leveraging his reputation. It's become tiresome, very few LEO support his concerns at this point, yet he continues unchallenged. It's mostly cherrypicking and well below the quality of his other posts.
All of us who've been around enough know what FUD campaigns look like on well-managed Internet forums. I am middle-aged and find this worthy of countering as it appears obsessive. Younger technologists are constantly having their efforts defamed needlessly on this leading technology forum with nothing being added to the conversation.
> Younger technologists are constantly having their efforts defamed needlessly on this leading technology forum with nothing being added to the conversation.
Speaking of nothing being added to the conversation, it’s somewhat conspicuous that you are attacking the source rather than engaging with the argument. His criticisms are valid and shared by many technologists of all ages and skill levels, surely you can explain why they’re mistaken — for example, you could point to extensive use of Bitcoin in a legitimate non-speculative economy. You’ve been promoting it for many years, surely you must have examples?
Indeed I have, appearing later in this thread due to how it became organized by moderation. Digital assets aided in stopping a predatory crime this year. If this kind of usage doesn't satisfy as a rebuttal to a negative parent post containing no supporting information, you may want to examine the fact that this entire thread is meant to explore some technologist's fear-based need to publicly associate digital assets with crime alone, in this forum especially. Emotionally-driven posts meant specifically to steam-roll any and all positive discussion by simply shouting "But Crime!"
Tracking the making of negative generalized statements using FUD techniques is something I have been involved in algorithmically tracking professionally and am countering not in the pursuit of karma or sycophantic agreement but simple public commons maintenance. (The data was often used to identify FUD campaigns of short sellers in finance forums and resulting sentiment analysis feeds are available via subscription through financial data providers.) These comments never mention the continual reigning supremacy of the US dollar for crime, ever, and never provide any evidence that bitcoin has a higher crime usage ratio than the dollar with less prosecutability. This is because law enforcement generally haven't advanced that position while enforcing and in earlier posts I've explained my extensive experience in detail as to how and why they haven't. There has been no direct engagement with this factual information.
In my view some on this forum are intent on spreading classical FUD on the subject and countering FUD is an occupation for some. After a decade of particularly questionable behavior coming from the technology sector involving unfathomable amounts of US dollars, we run the risk of portraying an image of incumbent ideological corruption instead of supporting meaningful technological discussion. This slide has been happening for years IMO and it saddens me. Younger technologists have considerably less opportunity than we did, not more, and the frontier is much smaller. Ruthless negativism doesn't serve them.
> Digital assets aided in stopping a predatory crime this year.
I saw you make that claim but that's too vague to evaluate whereas what Nagle described has been well covered for many years and even the Bitcoin salespeople rarely argue that it's commonplace. Even with the extra two paragraphs you added later there's no way to know what this meant, what fraction of the total Bitcoin usage it accounted for, etc.
> These comments never mention the continual reigning supremacy of the US dollar for crime, ever, and never provide any evidence that bitcoin has a higher crime usage ratio than the dollar with less prosecutability.
This is incorrect, and the need for the counterfactual narrative is telling: this comes up frequently and it's usually mentioned in the context of the larger economy. Nobody says that the U.S. dollar isn't used by criminals but it's trivially easy to show enormous amounts of real, non-criminal economic activity — nobody thinks, say, drug cartels are tiny but there's no serious argument that they're anywhere near a majority of the legal economy. If you want to address this claim, try highlighting examples of real economic activity using Bitcoin — real businesses which are not selling Bitcoin. If USD (or just Visa/Mastercard, Paypal, etc.) activity suddenly halted, a ton of people would be unable to engage in their daily business — can you provide any examples of similar Bitcoin dependencies?
> Younger technologists have considerably less opportunity than we did, not more, and the frontier is much smaller. Ruthless negativism doesn't serve them.
I agree that the landscape isn't as good as it used to be but I don't think it's helpful to steer people into false hopes, either. Bitcoin has an inherent conflict of interest built-in since all of the people who've poured money into it for the last decade will have to write that off if they can't find buyers. That lack of utility is the real problem and calling it FUD won't solve it.
I agree with most of your points. If something as real-life meaningful as the stopping of a predatory crime does not satisfy you as a legitimate usage example against people claiming there is essentially none, I'm at a loss and am unsure of what we're actually discussing.
As you may imagine, it's impossible for me to provide the 1,000 page+ documentation trail of an in-progress federal investigation here in order to refute a comment. I understand that my sincerity may be questioned and there's nothing I can do about that.
