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The cryptocurrency bubble is strangling innovation?

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Re: The cryptocurrency bubble is strangling innovation?

#91

Post by pc2g4d »

Isn't this driven by the fact that crypto clients use a default transaction fee rather than dynamically negotiating a good fee on the market?

E.g. if your client's default fee is .001 bitcoins or whatever, back in the day that was super cheap but now it's $15. But the intrinsic cost of carrying out that transaction has in real-world terms probably gone down rather than up. So you'd expect the market to arrive at roughly the same USD-valued equilibrium regardless of the BTC-USD conversion rate, but this clearly hasn't happened.

So in practice there is no market for crypto transactions because everybody just uses some default transaction fee. Yeah?

Re: The cryptocurrency bubble is strangling innovation?

#92

Post by Goladus »

thisisit wrote: post #6

> It remains an open question whether even much, much lower fees would be viable in the long run. The problem is not fees rather usability. If today I speak to a layman about bitcoin he is confused. It doesn't help that people start talking about hardware wallets, multisigs, Segwit etc. Most of those guys find that using cryptocurrency is a pain and want to stick to real money. Yes, it doesn't stop them from speculat…

Frankly, I was more optimistic about Bitcoin before I knew the technical details.

What I heard back in 2009 was that it was a way to trade money using cryptographic hashes without a central authority. I didn't really think about it more deeply than that. I didn't bother setting up a wallet or anything like that as I didn't have any extra cash to waste on new technology. But I kept a halfhearted eye on it as an alternate way of making payments over the internet.

When I finally went and looked at the mechanisms and the algorithm I thought "wow this is a bad joke." It's inherently deflationary and will never be an accepted currency outside a narrow niche of (mostly illicit) users. It's price relative to USD will always be volatile due to its astronomically high gini coefficient, and anyone not on the high end of that inverse exponential distribution will _never_ prefer bitcoin over USD. BTC printing mining will eventually cease entirely, meaning the transactions will require transaction fees that scale up depending on the size of the network, which will further discourage adoption until ultimately the whole scheme collapses (the founders having cashed out a long time ago).

Fees are Bitcoin's problem now, and will likely be its biggest problem (along with continued volatility) until the network ceases to function entirely.

https://bitinfocharts.com/comparison/bitcoin-mining_profitab...

There are two interesting points. First, is that early mining was exponentially more lucrative than later mining. Second, is that somewhere around 2014, mining profitability seriously plummeted (this can be seen more easily in logarithmic view). Before 2014, the lowest profitability rate was somewhere around $200/day for 1 THash/s. During 2014, the profitability plummeted and since then has not gone above $4/day per 1THash/s. There was a slight bump in 2017, probably due to the speculative bubble, but profitability still did not go above $3/day.

The point is: everything you might think you know about bitcoin's viability based on how it worked from 2009-2014 doesn't apply from then on. The scarcity and hype led to a speculative bubble, but from my perspective it appears doomed. Whatever niche it might have had on Dark Web black markets will be replaced by some other mechanism. When speculation stops its value will plummet and no longer subsidize mining. Mining will stop, which will make the difficulty easier again, but the reward rate continues to dwindle, forcing miners to require higher transaction fees. If those transaction fees aren't enough to cover the costs of mining, then more miners will stop. And so the block chain network will erode.

Re: The cryptocurrency bubble is strangling innovation?

#93

Post by api »

FLUX-YOU wrote: post #75
Robotbeat wrote: post #60

Earlier quoted context omitted.

> Rich people can afford astroturfing services to spread memes and good morale to pump the price. Rich people likely have significant control over hype cycles and may even be pumping other cryptocurrencies to start diversifying. That's super interesting. We assumed that the decentralization of content brought on by the Internet and social media would put a stop to stuff like that, but instead, due to anonymity, simpl…

It's really easy to get into tinfoil haberdashery territory, but IMHO, the two main areas of manipulation that are worth it (these days at least) are finance and politics. Bitcoin has the advantage that it lacks any significant regulatory oversight or penalties while being useful across borders, which regulatory agencies are usually constrained by.

