Plz wrote: ↑Fri Jun 28, 2019 2:20 am
TomCat96 wrote: ↑Sat Jun 22, 2019 3:18 pm
Enganerd wrote: ↑Sat Jun 22, 2019 9:54 am
I just wanted to start a thread because there is interesting discussion regarding btc in the facebook libra thread (viewtopic.php?p=4605431#p4605431
) but prudent correctly directed the thread posts to remain on topic with the OP. Disclaimer I am not a btc proponent and this is not related to the recent upward rally of btc, but I do find it interesting if you can get past the extreme takes on both sides. The [conjecture --admin LadyGeek]
implying it will solve all of societies issues (ironically while making early speculators/minors ridiculously wealthy) and the "oh it is just a tulip bubble the USD has been fine for me" are not serious takes on the tech and potential. Here are some quotes from the thread mentioned above that I find interesting and would love to see the discussion continue in this more nuanced logical manner.
TomCat96 wrote: ↑Thu Jun 20, 2019 5:02 am
Plz wrote: ↑Wed Jun 19, 2019 11:43 pm
I’ve always been confused with crypto currencies - maybe someone can help me understand.
Gold has value because it is rare and is an actual thing. It’s worth what someone is willing to pay for it, but it can also be used for other things. Intuitively I get this. It’s rarity and I supposeuses give it an intrinsic value.
The dollar used to be backed by gold but now it is not. However, it has value because the US government accepts tax payments in dollars. It has value because of this, as well as it gives you access to US goods, services, and capital markets. I understand that there academically could be inflation a la Zimbabwe, but the dollar is supported.
Crypto currencies have nothing collateralizing it. It’s worth what someone is willing to pay for it. My question is, beyond speculation and laundering money, WHY would someone prefer a bitcoin to a dollar?
There are literally hundreds (thousands?) of crypto currencies out there. Even if they’re worth $1, it’s value creation out of nowhere. It’s only worth something because someone is willing to pay for it. This seems circular and confuses me. At least with national currencies, governments assign value through tax collection.
Perhaps oversimplifying, crypto currencies seem like printing money to me. For free. Value from nothing. Sure, FB, JPM, etc lend credibility to their own crypto currencies...but what gives them the right to print money like this?
Not to mention...on what basis will the libra be tied to the basket of currencies? Just because they want it to be? Will FB allow redemption of libra without any stops? Could this create a “run” or cash flow issue?
I’m sure I got lost somewhere along the way. It couldn’t be this big if my understanding of it was accurate, right? No facetiousness, can someone please explain it to me?
Either way, let’s make boglecoin. What’s the downside?
I would say your understanding of what gives something value is too narrow, which is why the value of cryptocurrencies is eluding you. FIrst of all, don't dismiss demand due to speculation. Dismissing speculative demand because of a bias that it's not a good and proper demand is going to block your insight. Let's expand the definition of speculative demand for a second to shares of companies for which the Liabilities exceed Assets. By definition, as a shareholder, you own nothing. You as a shareholder own Equity, which is of course the difference between the Assets and Liabilities. If the Equity of a company is zero, or even negative, should the stock sell for zero? Clearly not. Stocks with negative equity do not sell for zero, under the speculation that they could return to positive value, and quickly. There are other reasons as well, but I don't want to get into that.
Let's look at your arguments alone. If the reason for the value of the US dollar is that the United States accepts dollars as payment in taxes, or if gold has value because someone is willing to pay something for it, then it is not any intrinsic factor which gives to these items, but rather structural factors--the acceptance by other parties which gives value to it.
In the same way if Bitcoin and its ilk were to gain legitimacy and acceptance because other institutions begin to accept it, then it should acquire value the same way.
What about competing cryptocurrencies? Let's go with what you said before. What's the difference between a dollar, and a piece of paper written on it that says 1$ Lord of the Exchequer, TomCat96 $1. Well for one, no one is going to accept my piece of paper for any system of transactions. What about the regular dollar? A dollar is not worth a dollar because of its fine art, or the piece of paper it's printed on, but because of the institutions and aggregate of people who are willing to accept it.
The value of a cryptocurrency then is similar. Bitcoin has a substantial advantage over your proposed boglecoin. Bitcoin was first. It has a logo, a large collection of developers committed to improving the technology (they are working on lightning network atm), a globally decentralized blockchain, global recognition of the name, a substantially large network of actors willing to accept it relative to your proposed boglecoin, and a market cap of 164B. What would it take for your boglecoin to get there?
