Why I’m Cryptophobic • Hacker News Board

Re: Why I’m Cryptophobic

#341

Post by leijurv » Thu, Jun 30, 2022, 8:22 PM UTC

rafaelero wrote: post #200

So much drama. It all comes down to: do you want to use a currency whose rules are immutable and its value is decided by the market or do you want a government backed currency that can change its monetary policy according to its discretion? Everything else is just words.

Why do you think it all comes down to that?

Clearly there's much more to it. For example, cryptocurrencies with those two properties you mentioned are a dime a dozen. I could make one right now by git cloning bitcoin, changing some properties, then running it. And in practice there are thousands with high volume exchange-value. Digital currencies, when combined with ubiquitous exchanges, have such substitutability that I'm not sure there's much of a "network effect" or "lock in", when it's so easy to swap and pay with any of them. "value decided by the market" might be flimsy in this case.

Re: Why I’m Cryptophobic

#342

Post by wmf » Thu, Jun 30, 2022, 8:29 PM UTC

leijurv wrote: post #340

wmf wrote: post #259

Earlier quoted context omitted.

I don't understand what mental model you're using for the relationship between price, fees, and mining costs. Bitcoin fees have nothing to do with the price or the cost of mining; fees are basically proportional to (transaction throughput demand) / (fixed transaction throughput supply). I've seen various reports saying the cost to mine 1 BTC is between $8,000 and $13,000 so miners are still profitable. Note that mini…

I don't think that's true, fees are not proportional to that. Fees compete for a finite and precise limited space in blocks. There's no limit to how high fees could grow in this competition, because only the 7 most lucrative transactions get mined per second. I think it is vaguely accurate to say that fees and mining costs are linked, *however*, currently the coinbase block reward is a bigger deal. Example: most rece…

OK, what you're saying is that after the block reward ends, fees will equal miner revenue and miners will mine harder until equilibrium where their costs equal their revenue. That's correct but it's important to understand that the causality flows from fees to miner costs, not vice versa. Miners cannot force fees up or down.

Re: Why I’m Cryptophobic

#343

Post by leijurv » Thu, Jun 30, 2022, 8:29 PM UTC

syzygyhack wrote: post #98

avivo wrote: post #18

There is also a rebuttal article by the same fund: https://www.bvp.com/atlas/the-antidote-to-cryptophobia/ That said, I think Adam (the original article) is closer to being right. He doesn't even get into the thing that originally made me incredibly excited about the potential of blockchain tech—the way it lets one create a new sort of custom and irrevocable 'physics' for information and incentives. But the same irre…

> But the same irrevocability is now what makes me deeply concerned. Strange hang-up to have. Irrevocability is not a trait that is fundamental to blockchain applications. If the application is smart-contract based, irrevocability is a choice at the source code level. Just because one transaction in a block is irrevocable doesn't mean that another transaction in a future block can't undo whatever arbitrary state chan…

I've heard the metaphor that "writing your ledgers in pen instead of pencil doesn't make transactions irreversible" - meaning that in the same sense, actions on the blockchain could be coded to be irreversible.

The difference is in the authority of who gets to reverse transactions. For example, Tether can freeze and generally arbitrarily control USDT token. USDT therefore isn't really a cryptocurrency, since now a central authority can seize it. It seems to me that this authority undermines why one might want to use crypto in the first place. I don't think you can have it both ways.

Re: Why I’m Cryptophobic

#344

Post by leijurv » Thu, Jun 30, 2022, 8:33 PM UTC

wmf wrote: post #342

leijurv wrote: post #340

Earlier quoted context omitted.

I don't think that's true, fees are not proportional to that. Fees compete for a finite and precise limited space in blocks. There's no limit to how high fees could grow in this competition, because only the 7 most lucrative transactions get mined per second. I think it is vaguely accurate to say that fees and mining costs are linked, *however*, currently the coinbase block reward is a bigger deal. Example: most rece…

OK, what you're saying is that after the block reward ends, fees will equal miner revenue and miners will mine harder until equilibrium where their costs equal their revenue. That's correct but it's important to understand that the causality flows from fees to miner costs, not vice versa. Miners cannot force fees up or down.

Well it's a continuous process: today the fees make up maybe three percent of revenue, but that fluctuates as transaction space demand changes, and as the coinbase halves every few years.