I'm sorry but as an observer to this thread: there is nothing even remotely compelling to your argument. 'stopping a predatory crime' - one instance? That you can't refer to? Not compelling.
In fact, the sheer number of predatory scams being performed using crypto would surely outweigh the alleged single incident in which Bitcoin had a positive influence?
Your inability to meet any other requests for evidence (businesses that legitimately use and depend on btc) is downright damning.
I hold btc, but every booster simply fails to demonstrate any actual utility for Bitcoin beyond being a speculative vehicle.
I do not hold any meaningful amount of btc. I am not selling bitcoin, I am countering FUD. there is not a single example of my intent in this thread being promotion or marketing. I'm pointing out classical FUD techniques on a public technology forum, not making an argument. There is zero desire to compel you. Your proclamation of damnation is noted here for posterity.
I'm specifically refusing the demand that it's my responsibility to provide evidence of commercial btc usage in order to highlight FUD tactics. The alleged story I mention is likely to receive media exposure in Q3 2022, and it's largely but not completely up to the target.
In your opinion the anecdotal story of aiding in the stopping of a predatory crime is not compelling and does not demonstrate meaningful utility. If you think every human agrees with you that is not compelling, I believe that is an extraordinary statement on your part.
The common hostile attitude here on the subject is what's being captured and addressed, and my response to it is what I'm specifically capturing in my comment history for posterity. It has utility.
Help me understand. Are you saying that former LEO are well-served from a PR standpoint by attaching themselves to the "points" you're holding are clearly evidenced by the parent post?
The parent post argues that cryptocurrency is most useful, in practice, for illegal activities. It does not argue that this is how it's perceived by the general public, by the NYC municipal government, or by Eric Adams. The perception is that it's a sexy new technology of the future, whereas the reality is that it's mostly a playground for "investors", fraudsters, and criminals.
I understand your point of view, but you haven't even attempted to qualify it.
I can tell you that I helped stop a predatory crime that was being committed using US dollars this year, partially by using digital assets defensively. Defamatory general statements about the target and digital assets had been made in the past in this case, and it backfired on the perpetrators- horribly, in the federal jurisdiction.
Could you take a moment to consider why unqualified generalizations like yours could concern some? In the past, the perpetrators had attempted to capitalize on the perception you are asserting as reality. The possibility of resultant ankle bracelets or worse for them is high, due generally to record keeping and time stamps.
The reality of this technology is that it solved the technical problems associated with Internet native asset classes. The rest is editorializing.
OK, I think I get it better. I'm not disagreeing and sincerely appreciate the cynicism, but you're saying the guy who ran on a relatively classic tough-on-crime platform is also appealing to some kind of criminal subclass of NYC voter who prefers bitcoin to cash for their locally committed crimes and also appreciates tough-on-crime platforms for everything else?
Perhaps... or maybe the reputation for crime that some people are intent on projecting onto bitcoin is not particularly accurate to the realities of currencies used most frequently in the commission of criminal activity.
(To help qualify my perspective and insistence... I was involved in stopping a long term predatory crime this year where digital assets were used to help protect the victim against perpetrators using dollars. As you might imagine, having clear records of transactions is likely to be more helpful to the targets than the perpetrators in these cases.)
To be clear, I'm talking about the bookkeeping element of an in-progress federal investigation involving theft of corporate equity and corporate tax fraud. The target was legally disabled.
The gold supply is inflating at about the same rate as bitcoin right now, but has enough incoming cash flows to keep the priced propped up enough to maintain a $10 trillion market cap. Obviously some of that incoming cash flow is for actually generative industrial use cases, but it's a minority, https://www.statista.com/statistics/299609/gold-demand-by-in.... The lion's share of incoming money flow is for jewelry, long term savings/investment, and central bank holdings, and you could argue that most of the jewelry use case only exists because it's a good store of value, since we can easily make jewelry that looks as pretty for much cheaper than the real thing.
So, since most of the cashflows into gold are just people holding long term with the expectation that there will still be people wanting to buy it for investment purposes in the future, and this scheme has worked incredibly well for 5000 years, why couldn't the same be true of bitcoin?
It's way more expensive to store and transport gold than bitcoin, although it depends on the amount. You also have to price in the protection provided by local authorities that protect your property, in addition to your own security measures.
Gold has already been obsoleted by fiat money because it's too expensive and slow to transact with in the modern world.
Bitcoin won't necessarily have the same problem, because it's an information protocol. Protocols can be updated and improved. Even if the main chain ossifies and can't be improved, bitcoin tokens are already being moved to alternative blockchains (sidechains) via 2 way pegs.
