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Speculation of meme coins has dominated the news recently but there are some amazing coins with real utility. Ethereum tends to get viewed negatively because it can become so insanely expensive to do anything on the chain but in reality that means that the market is willing to pay for those transactions to occur which suggests that there is some real utility to the ecosystem that has real world value.
As compared to equities. Remember, equities took decades before the academic frameworks were established. _Gentlemen own bonds_ was the wisdom, all the Wall Street traders were the Brooklyn street kids, not he Ivy bankers. Present value sums up all future cash flows and gives it a price today - this is very misunderstood, you find reporters saying 'and they're not even making any money!' but we're valuing the total funds made in the total lifetime, discounted to today (I sometimes think if they'd called it financial relativity or finance-time it would have been cooler). I find it useful to try to think about where the comparison object was at this point in its development.
Early stage investments are not available to most. You must be an accredited investor - i.e. already have a certain amount of wealth, you must be connected - this favors certain schools or ethnographic groups. With tokens, you now have access. You can actually participate early along with everyone else. You can join the Discord, participate, and see it through all its stages. This is tremendously powerful, scary, and transformational.
Cryptocurrencies have the dollar figure, but the real value I'm seeing is in the organization and management structures. You are seeing transparency and participation that just isn't how business is usually done, or maybe ever was. If you join the KLIMA Discord, pop into their #policy channel, they are literally having open C-level board strategy discussions you can participate in.[0]
Tokens now are being used for governance and ownership. This is the DAO concept again, which functions something like stockholders getting a vote on certain things, but in crypto it is being pushed further to have 'only' that group run everything. The other strange thing is, to get these tokens, often you have to be a member or customer. There is employee ownership, and customer ownership. Which is unusual and valuable.
Cryptocurrency is backed by the same thing as any other currency: popularity and consumer confidence. Whether such sentiments are "warranted" or "deserved" is a subjective matter, but that is irrelevant to determining its economic influence - enough people have invested in it for network effects to all but guarantee its continued relevance.
Earlier quoted context omitted.
> in reality that means that the market is willing to pay for those transactions to occur which suggests that there is some real utility It means that it is useful for those who can afford the absurd gas prices for just about any operation on Ethereum than those who are sending small amounts to perhaps test before permanently sending their money to a dead wallet and paying the gas fee too. So it makes sense for someo…
> So it makes sense for someone to pay >= $1,000 in fees to approve and move / swap $1 - $100 worth of tokens? That's like arguing that all container ships are useless because I only order a few dozen small packages a year. The gas prices are set by supply and demand so the value created by the gas prices must be an acceptable cost for the amount of value the transaction is creating. Just because something is cost pr…
So I can use Ethereum to pay for my groceries then? Everyone needs to eat. It's creator painfully admitted that gas fees should not be at those prices in the first place.
Good to know that you can't even send a test transaction these days.
Stacker News (SN) is a place that is at least attempting to have these conversations, though they swing the other way and are actively pro-cryptocurrency, even if the main focus is on Bitcoin and Lightning [0].
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Let me try to actually answer your question.
* Cryptocurrency is creating value
Cryptocurrency offers the possibility of digital money outside of government control. This allows for a variety of transactions that are difficult otherwise.
For countries that have locked out other currencies or whose banking system is crumbling, remittances through Bitcoin or other cryptocurrencies offer the possibility of sending cash, even considering the high barrier to entry, the high friction etc. etc. (take it with a grain of salt, but here's an article [1]).
There was been at least one instance where a news organization drew the ire of a government, had their funds frozen and were able to function through the use of Bitcoin [2].
Sex workers now have an option to accept currency with less fear of backlash.
Substances criminalized by local governments are available for purchase with Bitcoin.
To all those that will respond "cryptocurrency is only good for illegal activity", my response is that's precisely why cryptocurrency is needed. For countries with a developed banking system, the need is not so pressing. For places where it's effectively criminal to be poor, then by definition, offering independent financial instruments is illegal.
* Cryptocurrency is being more widely adopted and legitimized
El Salvador has adopted Bitcoin as legal tender [3].