It's not the intrinsic quality of bitcoin that makes it superior to your boglecoin, just as it's not the instrinsic value of the fine paper used by the US govt which makes the US dollar worth more than my idiot dollar. The value is the in network. That's something that your boglecoin doesn't have yet. But it's a real asset.
What makes the facebook platform valuable? Is it the intrinsic technology of allowing people to share cat pictures socially, or is it rather that billions of people already use it, the latter being a competitive advantage not easily replicated.
Let's talk about bitcoin as currency, or cryptocurrency as currencies. I think the people on this site get far too hung up on that.
This is how I believe they approach the analysis. Currency? That's like coin, bills, money. They have 40, 50, 60, 70 years of a preconception of what "currency" is. That bitcoin claims to be currency immediately invokes whether or not bitcoin fits in that preconception, that bucket, of what bitcoin is. If bitcoin fails to fit into that bucket, it's no good. It fails as a currency.
That conception is too narrow. It is stunted by its own biases.
Ether (ETH) for instance may not be a currency at all. Sure it's tradable. But so is gasoline. So are units of computing power or anything else standardized. ETH is a distributed computing platform. It might have intrinsic value in its ability to purchase computational cycles on a world computer. If you try to stuff ETH into a preconception of what a currency is, a preconception you learned at an early stage in your life and dismiss it because it fails to fit a narrow preconception, you block your own insight. ETH is clearly something different. What about proof of stake? If you collect enough ETH, you can actually obtain more ETH? Yes it's true. In lieu of mining, one might actually be able to obtain more ETH by owning ETH. Decred or DCR currently has a hybrid mining/proof of stake algorithm.
Think about what that means: there are local maxima of increasing marginal utility built intrinsically into the currency itself? That's not like any currency I've ever heard of.
The list goes on. What about a stablecoin? There's a few of them now, but we'll talk about Tether. Controversies aside, it turns out it's pretty costly to convert from cryptocurrencies to fiat currency. It causes taxable events, imposes major liabilities on exchanges which might let you perform those events, etc. At the same time cryptos are pretty damn volatile. There must be a way of trading into fiat without incurring the penalties of trading into fiat. Enter stable coins.
TomCat96 did a great job explaining crypto potential in this post. Here is how Plz later responded:
Plz wrote: ↑Fri Jun 21, 2019 3:15 am
This is really helpful, thank you for taking the time to help me understand. From what you wrote, this is what I think you’re saying: the value of crypto currencies come from speculation as well as network effects (including the ubiquity/ease of redemption, too).
May I follow up with a few more questions?
1) would you say the value in crypto currencies depends on circular logic? It’s valuable because there’s demand for it and there’s demand for it because it’s valuable? Where I get stuck is that with a crypto currency, there’s nothing that “protects” that circle. With dollars, the government is in there. With gold, well...there’s the actual gold itself. Even with magic cards, there’s trademarks, the game itself, and the paper it’s printed on.
2) if it indeed is circular, does it have some sort of “protection?” If yes, what? If no, why doesn’t this fact decimate it?
3) would you say creating a crypto currency is similar to printing money? For me, this seems like something that should be done very carefully and only by governments. Should anyone (not literally) be able to make their own crypto currency? And if it’s not like printing money, why not?
I like how Plz identified the circular logic of btc and why that is a concern. And this circular logic also makes me skeptical. Although I am not sure that gold escapes this same criticism just because it is a physical material. Gold is obviously priced at a higher valuation than it's industrial utility would warrant. As for jewelry/decoration is it really inherently more aesthetically appealing than other metals or is it the psychological effect of people associating it with value? On the btc side there are definitely math and tech enthusiasts that love it just because it works. It was a tech created to solve a problem https://en.wikipedia.org/wiki/Byzantine_fault
and despite the crazy valuations it appears to remain effective. I am neither a math,tech, nor cryptography enthusiast but personally I find btc more interesting than gold. Which will hold more value going forward I have no idea but I am just saying I am not convinced that the circular logic of btc is fatal because it might be part of all means of exchange.
I hope others will continue to weigh in because it is honestly somewhat rare to find nuanced discussion of the potential for and measured skepticism of crypto.
I wrote a very long follow up post to Plz, answering 3 questions which unfortunately got deleted as offtopic. I did not save a copy of the post.