I think that would be a very amusing outcome. the rate of accidents can't be held at 0 so the supply of Bitcoin can only decrease in the long term.
However, is there any reason the network couldn't decide to, say, subdivide Satoshis even further to allow the remaining supply to become more tradeable? If the changes are slow enough over time it doesn't seem like there's a limit to how far that could go.
How is that different at all from fiat currencies? Every electronic transaction you make, like credit card or money transfers, has fees.
Central banks have to keep pumping money into the economy so we can have the same nominal amount of cash in the system(albeit with lower value, because inflation).
So, my question is, is fiat currency cashflow positive? How?
I live brazil and earn in BRL. In the USD/BRL pair, the dollar price keeps increasing when you look at the historical data.
Does that mean that holding USD is enough and investing these dollars to make more dollars is ultimately a waste of time?
I use ACH and Venmo all the time for no fees. Do you mean the tiny electricity fee that they pay on my behalf of maybe $0.01? Sure seems like a great deal compared to the multiple dollars (sometimes over $50) charged by Bitcoin and friends
You aren't talking about the intrinsic value of Bitcoin. You are talking about it's value relative to USD. These are completely different things.
Bitcoin has intrinsic value outside of the fiat system. It can be used entirely independent of fiat. Whether that will become common is another matter, but the value of Bitcoin does not have to depend solely on it's value relative to USD.
As long as miners can't pay the power company with their mining rewards, bitcoin can't exist outside the fiat system. The mining reward denominated in the currency the miner has to pay their electricity bill in MUST be higher than the electricity cost to mine the reward, otherwise the miners go bankrupt.
Capital-intensive industrial-scale miners might go bankrupt, but the origin of Bitcoin (starting from the whitepaper) imagined an ecosystem powered by effectively spare CPU cycles, where the marginal cost of electricity wasn't a big factor.
The beauty of the design lies in the balance of the incentives -- if electricity is too expensive, then sure miners will drop out, which lowers the hashrate and thus the security of the ecosystem, but remember that if electricity is expensive for honest miners than it will also be expensive for attackers. And if somehow there is an asymmetry where attackers have access to cheaper electricity than other honest miners, well it's likely in their economic interest to simply become miners themselves rather than attackers...
Bitcoin can easily exist at a minimal survival level that is effectively outside the fiat system for all practical intents and purposes, by leeching off free or near-zero cost electricity (I mean, nobody cares about the electricity bill for "folding@home"). In that kind of mode, it may not have industrial scale and you might not want to transact trillions of fiat-dollars worth of value through it, but it can easily exist.
From my understanding that's not exactly how Bitcoin mining works. It scales based on the amount of miners. So if the situation is as you described (value relative to USD tanks - which I find very unlikely due to inflationary nature of fiat) people would stop mining which would decrease the difficulty of mining causing it to use less electricity.
There are however miners using nearly free sources of electricity such as flared gas wells, solar, etc... If Tesla accepts Bitcoin/Doge for solar panels then you may have a system independent of fiat.
I'm just saying it's possible, not that I think it will necessarily happen. Like I mentioned I think BTC's value relative to USD will increase over time due to fiat's inflationary nature (Fed is targeting 2-3% inflation).
> people would stop mining which would decrease the difficulty of mining causing it to use less electricity.
This is true, but then you have a bunch of costly mining ASICs sitting idle. The bitcoin network does not pay miners out of the goodness of its heart but because it needs a very high hash rate to defend against double spend attacks. Guess what those unused ASICs might be very effective at? A prolonged fall in mining power caused by a falling BTC price is a death sentence for bitcoin as it would lead to massive attacks by opportunists renting hashing power to double spend their coins. You can already see this in many smaller coins.
> nearly free sources of electricity such as flared gas wells, solar, etc
Those may be cheaper than regular power, but they are not free. Taking solar as an example, you need to invest capital to buy the solar panels and they have a finite lifespan. Cost divided by lifespan gives you the running cost in $/year. Similar things are true for flared gas wells; you still need to capture the energy somehow and generators are not free.
> If Tesla accepts Bitcoin/Doge for solar panels then you may have a system independent of fiat.
This just moves the problem by one degree of separation. Unless Tesla can buy solar panels for bitcoin, they will need to sell crypto for fiat to buy their inputs. This goes all the way down the supply chain down to the real-world miners who dig up the ores for the solar panels and even they will need to pay their taxes, which you cannot do in bitcoin.