Other countries are expressing interest in adopting Bitcoin [4].
* Bitcoin is working out technical difficulties that will allow it to meet demand
This is the "Lightning Network" [5].
On-chain bitcoin transactions will only allow 3 transactions per second. For comparison, Visa provides around 1700.
The "Lightning Network" and associated protocol is "off-chain", settling back and forth transactions and only commiting a final transaction on-chain.
The analogy is like a bar tab. You go to the bar, give them your credit card and maybe the bar reserves $100 on your card. You buy some beer, you buy your friends some wine, you order some food, maybe your buddy orders you a beer. At the end, you settle up with the bar, with the only reported number being the sum total of all the smaller transactions.
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So, to me, this answers your fundamental question. Bitcoin creates value by meeting a demand, is being adopted and legitimized in its adoption and is working out scaling details. If Bitcoin were a startup, this would be where "the market pulls product out of the startup" phase.
How many articles have you read where people incredulously dismiss Twitter for being frivolous and not making money? How about Facebook? If Bitcoin were a startup, I imagine the narrative would take a much different tenor.
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There is a possibility that Bitcoin and/or other cryptocurrencies could fizzle and die or that what the naysayers are espousing is correct in that they're ponzi schemes/MLMs or some other scam [6] [7] [8] [9] [10].
My opinion is very much no. I'm old enough to remember email, the beginning of the world wide web, the subsequent dot-com crash, Napster, cell phone adoption, etc. etc. Bitcoin provides a novel technology that solves a fundamental problem in multiple different ways.
Bitcoin has the possibility of providing banking to the unbanked. It also provides a way for a global financial system to bootstrap itself without centralized control. From a consumer level, Bitcoin and its associated Lightning network, open a real possibility of micro transactions that wasn't possible before.
I'm a little incredulous as the amount of vitriol directed at Bitcoin from this community and others in the technology sphere. The only conclusion I can come up with is that to people with a stable banking system, the value proposition of Bitcoin in its nascent form isn't really understood. A more cynical conclusion is that the sentiment is a result of an astroturf campaign from actors invested in Bitcoin's demise.
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As a final remark, Bitcoin is growing at 10x about every 4 years (around 20% APR). This means that, if the growth remains at this level, we'll see a $1M per Bitcoin valuation by 2025-2026.
At $1M per Bitcoin, this would put the amount of Bitcoin at 10%+ of the worlds current wealth the world [11].
This provides a falsifiable test of whether Bitcoin has actual utility, with a concrete time bound.
If Bitcoin represents 10% of the worlds wealth and if a substantial portion of Bitcoin isn't being used in day-to-day transactions, this would point, to me, that Bitcoin is a bubble or being propped up in some way.
On the other hand, if Bitcoin represents 10% of the worlds wealth and is being used in everyday transactions, either being adopted by a few large countries or many small ones, then this would point to Bitcoin being used for its intended purpose, as a currency.
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[1] https://techcrunch.com/2021/10/09/crypto-remittances-are-a-l...
[2] https://www.forbes.com/sites/rogerhuang/2019/04/26/how-bitco...
[3] https://www.nytimes.com/2021/10/07/world/americas/bitcoin-el...
[4] https://www.thestreet.com/crypto/bitcoin/politicians-from-th...
[5] https://lightning.network/
[6] https://ic.unicamp.br/~stolfi/bitcoin/2020-12-31-bitcoin-pon...
[7] https://twitter.com/smdiehl/status/1395684302201966592
[8] https://twitter.com/smdiehl/status/1394938539989741573
[9] https://twitter.com/zachcoelius/status/1393646959517261826
[10] https://www.nytimes.com/2021/05/20/opinion/cryptocurrency-bi...
[11] https://www.credit-suisse.com/about-us/en/reports-research/g...
My CapitalOne savings account pays 0.4%; you can open an account with ZeFi today and get 7% - 20 times more - with the same ACH in/out you're used to.[0] If you go full crypto and stay on-chain, you can find the USDC coin - a 1:1 stable coin - paying interest above 12% at many DEXes[1]. The USDC coin is like a mutual fund, it has extremely liquid high quality holdings, is audited, and is exchangeable 1:1 for actual US Dollars at any time [2].