Unfortunately I do not have time to repeat the entire substantive post, but I can quickly summarize my answer to the three questions.
1. It seems circular. But network effects are circular in logic. Consider the same circular logic question when it comes to facebook, or any other platform whose value grows as more people enter into it. A social network of one is theoretically worthless. How can something worthless gain traction? The value snowballs over time.
2. Yes it has plenty of protection. Since we covered network of users, let's look at 2 other major factors at how Bitcoin is "entrenched".
a) Network of developers working to improve bitcoin b) Miners. You need developers to maintain the network, to improve the network. You need miners to protect your network.
Bitcoin: 1 block per 10 minutes, 6 blocks power hour. Currently Block Reward: 12.5BTC per new block mined. Currently financial inventive to miners for each block mined alone: ~$125,000 every 10 minutes.(136k right now) Such a large financial reward has incentivized miners to allocate massive computing power to mining BTC. What does mining do? It protects the network. How?
Mining makes it financially/practically/ computationally infeasible for a single entity to take over the network. How would they take over the network? Answer: 51% attack. If any user entity is able to obtain 51% of the computational hash power of the network, they can control the blockchain. Why is that bad? It allows double spending. It will quickly ruin faith in your currency.
Again, why doesn't boglecoin compete with Bitcoin? If you start boglecoin, why can't people just jump onto that crypto? What protects the circle? Answer: BTC was first. Being first counts for alot. In this case, based on today's market value bitcoin is offering 19.62 MIllion USD per day of financial incentive to miners, not counting transaction costs. What do you offer boglecoin? The entrenchment of BTC is very real with those numbers. For that reason, merely replicating the bitcoin codebase does NOT produce a product on equal standing with bitcoin.
3. Is crypto like printing money? In the case of bitcoin no. It too closely resembles fair exchange for value. In the case of other coins you have to mine? Generally No. Fair exchange for value.
In the case of coins with a significant pre-mine. Possibly.
In the case of stablecoins? examples. Tether, USDC, Libra. Quick answer: possibly.
All stablecoins use blockchain. Ignore that. Unlike bitcoin, their blockchains are controlled by a central authority. That means they control their stablecoins. In theory it shouldnt be like printing money because the stable coins are backed by something. In reality, it is possible for the stablecoins to appear like printing money from thin air because the central authority controls the blockchain. In the case of tether, they closed themselves to audit, ceased accepting redemptions, and more. Rumor was they were creating tether out of thin air and using it to inflate crypto prices.
See this excellent post by Hawkeye in the other thread.
HawkeyePierce wrote: ↑Tue Apr 09, 2019 10:32 pm
Cryptocurrency prices are *massively* manipulated. The ongoing Tether scam is used to pump-and-dump in the hope of duping unsuspecting retail investors.
For those not familiar with it, Tether is a service that claims to provide a fiat-backed "stablecoin" where 1 coin is always worth 1 US dollar (or whatever real currency they pick). The largest is the USDT coin (US dollar Tethers). Tether claims they have 100% reserve but has never proven it and fired their auditor. Crypto traders use it to hold pseudodollars while skirting US law.
Since Tether has never offered proof of their reserves, they can mine more USDT whenever they want. The largest exchange using Tether is Bitfinex—they share common owners. Bitfinex takes newly-mined Tethers and lets people buy USDT using Bitcoin or Ethereum. At that point Tether has exchanged a worthless USDT coin for BTC or ETH and also driven up the price.
Bitfinex lost their banking licenses long ago. There are tons of stories on Twitter and Reddit of people trying to redeem their USDT tokens for real dollars and finding that withdrawals are impossible. There's no reason to believe they have real USD in a bank account to back USDT, but as long as crypto prices kept climbing they were able to pull off their scam because people were keeping their crypto and didn't want fiat currency.
These exchanges also allow market manipulation tactics like tape painting and wash trading. Some will literally let you fill your own orders. Add all this up and you have a recipe for huge price manipulation. Bitfinex and Tether drive up the price, watch unsuspecting investors pile in as they see another run starting, then dump their BTC and ETH.
(There's another aspect of this scam that enables wide-scale money laundering since these exchanges don't have any KYC policies or anti-money laundering controls, but that's a whole other topic)
https://hackernoon.com/the-curious-tale ... 0031eead87
I really enjoy our dialogue and hope it can continue. I am learning a lot and appreciate your responses.