In today's world I think having no foil in your hat is naive. We are living in a cyberpunk novel collaboration between William Gibson, Neal Stephenson, and Tom Clancy.

Doesn't mean you should uncritically buy into conspiracy theories without evidence, just that considering the possibility of manipulation and shenanigans is entirely reasonable.

Re: The cryptocurrency bubble is strangling innovation?

#94

Post by zodPod »

Robotbeat wrote: post #23

Reading the original Satoshi paper, the point of Bitcoin is to be decentralized/trustless and to enable microtransactions by lowering transaction fees. Both these goals seem to have failed in practice, the latter spectacularly (although other cryptocurrencies have done better in this regard). To truly be trustless, you can't generate keys/addresses on some website like bitaddress or use some other online wallet, as y…

This has been how I've seen it for a while as well! It's really hard to convince me that something is decentralized when, like you said, I have to verify my identity on a third party exchange to acquire them. I mean, obviously you could store them locally on a wallet and get them from a friend or something but the fact that these gigantic exchanges came from nowhere seems to indicate that it's not as easy to decentralize money as they'd like us to believe.

Re: The cryptocurrency bubble is strangling innovation?

#95

Post by heurist »

adventured wrote: post #40
Robotbeat wrote: post #23

Reading the original Satoshi paper, the point of Bitcoin is to be decentralized/trustless and to enable microtransactions by lowering transaction fees. Both these goals seem to have failed in practice, the latter spectacularly (although other cryptocurrencies have done better in this regard). To truly be trustless, you can't generate keys/addresses on some website like bitaddress or use some other online wallet, as y…

> Both these goals seem to have failed in practice, the latter spectacularly That will stop being the case once people stop treating all the coins as investment speculations. That won't occur until the bubble pops. After that, with the typical trauma that goes with it due to financial losses, it will become almost impossible to convince people to plow large amounts of money into inflating a given coin (as in the case…

The bubble pop will come when banks say they refuse to use any public cryptocurrency. If that happens (if, not when) then the hype will disappear rapidly and the market will continue growing organically. If it doesn't, then cryptocurrencies will differ from beanie babies (or tulips) in the sense that they are highly liquid and can lubricate real financial teansactions, and thus have value within the global financial system.

The other aspect I think the people calling bubbles are underestimating is the liquidity of information and assets through this network. Speculators will invest primarily in the forefront of cryptocurrencies technology - ICOs, low and middle-tier exchanges - looking for the next 100x. As coins grow the capital from established coins will spread and risk, hopefully, will also spread. Information on every coin is readily available and people are trading and chatting about these things all day every dat, so rumors and news should diffuse and keep prices in line. The technology will improve over time, hopefully to a point where the valuation is justified.

I'm not saying that will happen, but in my mind there is a plausible path, and that's enough for me to keep some money in.

Re: The cryptocurrency bubble is strangling innovation?

#96

Post by Goladus »

pc2g4d wrote: post #91

Isn't this driven by the fact that crypto clients use a default transaction fee rather than dynamically negotiating a good fee on the market? E.g. if your client's default fee is .001 bitcoins or whatever, back in the day that was super cheap but now it's $15. But the intrinsic cost of carrying out that transaction has in real-world terms probably gone down rather than up. So you'd expect the market to arrive at roug…

I believe the real-world costs of transactions are actually going up, not down. As more miners are added to a network, the difficulty rating goes up and more CPU cycles are required to compute the next block.

Re: The cryptocurrency bubble is strangling innovation?

