Decentralized trust graph for online value exchange without a blockchain (2017)

Cryptocurrencies can still be subject to hard forks which allow seizure transactions. Likely in the future governments will demand such changes, if they don't outlaw cryptocurrencies entirely. Furthermore, bitcoin's value is highly volatile. So your initial investment of $100 might be worth $5000 or $0.10 in 3 years. You might not have to trust the network itself, but you have to trust the value of the asset to remain stable enough. Which it isn't due to multiple factors.

Sure, it's more an observation of the mechanics underpinning cryptocurrencies. My statement was actually incorrect in that there are not actually "issuers" per se in crypto and that can be a problem.

Cryptocurrencies like BTC, ETH and whatever else are not "money" in the sense that we generally understand. This money is either a credit on a commercial bank or a credit on a central bank. These entities are responsible for managing the liquidity and solvency of their balance sheet such that the credit you hold retains value (Yes, I know there is inflation but that's an orthogonal concern, I would argue). There is a governance and legal framework underpinning how money works in this "mundane World". Everything in the mundane world is a legal agreement. Financial agreements are always someone's liability and that's a good thing because someone is always accountable if something goes wrong.

Cryptocurrency behaves more like some kind of synthetic commodity. By that I mean that it inherently has no value and has no use for anything other than being a "token". When cryptocurrency is created, it has no issuer. There's no accepted legal framework or explicit governance framework for holding people accountable if something goes wrong (other than code is law) and things go wrong all the time. There are rug pulls, exchange rate crashes and project failures are ten a penny etc... and this is all happening while the crypto world is in a mega bull market! What happens when the next bear market comes around? All the projects that _seem_ viable now will suddenly become unviable. All the debt positions collateralised with sketchy crypto will unwind en masse. I suspect the tokens for many projects out there will trade close to zero. People who invested in various projects from algo stablecoins to lending protocols will suddenly find that they hold worthless tokens with zero recourse. By this point the insiders would have exited into BTC/ETH/fiat ready to start the next round of "projects".

Maybe this is OK. I mean, it is what it is and clearly some people are fine with that. I think we can do better though. That's why I'm interested in credit based monetary systems because reputation is a key part, so participants are accountable for their actions. This is fundamental for any significant real world adoption. Furthermore, credit based instruments do have intrinsic value which is a function of issuer credit risk. Such instruments are more stable than "synthetic commodities" and have more utility for real world uses.

Having said all that. I work in the crypto world and quite enjoy it. I just don't think it's as good as some would have you believe.

Read early versions of the Ripple white paper, before they decided to make XRP a store of value. The compulsion to cash in on a settlement layer by establishing your own scarce medium of exchange is too great.

Cryptocurrencies are in the process of becoming more beholden, or at least more outlawed: https://www.trtworld.com/magazine/what-do-turkey-s-cryptocur...

Governments have the guns. I doubt that cryptocurrencies will win in the long run, unless they provide hooks for governments to project their power, which includes asset seizure transactions.

As for the people providing the interface, I've since edited my comment. My point used to be that exchanges like coinbase engage in massive market manipulation to aid their own goals, but it's not the only cause for the volatility of cryptocurrencies like bitcoin, so I edited it out.

>1. Market makers who buy IOUs at a discount and swap them for _their_ IOU which can be more trusted.

Doesn't this go against decentralization? Why would anyone want rojeee IOUs when they can instead trade US federal government IOUs (aka. US dollars)? What's the advantage in managing IOUs from a bunch of different entities and having to pay market makers every time you transact?

>These parties could be fully automated (think like Ethereum DAO) and transparent

This is a bit handwavy. How does the system know how much rojeee IOUs are worth? Your ability to repay is based off a multitude of factors that can't be captured on the blockchain.

>2. Insurance or a credit derivatives market so people can hedge against counterparts defaults.

>4. Securitisation markets. Package up IOUs into tranches. Traders can speculate on various levels of credit quality.

All of this is going to increase complexity exponentially, and for what benefit?