> I think BTC's value relative to USD will increase over time due to fiat's inflationary nature (Fed is targeting 2-3% inflation).
Perhaps. I suppose that this will depend on how much the maintenance costs in electricity and miner ASIC replacement costs as a percentage of total bitcoin market cap per year. If these costs are higher than 2-3% per year, bitcoin will see a net outflow of fiat as running costs and can only rise in price if new users continuously flow in (and of course, only ~7 billion potential users exist).
Also, it might be interesting to read up on why central banks universally target a low but nonzero inflation. There is a ton of established theory about why this is desirable and none of it is based on "let's screw taxpayers". Throwing that away will basically guarantee that crypto will never be very useful to pay your bills with.
That's a really interesting scenario. But I'd imagine if double-spends became a persistent threat, they'd just hard fork to a slightly different hashing algorithm. That would brick all the pre-existing ASICs.
In the 2018 bear market, BTC lost 82% of its market value peak-to-trough. Double spend attacks by dark ASICs didn't become a factor then. So most likely you'd have to see BTC fall by 95% or more before this became a threat.
>>> This goes all the way down the supply chain down to the real-world miners who dig up the ores for the solar panels and even they will need to pay their taxes, which you cannot do in bitcoin.
Unless more countries follow El Salvador's example, and accept cryptocurrencies as legal tender. If El Salvador hadn't banned metals mining in 2017, you could the guys digging up ores with BTC today.
The difference is that you can pay someone with JPY and that's the whole transaction. When you pay someone in BTC, you also have to pay the power company with something. The system is an inherently leaky bucket.
The "fee" for fiat is inflation. Your money is regularly losing value even if you do not transact it. Not to mention cash transactions as you describe are on the decline and do not represent the majority of transactions that happen in the U.S.
I'm not saying this is a bad thing by any means, in some ways it is a good thing. Just stating that it exists.
Does cash just grow on trees? No, it is printed by a government that employs thousands of agents who have to make sure that no one is counterfeiting those bills. The fact that I can hand someone a $20 and walk away with my bag of groceries is the tip of a massive iceberg of regulatory and enforcement mechanisms.
> Bitcoin has intrinsic value outside of the fiat system.
Not really, because even though the number of Bitcoins is limited, the number of cryptocurrencies is not. In any application that uses Bitcoin, you can substitute Litecoin, Dogecoin, or most other altcoins/shitcoins in existence, and there would be zero difference.
In fact, Bitcoin's only advantage over those coins is extrinsic--it has more longevity, better brand recognition, and a lot of large players interested in making it seem (relatively) legitimate.
Contrast this to when people talk about gold having an intrinsic value, as you can't just replace gold with silver or copper when e.g. manufacturing electronics.
> even though the number of Bitcoins is limited, the number of cryptocurrencies is not.
There will only ever be a single dominant SHA-2 PoW cryptocurrency, because mining power can be expended on only a single chain. Doesn’t matter how many new genesis blocks are minted, this is a natural monopoly and Bitcoin clearly is the monopolist.
Bitcoin being the "dominant" cryptocurrency doesn't seem to change any of the parent commenters points, right? Those regarding intrinsic vs extrinsic value?
Bitcoin itself does not because its low transaction speed makes it unusable for real world applications. Second, why use something in a financial transaction whose value can fluctuate 10-20% a day? That's not a stable currency.
So for all intents and purposes, Bitcoin is an unstable investment product.
Money doesn't have an intrinsic value. Money is just an accounting system, it is a balance sheet. People used physical gold as tokens or entries in that balance sheet.
Ultimately you are depending on another human who is actually doing work. This is why the credit theory of money is so appealing.
Money has value indirectly because someone obligated himself to give you value equal to the money created. When you add up debts and credits then you end up with nothing because money is just an agreement and not a commodity.
I don't think it is a meaningful distinction. Money itself might not have value, but the miners and nodes are providing value by ensuring the integrity and security of the blockchain.
But more to the point, when I said "intrinsic value" I meant value relative to goods/services. Where as when I used "extrinsic value" I meant relative to other "money" such as fiat. Maybe it was a poor choice of words.
> This is what people don't seem to understand about BitCoin. It is cashflow negative, Money has to keep coming in
Pretty sure a sizable portion of Bitcoin holders understand and know that. They don't hold Bitcoin as a form of bespoke investment to be exchanged for money at some point in the future. They hold it because they believe it is sound and incorruptible money.
And as long as they (not any additional people!) continue to believe that, it will hold value.
It is to be seen if they are right or wrong, but they know how cash flow works.
