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Dogecoin's inventor looks to the past for insight into the future

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Re: Dogecoin's inventor looks to the past for insight into the future

#161

Post by trevelyan »

whatok wrote: post #92
trevelyan wrote: post #81

Earlier quoted context omitted.

> The sort of activity which led to the financial crisis would not be mitigated by the establishment of a decentralized currency. It actually would deal with the issue that led to the GFC. Remember --- the problem wasn't that there were fraudulent mortgages -- it is that these mortgages were packaged and repackaged in ways that deliberately obscured the risk involved so that people were buying stuff that had no under…

Real-time (compared to equities) pricing as you know it does not exist in mortgages and would not be enabled by what you're describing. Transparency in something like this also does not help in the case of massive gaps downward in price which happened with a lot of these instruments and in fact would probably accelerate sell-offs. Transparency of the underlying was not the issue. Anyone investing in this stuff could…

Transparency was absolutely the underlying issue. Read "Too Big To Fail" or "The Great Short" or any of the other histories of the Financial Crisis. The way CDOs were bundled and tranched made it effectively impossible for purchasers or banks to know which properties were actually covered by any CDO.

No-one knew what was in them -- the value was asserted by the ratings agencies and they were purchased based on expected rate-of-return. Even the people who went short on the market ended up using heuristics: there is a wonderful passage in The Great Short which describes a character who tells his broker that he will short anything bought by one of the people he has just met.

Once the extent of fraud became clear the entire market dumped down to 35 cents on the dollar. The fact that transparency was an issue is also apparent right here, since nowhere near 65% of consumer mortgages failed. But no-one would buy because no-one could tell if any particular CDO was backed by anyone who was still capable of making payments.

With Ethereum and smart-contract based mortgage systems this completely disappears, since the blockchain broadcasts every single payment made in real-time and it is possible for anyone to simply look and see if whether defaults are rising or falling among the mortgages that underpin their collateralized securities.

Re: Dogecoin's inventor looks to the past for insight into the future

#162

Post by leoc »

https://www.reddit.com/r/dogecoin/comments/7oxi53/developer_... , from one of the current Dogecoin devs:

> I feel some are using our rise to illustrate the absurdity of cryptocurrency pricing (http://uk.businessinsider.com/dogecoin-cryptocurrency-has-ma.... for example). To me, in an environment where a cryptoasset with $30 USD equivalent transaction fees has a market cap of over a quarter of trillion dollars, I don't think we're the absurd one. Yes we take ourselves less seriously, but that doesn't mean we're not serious behind the scenes. We're a 4 year old currency with transaction fees barely over a cent and significantly higher throughput than most other cryptocurrencies.

(Disclaimer: I know him personally.)

Re: Dogecoin's inventor looks to the past for insight into the future

#163

Post by trevelyan »

Certhas wrote: post #120
whatok wrote: post #92

Earlier quoted context omitted.

Real-time (compared to equities) pricing as you know it does not exist in mortgages and would not be enabled by what you're describing. Transparency in something like this also does not help in the case of massive gaps downward in price which happened with a lot of these instruments and in fact would probably accelerate sell-offs. Transparency of the underlying was not the issue. Anyone investing in this stuff could…

In fact I believe the rating agencies that mis-rated the risk of these CDOs had full access to all this information anyways.

You're right that it was possible for people to consult the original (think, paper-based prospecti) in at least some cases, but most people relied on the ratings agencies and they claim to have essentially greenlit their ratings on what the Black–Scholes equation told them, using assumptions that were convenient but untrue (i.e. Gaussian cupola -- that defaults would not be correlated).

Re: Dogecoin's inventor looks to the past for insight into the future

#164

Post by openasocket »

andrewla wrote: post #48
stanleydrew wrote: post #46

Earlier quoted context omitted.

I'm not sure what your point is. If all banks switched from dollars to Bitcoin, they could still be bailed out.

Sure, if the government in question has the funds on hand or can borrow them. But they can't just literally increase the number of Bitcoin by a factor of 5 [1] in order to give trillions of dollars to people who have demonstrated their incompetence at handling that money. [1] https://fred.stlouisfed.org/series/BASE

I don't think you understand how that works. The government didn't literally print more money, they bought securities from the banks in exchange for credit in the central bank's account. No actual money was printed. The increase in the BASE is because the Fed was reducing its reserves.

This is entirely possible to do in Bitcoin, you can still have a "lender of last resort".

Re: Dogecoin's inventor looks to the past for insight into the future

#165

Post by pbkhrv »

> "In many ways, 2017 marked the year that cryptocurrency stopped being about technologically innovative peer-to-peer cash and instead essentially became a new, unregulated penny stock market."

I don't think it stopped being about tech innovation - there is a ton of stuff happening around proof-of-stake, layer 2 networks, state channels etc. It's just that the stories around the speculative aspects of the cryptocurrency assets have been dominating in 2017.