@enganerd - thanks for creating this thread so we can continue. I had missed it for a few days but happy I found it now.
@ladygeek - if possible, can you retrieve tomcat’s previously deleted post and put it in this thread? If not, could you PM it to me?
Back to @tomcat96:
1) I think this means we agree that it is circular, and that circular things need strong protections to maintain/stabilize value. For example, governments are hard to overthrow + Facebook has its IP and brand, whereas Ponzi schemes are destroyed if there’s a run.
2) bitcoin’s protections are its developers and miners. Who are the developers and can they be trusted? How are they incentivized? What happens when miners run out of things to mine (the number of bitcoins is finite right?)? I’m still not sure that these things protect the value of bitcoin, but perhaps they protect the infrastructure of bitcoin? How would you respond to bitcoin wallets getting hacked and the possibility for price manipulation on exchanges?
3) I’m not sure I follow you on the fair exchange of value. Before bitcoin existed, there was no value. Now that it does exist, its value rose from less than $1 to up to $20k down to whatever it’s worth today. Isn’t this something from nothing? The difference with Facebook is it has its IP and brand, as well as quantifiable ad revenue, etc. Bitcoin has developers and miners?
I want to focus on number 2. #1 and #3 are more philosophical questions I might address later. I'm not sure how much value I can add to those discussions, and much about it has already been said one way or another.
2) The developers are the community that maintain each particular cryptocurrency. They do anything and everything including fixing bugs in the protocol, changing the hash algorithm, building wallets, or refining blockchain technology itself. The community is so important that one of the major hallmarks of a cryptocurrency being declared dead is no developer activity. Who are the developers and can they be trusted? That's not a fact question is it. It's a question about human nature.
Before all that I mentioned that cryptocurrencies had its origin in the open source software movement. This is what I'm talking about. Check out this website. It ranks the each cryptocurrency by number of github commits in the past 12 months.
Here is a website that talks about cryptomiso.
https://news.bitcoin.com/new-website-ra ... -activity/
Some of these communities are very active.
Can you trust these developers? It comes and goes right? For those that have followed cryptos, you may have noticed a few cryptocurrencies absolutely explode in price during an ICO (initial coin offering) phase, only to tank or even die. The initial developers and investors sold during the initial run up, only to leave bagholders with useless cryptocurrencies the developers had no intention of maintaining.
Subjectively, there's no way of knowing. But objectively, this is why Bitcoin, Ethereum, and other top cryptocurrencies do not stand on equal ground with a newly minted boglecoin. Simply put, these cryptos have years of trust and an active community working on these cryptos. They are not paid by any authority. (I'll talk about exceptions to this later) New cryptos do not have a reputation built upon years of dedication. In this respect, Bitcoin in particular has a significantly stronger reputation compared with other cryptocurrencies.
The difference between Vanguard and the Bank of Tomcat96 is that one of these has the legitimacy to allow people to trust it with their life savings.
Let's look at incentives. While its true some of the actions of the developers may be self serving in the sense that many of them hold the respective crypto they are developing for, it is also true that many of these developers are already wealthy due to the current run up.
These communities are absolutely vital to the cryptocurrencies. Within these communities, certain people hold more importance than others. Vitalik Buterin, cofounder of Ethereum, is so important to ETH that in my opinion, if he were to leave the project, I think there's a legitimate chance Ethereum would simply die. So in this manner, the cryptocurrencies are not quite as bulletproof as others would say. Their vitality, existence, and market value depend heavily on the developer community that supports it. I don't see that changing in the near future.
What that means is that cryptocurrencies are not as bulletproof as they seem. It may not matter that they are based on currently uncrackable elliptic curve crypto. If any of the community of developers of any of these cryptocurrencies were to just get up and walk away, the currency would shortly die thereafter. And why would they get up and walk?
Any number of reasons really. Lack of financial incentive to remain on current project, loss of morale due to hacks, technical issues which cause fundamental rifts in the developer community. Objectively, I would say the legacy of actual events which have weakened the community of developers is in front of us---the hardforks.
Because blockchain is a distributed database, there is no real way to shut it down. Nevertheless, battles are fought of the heart and spirit of the cryptocurrencies. Bitcoin famously split into Bitcoin Cash. Bitcoin cash subsequent forked into bitcoin SV. Bitcoin itself then forked again into Bitcoin Gold. ETH famously formed into ETH and ETC, ethereum classic.
These were all formed via fundamental rifts in the community itself.