I don't think Bitcoin is doing particularly well as a currency, but can you name one currency that will not go down in value if people stop believing in it?
Yes. The key realization is all forms of wealth preservation are the same. We value things because other people value them (once we have our basic needs met).
that's a strawman of the parent comment's argument. and yes, if enough people believe something, it takes on real significance. e.g. enough people believe in the full faith and credit of the US Gov that backs their printed paper with numbers on it, so it takes on real significance.
I must admit I don't understand why it is "cashflow negative". I'm not invested in any crypto, but I have thought about it, and my casual thoughts have come to the opposite conclusion. The higher the price of a cryptocurrency, the greater the interest in mining and investing. It seems like a positive feedback loop to me. Why is it not?
For Proof-of-Work coins, the miners need significant amounts of electricity. Electricity is not free, so maintaining the network costs a significant amount of money. This money is "reimbursed" to them through mining rewards, but since electricity companies typically can't be paid in cryptocurrencies the miners will need to sell (a part of) their mining reward to pay the power bill. This means that there is always a money outflow proportional to the hashrate, which somehow has to be made up from money inflows from users.
A cryptocurrency without users putting in "new" money will slowly bleed out through electricity costs. This will become even more "fun" in the future as all coins will eventually be mined and the ginormous electricity bill will need to be paid through transaction fees alone. This is one of the main reasons Proof-of-Stake is getting so much research btw, since it should use way less electricity.
(The above is true for most currencies btw, even dollars and euros bleed out money because they have to pay mints and central bankers. The difference with those is that there will always be demand for (say) dollars because US citizens MUST pay their taxes in dollars. If they don't, a number of measures up to and including prison can be taken against them. Bitcoin has no such backstop since nobody ever NEEDS a bitcoin to pay off someone. Ransomware is a rare exception)
If ransomware ever becomes big enough to rival the cumulative tax bill of a nation state, you can bet that combating it would get a lot more priority. Spec ops teams raiding office buildings in foreign nations type priority.
Countries are very protective of their cash flows.
Imagine if you had the option of buying a piece of gold or a piece of land with good irrigation and good soil. You can plant vegetables on the land and sell those vegetables for other people to eat. Therefor your investment is generating profit and "cashflow". Gold on the other hand just sits there, and you may want to keep it in a safe at a bank and the bank will charge you a fee for storage making it negative cashflow.
The price of gold or land or BTC can go UP or Down, but that depends on market demand of that asset. The nice thing about owning the farm is that even if the value of land goes down you can still sell your vegetables or eat them to stay alive.
Your gold analogy might actually help me make my point. When the California gold rush was happening people went nuts trying to mine for it. Eventually the mining slowed, presumably because the cost to mine it started to exceed the value of it. Bitcoin claims to be this way (you may have known this; I had to look it up), stating that mining will halt at 21 million Bitcoins. But didn't Bitcoin already fork in the past? And won't there always be a new cryptocurrency to fall in love with? Unlike gold, when Bitcoin mining wanes someone can just invent "gold plus" with a few keystrokes and then here we go again. The feedback loop may not be confined to a single cryptocurrency but I still don't understand how it will ever end.
> Imagine if you had the option of buying a piece of gold or a piece of land with good irrigation and good soil.
Why imagine? Both of these things can be purchased in the real world. And yet we see that some people purchase farmland, and others purchase bars of gold. Why is that?
Turns out, people called economists have been pondering such questions for hundreds of years and have developed quite sophisticated and nuanced theories about how humans create, assign, and transact value.
Anyways, thanks for the lesson on “cashflow” but you might want to pick up an economics textbook, you might learn something.
Where’s the value added coming from though, and how far are you from there? If crypto enables someone to dodge taxes, sell drugs, or wire remittances with less overhead, that’s a potential value add [arguably, with externalities]. For how many of such activities do we need byzantine consensus, i.e. can they stay competitive in the long term with solutions built on tradfi & SQL? How much of these gains can be captured from sidelines by, essentially, exchange rate traders? Positive feedback loops without a sustainable value proposition will pop sooner or later.
This negates the idea that bitcoin or it's ilk could replace USD.
Crypto technologies are interesting to me because of their great potential for good (defi) and bad (dystopian black mirror gold farms, dyson sphere fueling crpto mine, etc).
This is addressed in the original white paper. In a world where BTC is valued at 1M USD/coin you’d also expect a decent amount of day to day usage. Miners could still make decent profits based on transaction fees just from confirming blocks even once the Coinbase rewards stop. I’m not saying that’s currently the case, but that is the design. Also if miners are making a profit off let’s say $40k/coin and the price goes down to 30, yet there’s still a profit for some miners, how exactly does that become unsustainable?