#97

Post by zodPod »

Goladus wrote: post #78
leroy_masochist wrote: post #39

> Look at the dot-com boom. A lot of people lost a whole lot of paper money, but it brought us a cheap worldwide fiber backbone and companies like Amazon and Google. If the point the author is trying to make is that Amazon and Google were made possible by the dotcom boom, and that the collapse of the dotcom bubble was part of the price we as a society had to pay to have the services provided these companies, that's a…

If the point the author is trying to make is that Amazon and Google were made possible by the dotcom boom, and that the collapse of the dotcom bubble was part of the price we as a society had to pay to have the services provided these companies, that's a really really bad argument. Well, the article actually refers to that argument as a "desperate rationalization," although rather than delving into refuting the analo…

You're absolutely right! I'm not sure why the parent thought that this article was trying to make a real point there at all. Gives me the impression that he/she didn't read past the first sentence before making that comment.

Re: The cryptocurrency bubble is strangling innovation?

#98

Post by acdha »

oneeyedpigeon wrote: post #86
acdha wrote: post #14

Earlier quoted context omitted.

> One thing has to be noted, while there is a constant parallel drawn with dot com people forget that there was at least 7-8 years head start for a layman to understand "internet". Bitcoin has been around for 8 years so it's not like there hasn't been enough time. The difference is that the internet was easy to explain to people because it had a number of immediately useful applications: you could almost immediately…

The potential use really clicked with me recently when I was browsing someone's site and came across a linked bitcoin address. One tap/click on that link followed by an amount and another button press, and I could pay that person money, directly: that's a very low barrier to payments. And with the same wallet, I can also scan a QR code on someone's phone and pay them money. I think these benefits are tangible, but wh…

Resolving the fee/latency issues seems like a hugely important problem since networks like that: that's closer to the convenience offered by credit cards with e.g. Square/Venmo/etc. or Apple Pay for the web but the main thing is that it presupposes people have accounts, which really means giving small businesses a reason to switch. If the fees could be lower than what Visa et al. are willing to offer, that could happen but otherwise it seems like a hard sell.

> I really want someone far more intelligent than me to explain whether or not a zero-sum instantaneous transaction is formally, logically impossible (via a successor to block chain?) because that really is the killer app, imo.

The hard part is trying to do it without central authorities and pseudo-anonymity. Using PKI makes that a much easier problem.

Re: The cryptocurrency bubble is strangling innovation?

#99

Post by root_axis »

oh_sigh wrote: post #80
Robotbeat wrote: post #23

Reading the original Satoshi paper, the point of Bitcoin is to be decentralized/trustless and to enable microtransactions by lowering transaction fees. Both these goals seem to have failed in practice, the latter spectacularly (although other cryptocurrencies have done better in this regard). To truly be trustless, you can't generate keys/addresses on some website like bitaddress or use some other online wallet, as y…

> In practicality, I have to send a picture of my ID to some third party exchange in order to use it. REALLY? Why don't I just use PayPal? That's only if you want to exchange fiat BTC. If you just want to pay people who accept BTC with BTC, you don't need to use any exchanges.

Right... but that's not practical.

> In practicality

Re: The cryptocurrency bubble is strangling innovation?

#100

Post by Goladus »

zodPod wrote: post #97
Goladus wrote: post #78

Earlier quoted context omitted.

If the point the author is trying to make is that Amazon and Google were made possible by the dotcom boom, and that the collapse of the dotcom bubble was part of the price we as a society had to pay to have the services provided these companies, that's a really really bad argument. Well, the article actually refers to that argument as a "desperate rationalization," although rather than delving into refuting the analo…

You're absolutely right! I'm not sure why the parent thought that this article was trying to make a real point there at all. Gives me the impression that he/she didn't read past the first sentence before making that comment.

Well, I think the parent just wanted to clear up any confusion about the validity of comparing the dotcom bubble with the crypto bubble.

Also, to be fair, the TC Article's author is fairly optimistic about the possibilities in crypto/decentralized apps. At least during the dotcom boom, the deluge of foolish money was vaguely aimed at truly revolutionary technology that had been proven useful for over a decade, and had recently produced legitimate companies with traditional, viable, revenue-generating business models.

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