But your point is good - miners are not really in a traditional supply/demand relationship with transactors, because block space is perfectly inelastic. There will be 7 slots per second (amortized), no matter what. Although... a petulant miner could artificially restrict this supply, by perhaps declaring that they'll never mine a transaction that pays less than X fee. This would only apply to the blocks that they mine, but the effect on overall supply could be nontrivial?

Re: Why I’m Cryptophobic

#345

Post by xorcist » Thu, Jun 30, 2022, 8:38 PM UTC

mjburgess wrote: post #4

There needs to be some basic economics here.. Money has value because of the value of the economic transactions in which its conducted. Government-backed currencies are forced to have value in the sense they force people to use it for their taxes. The US, additionally, forces the world to use it for oil trades. Value is in those economic transactions. A currency is just a "liquifying" of that value, to make it easier…

> Imagine BTC was actually used for any scale of economic transactions. It would collapse overnight.

Higher velocity of money would lead to zero value? That's not commonly what basic economy dictates.

This being 2022, let's try to keep our concepts clear as to not rehash the debate from ten years ago. BTC is a currency, a blockchain, a programmable transaction language, a piece of software, and a protocol. It is good to suggest which one of these we imagine in use, and how that use is done.

Otherwise we risk saying that imagine if the physical $100 bill was used for all McDonald's transactions, clearly that wouldn't work, they are too hard to subdivide and even if they weren't there simply aren't enough of them, and therefore it is unusable as a currency.

Clearly McDonald's couldn't operate each and every economical transaction by settling them publicly on the BTC block chain, that much is obvious. But just as clearly there's nothing stopping Visa from denominating transactions in BTC, or utilizing that type of transactions internally, or utilizing the public Lightning network, or whatever it is McDonald's use in El Salvador. That much we probably agree on so let's leave that discussion in the past decade.

Re: Why I’m Cryptophobic

#346

Post by silentsea90 » Thu, Jun 30, 2022, 8:41 PM UTC

FabHK wrote: post #296

silentsea90 wrote: post #282

Earlier quoted context omitted.

US debt is skyrocketing, expenses like war paid for by debt[1]. Inflation in the US has been 2% but only because it was in a position of strength with the world accepting USD as the global reserve. That's changing steadily both with excessive printing and the world rejecting US debt instruments as a savings asset. "Everyone being free to invest" is a bit of an elitist claim, as most in the US live paycheck to paychec…

> Inflation in the US has been 2% but only because it was in a position of strength with the world accepting USD as the global reserve. Inflation has also been > most in the US live paycheck to paycheck and are hurt by inflation. If you live pay check to pay check, you don't care about inflation. You care about real wages.

Real wages have been stagnant while the money supply ever increasing. This wasn't the case until 1971, when the US removed the gold peg: https://wtfhappenedin1971.com/

Europe is interesting in that certain parts of the Euro zone run high deficits and need bailouts while some of the others are disciplined. I don't have a clear theory for why inflation in Europe has been stagnant all along.

Re: Why I’m Cryptophobic

#347

Post by dcolkitt » Thu, Jun 30, 2022, 8:42 PM UTC

Aunche wrote: post #103

dcolkitt wrote: post #58

Earlier quoted context omitted.

The continued existence of gold as a store of value (and to a lesser extent silver) contradicts this model. Very few economic transactions are denominated in gold, either as a medium of exchange or a unit of account. There is a small amount of industrial demand, but this is far too tiny to justify gold's gigantic market capitalization. Valued on industrial demand alone gold would maybe worth $100/oz, yet today it tra…

Gold is used for jewelry more than it used as a store of value. Even as a store of value, Gold has an advantage of cryptocurrency in that you can actually store it. Cryptocurrency presupposes the existence of the internet. If all the world reserve currencies collapse, there is a good chance that the internet would go down with it, and your cryptocurrency would be worthless.

> Gold has an advantage of cryptocurrency in that you can actually store it.

The vast majority of gold investors are not physically storing it on their own property. Most invest through funds, derivatives, ETFs, etc. If civilization collapses to the point the Internet can no longer support a peer-to-peer network moving 1 MB every 10 minutes, then it's almost certainly the case that you won't be able to sell your GLD stock at NASDAQ.

The point being that while some gold investment demand may be as an armageddon hedge, the behavior of most investors is not consistent with that being the central driving factor. Ergo gold has utility as a store of value for macro conditions that fall short of civilization and the Internet collapses.