Miners could make a profit at $1/coin. The issue is that profit comes from somewhere. And that somewhere is new money being put into BTC. Hence, BTC is negative cashflow.
Help me here. All databases are negative cashflow. They only 'cost', don't generate 'revenue' by themselves. This is true of ACH mechanism to transfer funds from one bank account to another. Does that make USD negative cashflow? Does the cost of maintaining this ACH system affect the price of USD v/s GBP?
The value provided by a database such as BTC is that it provides a record of 'who owns what at what point of time in history'. I can argue separately about why the 'immutability' of this database itself is a value created by Bitcoin, for which holders can be willing to pay premium for.
Miners earn profit if Operating Costs > $ value of (Transaction Fees + BTC mined). Over a long enough timeline, Fees + BTC mined will ~~ operating costs of the rig. If not, more miners will continue to see economic opportunity, and keep joining the miner pool till that equation is balanced.
The other source of BTC value going up need not be more demand for it, let's say over next 12 months. The ~6% inflation could show up there too.
Profit comes when their operating costs are less than the take home from any transaction fees and Coinbase rewards they’ve collected in the same period. It’s not a direct function of liquidity entering the system. It’s true that rising prices from new cash flow means more profit for miners, but that doesn’t imply the opposite. The price could stay constant for the next 100 years and miners that have found a way to remain profitable within that price point would be fine.
Miners have real expenses: electricity, depreciation, etc. Miners also generarte revenue, $45 million per day is a reasonable estimate [1]. This revenue is extracted from the Bitcoin system through both transaction fees and inflation (creating new Bitcoins), but these are sold in portion to pay real expenses, with presumably some profit.
We can estimate 300k transactions per day, which implies about $150 revenue per transaction. Miner revenue is your cost: it is what they extract from the Bitcoin system.
One Bitcoin transaction costs on the order of $150. It's really expensive.
> In a world where BTC is valued at 1M USD/coin you’d also expect a decent amount of day to day usage.
Citation needed.
(I don’t see why this should be true at all. If anything I’d intuitively think the opposite: If gold were $1MM/oz I don’t think people would be using it to buy groceries… Unless you’re directly talking about hyperinflation where $1MM isn’t worth a loaf of bread any more.)
is the day to day usage of bitcoin currently increasing in proportion to coin price? it seems entirely possible that the price could get very high solely as a speculative investment. in which case, you would still need additional investment money coming in
All assets ( BTC, Stocks, Gold ) are priced on supply and demand. If demand goes down for BTC the price will go down.
It doesn't matter if the fed prints money or not BTC needs a constant infusion of new investment to keep the price up. Unlike a company with positive cash flow who could buyback shares and never get any new investors and still keep the price up.
Stop and think about what you are saying. If everyone in the world stopped buying TVs and instead held onto their current TVs the demand for TVs would go to zero. What would the market price of TVs be when there is zero demand?
How do you think BTC miners pay for the graphics cards and electricity? NVIDIA doesn't take BTC as a form of payment. So money is constantly leaving the BTC network to pay for electricity and graphics cards. The only way that happens is if money is also coming into the BTC network
Every sale is also a purchase. The market price of something is precisely the equilibrium price at which inflows and outflow are matched. Think hard about this.
Holding isn't demand. Holding just reduces supply.
Miners need to sell BTC to cover their operating costs, so there's constant sell pressure. To maintain the same price, you need equivalent buy pressure. Hence the need for "a constant infusion of new investment".
This is the most crucial question about everything crypto-related.
Because it turns out every crypto market is a negative-sum game. If you invest, you are guaranteed to lose on average. If you do happen to win, your gains are coming out of the pocket of someone else who lost even more.
The price of the token in question doesn't enter into this at all. It can rise, fall, anything. It is still a negative-sum game, but some people have not yet realised that they lost.
>It is still a negative-sum game, but some people have not yet realised that they lost.
And some people have not lost at all. As a lifelong poker player, the calculus is very much the same. A poker game where rake is taken out is a negative-sum game. But that doesn't mean that every player loses, even if they play forever. There will be more net losses than net wins, but these are not evenly distributed.
> Because it turns out every crypto market is a negative-sum game.