Even better, some of these options let you keep control of your assets (non-custodial).
Because of this, it's inherently obvious to me that the US banks will be completely disrupted by crypto; in a good way for us consumers.
[0] 7% return with ACH https://www.zefi.io/invite/abzqg (Note, this is a referral link) [1] 12% return on USDC https://solend.fi/dashboard [2] about USDC https://www.circle.com/en/usdc
Earlier quoted context omitted.
Economics is not a philosophically-laden exercise. Economics defines value as that which a rational agent is willing to make a sacrifice for, and the degree to which something is valued by that actor is exactly measured by what they're willing to sacrifice. Why is this not valuable? Or, rather, what might a better definition entail? A precise formulation isn't required, I'd be happy to see a rough sketch of necessary…
The problem is that everyone is somewhat irrational. You cannot both exclude irrational behavior from your definition of value and at the same time claim nfts are worth money and thus rational. Im claiming they are irrational and not useful.
Particularly, I think it's important to delineate whether 'rationality' allows for arbitrary actions, decisions, and desires. I do include these qualities in my notion of rationality, so long as the actor can rationalize the phenomena to themselves (even if this rationalization is based on nothing more than their ability to do so).
Given this notion of value and rationality, yes: I can very easily allow for NFTs ('useless' though they are) having value.
Do you mean 'rational' in terms of 'every action or desire is reducible to some unknown deductive logic'? In which case, I agree that everyone is somewhat irrational and furthermore that nobody could ever be rational. 'Rational' in the game theory sense? In which case, I see no reason to say that everyone is irrational instead of allowing for the mathematical notion imperfectly capturing reality.
Earlier quoted context omitted.
The problem is that everyone is somewhat irrational. You cannot both exclude irrational behavior from your definition of value and at the same time claim nfts are worth money and thus rational. Im claiming they are irrational and not useful.
Irrational in what sense? I can, indeed, claim that NFTs have value to even a purely rational actor, if I'm allowed to ascribe self-determination to that actor. Particularly, I think it's important to delineate whether 'rationality' allows for arbitrary actions, decisions, and desires. I do include these qualities in my notion of rationality, so long as the actor can rationalize the phenomena to themselves (even if t…
It is possible NFTs do have value in the sense of being good, but them being priced highly does not give us useful signal there.
Earlier quoted context omitted.
If I want to murder people does murdering people have value?
The net value to society is likely negative since the impact on the target is large, and a society that allowed such things may see time horizons constrict. You raise some good points, though. I personally am probably coming with an unspoken understanding that 'given that something fits into a legal and moral structure, and we accept a certain definition of using something by choice as value' then paying more for tha…
The construction “NFTs are highly priced, thus they are desired, thus they are good” is full of holes. If I have a phobia of spiders, and a corresponding desire to eradicate them, does it follow that eradicating spiders is good? If I got my wish, I and the rest of the world would be worse off for it, but my desire exists none the less.
Earlier quoted context omitted.
Irrational in what sense? I can, indeed, claim that NFTs have value to even a purely rational actor, if I'm allowed to ascribe self-determination to that actor. Particularly, I think it's important to delineate whether 'rationality' allows for arbitrary actions, decisions, and desires. I do include these qualities in my notion of rationality, so long as the actor can rationalize the phenomena to themselves (even if t…
If everyone is buying NFTs because they believe the price is going to go up, and they tell themselves that the reason the price is going up is because NFTs are useful, but in reality NFTs are not, that is irrational. So it allows them to have monetary value while contributing nothing useful to the economy, and in fact causing people harm. It is possible NFTs do have value in the sense of being good, but them being pr…
I suppose my biggest gripe is this: how do you construct a notion of rationality which allows for some people to be perfectly rational sometimes, imperfectly rational at other times, and others to be rational never, while allowing for real flaws in reasoning and the absence of perfect information? (this is, to me, a rough sketch of some necessary/sufficient conditions)