Re: Why I’m Cryptophobic

#348

Post by thelamest » Thu, Jun 30, 2022, 8:45 PM UTC

mattwilsonn888 wrote: post #328

mjburgess wrote: post #4

There needs to be some basic economics here.. Money has value because of the value of the economic transactions in which its conducted. Government-backed currencies are forced to have value in the sense they force people to use it for their taxes. The US, additionally, forces the world to use it for oil trades. Value is in those economic transactions. A currency is just a "liquifying" of that value, to make it easier…

Bitcoin doesn't need to be money, especially not on layer 1, to have value. USD doesn't get its value as a currency from slow and expensive wire transfers, and it gets very little value at all from being a store of value. Even if Bitcoin was primarily transferred between custodians between clients, it would still be better than USD (assuming a stable market cap) and give clients far more options while also forcing ba…

Transfers can be dirt cheap with normal money (e.g.: Single Euro Payment Area), and your banking system can be transparent enough (the US one already is), if your regulating body cares about it. The average individual neither can change it, nor cares. If many people can’t help themselves but get fleeced, as happened recently on a large scale in the crypto space, at best you can struggle to recreate regulatory agencies in some kludgey crypto form. Most egregiously, all this is still worse than pointless, because the true differential value-add in crypto comes from enabling value flows for undesirable activities like crime, and it’s only possible thanks to horrible incentive system that rewards wasting energy.

Re: Why I’m Cryptophobic

#349

Post by lrvick » Thu, Jun 30, 2022, 8:47 PM UTC

mjburgess wrote: post #4

There needs to be some basic economics here.. Money has value because of the value of the economic transactions in which its conducted. Government-backed currencies are forced to have value in the sense they force people to use it for their taxes. The US, additionally, forces the world to use it for oil trades. Value is in those economic transactions. A currency is just a "liquifying" of that value, to make it easier…

Big companies are not using actual printed paper money directly. Cash, like Bitcoin, is great for peer to peer transactions, but too slow and impractical for the population to all use end to end for all daily transactions.

Companies like McDonalds operate on credit via privately owned payment rails because ACH and cash are way too slow. Even when it takes cash that cash is not physically shipped to a bank vault at McDonalds HQ but instead local restaurants make cash drops to other private companies, banks, that then take possession of the cash and use their own private network to credit a remote account.

Even tax payment portals allow use of the payment rails of private companies because paper USD is too impractical.

Still, the fixed supply of federal reserve issued USD is what all these magic third party payment rails create an abstracion layer for.

No one Bitcoin advocate that knows how it works is saying Bitcoin will be used -directly- for daily commerce. Even in El Salvador venmo-like apps have emerged that batch Bitcoin transactions and use credit, much like Visa does to abstract slow ACH or cash.

These proprietary credit systems defeat a lot of the point of Bitcoin though, so open off-chain credit systems like Lightning exist. My local Coffee shop accepts Lightning which in short allows us to just continually cancel and re-issue signed Bitcoin transactions off-chain we never publish until one of us needs to settle which in some cases could be years, and that is fine.

Unlike Visa, the benefits of credit solutions like Lightning are available to all replacing KYC and credit checks with cryptography.

Also going back to your point about taxes, several states have serious efforts to get Bitcoin permitted for tax payment: https://www.deseret.com/2022/2/8/22918061/wyoming-arizona-bi...

Re: Why I’m Cryptophobic

#350

Post by clintonwoo » Thu, Jun 30, 2022, 8:49 PM UTC

silentsea90 wrote: post #241

clintonwoo wrote: post #169

I generally agree with the article. I would say that people using "crypto" as a hedge against inflation are sorely mistaken as the correlation with inflation is probably incredibly low. It's too volatile to be a store of wealth. It has no intrinsic value. It's incredibly resource inefficient. It's not an "investment" since it doesn't produce anything, and financially it has performed worse than real investments. The…

Forget everything else, simply having an asset that's limited in quantity and almost impossible to seize is significantly better than any other alternative. A cursory reading of the rise and fall of civilizations and currencies will tell you how flawed the current fiat system is and how much better BTC is

Sure but how many people need to worry about their life savings being seized? Out of 300 million in the US for example? Maybe just criminals? Also I don't think civilization falling is really much to worry about. It would take years for civilization to fall, and if it does we can just buy gold or something with a real tangible value. Or maybe we can move to a crypto after it falls, which is something we can do after the fact. And TBH there's no reason why any specific coin used today would be used in that situation either. In that event we can just create a new Blockchain to avoid the ponzi effect.