[Citation needed]
You can't just hand wave and assume this to be true. If the world's major investors decide that crypto represents a store of value, then that's a positive-sum game for crypto. If stablecoins transacted on smart contract chains generate demand for Ethereum to pay for the network transaction fees, then that's a positive-sum game for crypto. If new enterprises start raising capital through DeFi and DAOs instead of traditional capital markets, that's a positive-sum game.
What major investors decide has no bearing on it. Mathematically, it is now, has always been, and will always remain a negative-sum game. This cannot change, it is part of what bitcoin is and how it functions economically.
It is a negative-sum game, no matter how hard you wished it were not.
If the game were actually fun, there could be money coming in from players who value the fun more than making money. Axie may have an element to this, but I hear it's not fun. The term for these players is "whales." They are willing to spend a lot for fast progression and domination. A game which pays Filipinos may have money coming in from a well-off player in China. There could be schemes where whales hire Filipinos to grind for loot and gold. However, it's hard to see a situation where a game could pay for development and support thousands of grinders. It would be interesting to see how big the MMORPG grinding economy is. That might give us an idea of how many people these games might support.
One day a trillionaire will build a blockchain game built around proof of humanity. You will have to spend 1 hour solving a problem that can only be solved by humans but verified by a machine to earn $4 an hour. World hunger solved :)
Where the money was coming from when Facebook, Google, Youtube, Twitter etc were really good places that were free to use? They all were working to "make the world a better place" and not making money as they were burning billions each year, challenging the traditional and profitable companies. With Amazon prices were amazing, you had unlimited rights and not only buying but also selling was great. Bezos was worth quite a much but his company never made any profit up until a few years back.
The news business was destroyed in the process, just as the retail and once the establishment lost its ground the money began poring in. From 90's up to late 2000's the internet was amazing as everything was paid by people who were about to reap their investment back a decade later.
My point is, following the money is tricky. Maybe we are at the verge of another change where the costs are payed by crypto bros who will be splitting countries and starting wars once they are done growing the landscape.
> Where the money was coming from when Facebook, Google, Youtube, Twitter etc were really good places that were free to use?
I don’t think this is very mysterious. It’s coming from investors who are spending money in the expectation of future profits as the business scales and reaches greater efficiencies and increases monetization.
In the case of this cryptocurrency there’s no obvious point where these tokens suddenly become useful. People only buy them because somebody else will be willing to buy them later (which, of course, relies on ever-increasing amounts of money entering the system). With a stock you are at least theoretically anchored to real world value, since you can buy out a company with stocks and then liquidate the company’s assets.
All these coins and projects have a mission statement and high level overview on how they think it will be useful in the future. It's up to you to believe them but they do have a proposal.
The stocks are more opaque in that regard, they are required to publish some declaration and financial disclosure but explaining why you need to invest in that company stock often comes down to CEO's appearing in the press. Countless internet ventures died in the process.
> All these coins and projects have a mission statement and high level overview on how they think it will be useful in the future.
The thing I like about Dogecoin is that it's at least honest: it's not selling itself as anything more than a token with a price that will go up if more people buy it.
> Where the money was coming from when Facebook, Google, Youtube, Twitter etc were really good places that were free to use? They all were working to "make the world a better place" and not making money as they were burning billions each year, challenging the traditional and profitable companies.
But they were visibly creating value. Seeing what my friends are up to and organising parties together is pleasant. Being able to find what you want on the internet in 1 second rather than 30 minutes is an obvious improvement to your life. So even if they weren't profitable in the short term, you could see that there was legitimate money to be made.
There are no closed systems, and players playing a game does create value. It's almost the only important aspect of software's value - users. Anyone can write some garbage software, or hire people to do it, not anyone can make things people will want to use.
Money doesn't have to come from anywhere. Sometimes new value is created and the money is brand new. This is how GDP grows.
In the case of BTC, it's pretty clear that a huge portion of the market cap didn't come from anywhere. It's new capital. That doesn't mean it can't go to 0 and vanish overnight. But it does mean that play to earn games don't always need money coming in to pay out.
Fiat is created by banks - by originating loans. A bank does not actually need to have that money to create the loan - it is not transferred from somewhere else, it is just that the bank's balance sheet expands. There are rules on how much a bank is allowed to create, as you might imagine.
The BTC system does not create money - you can follow the creation of a coin system to its eventual destruction and discover that exactly the same amount of fiat went into it as came out (less mining). In fact, at any moment in time, the same also holds! If you buy $100 of BTC, somebody somewhere has just sold $100 BTC. No money is ever created or destroyed. Of course (if you were a lunatic), you could get a loan to buy BTC, and so money would be created, but by the banking system, not BTC, and it would go straight to whoever you bought BTC from.