Re: Dogecoin's inventor looks to the past for insight into the future

#166

Post by Jtsummers »

UncleEntity wrote: post #138
erispoe wrote: post #104

Earlier quoted context omitted.

In modern systems money can be created by banks lending money. That's an interesting property as money creation is tied to the course of the economy. However, this can lead to inflation if the amount of money created actually exceeds the growth in economic activity. In the gold standard model where the amount of money is completely uncorrelated with economic activity, you have inherent deflation. Deflation is a serio…

> Deflation is a serious threat, as it pushed people to hold onto their currency (as the real value automatically rises) instead of spending or investing it. Why would people not invest (or spend for that matter)? It's not like people wouldn't take deflation into account the same way they do with inflation today. If you loan out a dollar today and at the end of the loan its worth $1.03 then you simply adjust the inte…

You buy the computer when you need the computer. No one buys (or no one with any sense) a computer today if they won't be turning it on for a year.

In an inflationary economy you are motivated to spend the money early, rather than late. And as buyers predominantly drive the economy and not sellers, this keeps things moving at a reasonable tempo (barring extreme inflation).

In a deflationary economy you are motivated to spend the money later. And, again, as buyers drive the economy more than sellers, this slows the pace of the economy. [0]

Right now it is to my benefit to buy a house for $200k and secure a $180k loan at 3% interest because with inflation the real interest rate is actually more like 1% (assuming the target of about 2% inflation per year).

In a deflationary economy that $180k loan at 3% would have a real interest rate closer to 5%.

The lender comes out great, they still get their 3% interest and the effect of deflation. The borrower gets shafted, they're paying back much more than the property is worth by the end of the loan (even worse than under inflation).

However, while buyers get to drive much of the economy compared to sellers, lenders have control of the capital and are in a better position to set the terms than borrowers. So under deflation buyers are doing fine, lenders are doing better than now, sellers are meh, and borrowers are screwed.

[0] Why I say buyers drive an economy more: It is very difficult for seller to force a sale. The buyer almost always has a choice. Now, the seller can set the price but as they want to remain profitable they can only push it so high before they lose sales to competitors who recognize the opportunity to undercut and remain profitable.

Re: Dogecoin's inventor looks to the past for insight into the future

#167

Post by openasocket »

peterjlee wrote: post #113
meri_dian wrote: post #2

>"To deliver a peer-to-peer alternative to cash that, through decentralization, did away with the need for trust in financial institutions, which the 2008 crisis showed to be unscrupulous, and often corrupt." The sort of activity which led to the financial crisis would not be mitigated by the establishment of a decentralized currency. Decentralization would not do away with the need for financial institutions (or the…

It wasn't "The sort of activity which led to the financial crisis" that inspired bitcoin. After the crisis happened the US government funded the massive bailout by printing more money. It turned out to be a "good" decision since it prevented a catastrophic economic failure but it did cause more inflation and some people weren't happy that a government can just print more money on a whim. So that's how the bitcoin cam…

The government didn't actually print any money, the central banks just acted as a "lender of last resort," which works just as well in Bitcoin as it does in cash.

Re: Dogecoin's inventor looks to the past for insight into the future

#169

Post by CPLX »

derimagia wrote: post #103
usrusr wrote: post #98

Earlier quoted context omitted.

> I was talking to my financial advisor the other day and he said pretty much 100% of people now are asking him about crypto and are considering putting money in. 100% of those are not interested in cryptocurrency at all, they are interested in anything that goes from bottom left to top right if charted against their local denomination. They don't want crypto, they want fiat and see crypto merely as a possible means…

Honestly though, doesn't this also apply to a lot of people's choice of stocks?

Stocks are an investment in productive assets.

Somewhere down the chain stocks invest in actual production value, which creates goods or services that people use, and increases the sum total of wealth in the world.

Buying the stock is buying the rights to a stream of income based on that productivity.

These "investments" in cryptocurrency don't have that aspect whatsoever. There is no claim on productive enterprise involved, and for the more niche offerings that have some element of that the economics are so wildly divorced from the fundamentals of productivity to make the link meaningless.

Re: Dogecoin's inventor looks to the past for insight into the future

#170

Post by statoshi »

Tommah wrote: post #168

At this point, if you put Dogecoin and Bitcoin next to each other, Bitcoin looks like the joke. It's slow, the fees are too high, and its developers won't address these problems.

Sounds like you're looking at the wrong metrics. Dogecoin had 0 commits to its main repository in 2017. Compare that to 3,277 commits to Bitcoin Core alone. Bitcoin has scaling issues that developers are addressing with second layer networks because tons of people are using Bitcoin. Dogecoin doesn't because it has so few users that the demand for block space is well below the available supply.
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