As soon as people decide they don't want to put money in, then no money can come out. You will know this because the 'price' of BTC will be zero.
I completely agree with you, but I’m wondering if you could help me debate the counter argument: “The same is true of stocks, if people decide to stop putting money in, no money comes out”
It comes up whenever I make a point similar to yours above, and I haven’t had a good answer for it
Stocks represent a share of a productive asset - the (presumably successful) underlying business. That business includes capital goods and other assets having intrinsic value themselves, and also the value created by organising them together. The profits can be distributed as dividends, or used to grow the asset (buy more machines or whatever).
Of course speculation muddies the waters, but you can see how important annual accounts etc are - to ensure the business really has the value it is being ascribed.
Right. So exactly the same is true of stocks when it comes to trading existing stock. The key difference is the creation of stock - IPOs. The company uses that money they get from the IPO and invests it into the business, which results in profits, which they give out as dividends. There's no such mechanism in cryptocurrency.
Unfortunately the other side has a good response to this - if the dollar value of buybacks+dividends exceeds the dollar value of IPO's, then you end up with the same problem that Bitcoin is in, where it's a net loss system. That seems to be the case[0]. This is not a well known fact.
Ultimately this comes down to the fact that we don't have a stable velocity of dollars, and an unstable velocity that results in more dollars chasing less more goods produces speculative bubbles that must eventually crash and create recessions.
All investments, including all currency, whether it be stocks or gold or bitcoin or dollars, is inherently valueless. The only time you can calculate the value is when you actually are extracting utility. You can then work back from that to determine who produced that value.
Regarding stable velocity. If we had negative interest we would have it. Then all that monetary expansion nonsense could be over and we could get on with our lives without cursing some evil businessmen for being morally reprehensible so we have a scapegoat.
I don't know what the natural interest rate such as to get a stable velocity, and it would not be static but would change with changes in the economy, but I don't think it would be negative unless we were already deep within a recession.
And do be so quick, there's always another issue to simplify! Can we get base 12? Can we get a carbon tax? A land value tax? Voting reform? I can go on all day here...
Your description of banks is correct. Your description of BTC is wrong. You're missing an important fact. The price of BTC can, and does, change. When it changes, the market value of all BTC changes. If the value of all BTC goes up, new value (not money) has been created.
Also, lots of people take loans to buy BTC. This is called "leverage".
Ah but a change in the price of BTC does not in fact create any value - it just means that that $100 now corresponds to less BTC. You can profit from that fluctuation, by being on the right side of the cash exchange at two separate points in time. Somebody else will be on the wrong side of that exchange (well, in aggregate anyway - there will be many somebodies on either side) and will suffer a corresponding loss.
Since BTC is intrinsically worthless, any 'price' that might be ascribed to it is meaningless (aside from the profit/loss action described above).
USD is useful because you can pay taxes with it, equities represent an income stream as dividends from a (presumably) successful business, gold can make jewellery etc, land can be rented out.
Even the supposed utility of BTC - as a money transfer mechanism - does not require the price to be anything other that not zero.
If I have all the ice cream in the world and it spoils in a week because I cannot eat all of it then it is not that wrong to say that its utility to me is zero.
By the way his argument is that any absolute value ascribed to a currency is arbitrary or rather that there is no correct number.
> You will know this because the 'price' of BTC will be zero.
To be exact in this scenario, the 'price' of BTC will still be the price of the last trade in cryto exchanges. The trading volume however, will be 0, and there will no demand on the bid/ask. Hence you're stuck with BTC you can't offload.
It's not just a closed system, it's zero sum. It's only possible to cash out for a profit if there are more people willing to buy in.
Some of the anti-bitcoin crowd tried to make the term "Nakomoto Scheme" a thing, and clearly failed. The basic idea is that things like Axie Infinity have some of the aspects of a ponzi scheme, without the central organization and coordination that makes an actual ponzi scheme illegal. While there isn't a central operator paying out old investors with new investors money, anyone currently invested can only cash out if new people join. This begins to look a bit like a decentralized ponzi, with everyone currently invested in it motivated to evangelize it and convert new people in order to ensure the fresh supply of new buyers to keep the price up and/or let them cash out.
Alternatively, even simpler: where is the money coming from? A bunch of people playing a game are a closed system, and no value is created by playing the game. If the only reason why players are earning money from this game is because more people are continually buying into the game and entering that system, that sounds more like a pyramid scheme than anything.