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How Dogecoin changed my perspective on cryptocurrency

words.steveklabnik.com

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Re: How Dogecoin changed my perspective on cryptocurrency

#121

Post by nathan_long »

johndevor wrote: post #44
shurcooL wrote: post #41

Here's an interesting observation I made. You can instantly become both the world's richest and generous person. Take a friend that you trust, and sell him a piece of paper for $10000000000000 billion dollars. Suppose he agrees (even if he doesn't have that money right now, he/his descendants can pay it off over their lifetimes). Now you have $10000000000000 billion dollars of wealth. But, you decide to be generous a…

I think that's where the IRS' definition of "fair market" value comes into play. They'd only tax you on the market value of that piece of paper... which is $0.

How large does a market have to be to "legitimately" place a value on something? If there exists one person who will pay you $10 for your used tissues, are they worth $10? What if there are 10 such people, or 100?

I'd say the market has to be 1 person, but I suppose the IRS has a different definition.

Re: How Dogecoin changed my perspective on cryptocurrency

#122

Post by steveklabnik »

minimax wrote: post #117
steveklabnik wrote: post #85

Earlier quoted context omitted.

wow. much serious. many tears. so angry. I specifically said I wasn't an expert. ;) > That's a bunch of needlessly cynical and completely ignorant bullshit. We're arguing the same thing. I'm just being a bit snarky about _why_ those things are true. You're totally right that those are the first-order reasons. > Stop calling currencies commodities. Sorry, my Marxism is showing. From a Marxist perspective, money _is_ j…

Sorry steveklabnik, I would have replied sooner but got stuck on a long phone call. I'm not angry. I thought the post was worthy of a reasonably harsh takedown comment (sidenote: HN loves harsh takedown comments) because of its hubris. "Ho hum. We SF computer guys have got this shit all figured out. Paper currencies are bullshit because x, y, z. Also U.S.A. will bomb you if you don't agree." It's so completely fallac…

It's all good. I enjoy your other comments on HN, i've upvoted many of them. I probably should have been working today rather than writing blog posts, oh well.

I do not think paper currencies are bullshit. I really really hate it when people say 'fiat' as a derogatory term. I also agree that SF techies running into other people's fields is terrible. However, economics is a field that I have actually attempted to educate myself on. This post was written with my 'junior economist' hat on, not my 'software dev' hat.

I think that you undervalue the role of imperialism with regards to the purchasing power of USD, but really, that whole thing is a sidenote anyway.

I still am unclear as to what your actual objection is. My assertion is that Dogecoin is just as legitimate of a currency as every other currency, as long as enough people believe in it as a medium of exchange, and that as long as the BTC USD exchanges hold up, that it provides legitimacy (and liquidity) for all other cryptocurrencies. That's basically it. Oh, and that lack of consumer protection, like the FDIC insurance you mention, will harm people until we take cryptocurrency seriously and regulate it like we do other financial instruments.

Re: How Dogecoin changed my perspective on cryptocurrency

#123

Post by woah »

vacri wrote: post #97
Houshalter wrote: post #61

Earlier quoted context omitted.

Well we could always make a new worthless currency. And set it so it intentionally inflates infinitely so that this can't happen. Zimbabwe-coin maybe.

Interesting idea - can we make a cryptocurrency whose tokens have an expiry date, like the Zimbabwe dollars?

I like it. Another idea I had would be to make the client show the balance multiplied by some derivative of network hash rate. Since network hash rate is pretty closely correlated to fiat exchange rate (through mining profitability) this might result in a currency that was more easy to reason about for most people.

(instead of a coin being worth 5 times as much as when you bought it, your wallet would contain ~5x as many coins, with the balance increasing and decrease with market volatility)

Re: How Dogecoin changed my perspective on cryptocurrency

#124

Post by kolinko »

ChuckMcM wrote: post #107
egypturnash wrote: post #90

Earlier quoted context omitted.

The OP gets snarky about the reasons people think dollars are a viable medium if exchange; you get serious. But four of your six reasons why people use dollars kinda boil down to "people use dollars because lots of people use dollars". He's realized that "money" is just a very complicated game we play with each other. Possibly this is the lead-in to realizing that society is also a complicated game we play with each…

And the author figures out it is all about liquidity, which it is. The reason you might take a Euro for something is that you can give it to your bank and they can convert it into something you can use for more things (dollars, rupees what ever). I'm really curious though about what happens when someone walks up to Coinbase (as an example) and says "I've got 150,000BTC, please convert that into dollars for me at the…

"at a market rate" doesn't mean "at a current price", but "at the amount people would be willing to pay".

Selling such a high position would lower the price of bitcoin on all the exchanges, until enough people would be willing to buy them.

So, for example, if you wanted to sell 100k BTC on MtGox in an instant, you could do that. It's just that the price would get down to around $120, and you'd get "just" $35M. (real numbers, via http://bitcoinity.org/markets/mtgox/USD )

As for Coinbase - as far as I understand, they don't hold a bitcoin position, but use internal trading and external exchanges. So both the money and the btc would come from people willing to buy Bitcoin.

Re: How Dogecoin changed my perspective on cryptocurrency

#125

Post by steveklabnik »

minimax wrote: post #120
ChuckMcM wrote: post #107

Earlier quoted context omitted.

And the author figures out it is all about liquidity, which it is. The reason you might take a Euro for something is that you can give it to your bank and they can convert it into something you can use for more things (dollars, rupees what ever). I'm really curious though about what happens when someone walks up to Coinbase (as an example) and says "I've got 150,000BTC, please convert that into dollars for me at the…

It's not about liquidity. EURUSD is one of the most liquid currency pairs in the world. You can exchange millions or tens of millions in one trade at a firm price. That's liquidity at scale. In spite of that, Euro is still completely useless as a currency in the U.S. The liquidity argument is not a real argument.

If you have access to currency markets, absolutely, EURO/USD is incredibly liquid. At the point of sale, I do not have access to this market, so my Euros are not liquid. If they accepted credit cards (the shop I was at did not) and I had, say, a VISA that was denominated in Euro but which the bank would change into USD, my Euro would be liquid.

Another way to think about access: if I give a homeless man in the Mission 20 Euro, is that useful to him?

The actual form that you have the asset in matters.

Re: How Dogecoin changed my perspective on cryptocurrency

#126

Post by twobits »

afterburner wrote: post #118
twobits wrote: post #115

Earlier quoted context omitted.

"Since your salary, and taxes, and almost all goods, were paid for in USD, it didn't matter if all the numbers crept up together slowly." The key word is "together". They don't go up together. There is a time differential, with salaries trailing behind. People get constantly negatively affected this way.

Let me put it this way: they go up together far, far, far more than whatever BTC or Dogecoin is doing. Talking about very normal inflation in order to make make BTC/Dogecoin look bad is just weird. BTC dropped 50% in a day. And it could go up 100% tomorrow. That's volatility. Denying this just comes off as trolling.

I am not arguing for bitcoin or dogecoin. I am arguing against the dollar, and the notion that the dollar isn't backed (just) by force.

Re: How Dogecoin changed my perspective on cryptocurrency

#127

Post by ChuckMcM »

minimax wrote: post #120
ChuckMcM wrote: post #107

Earlier quoted context omitted.

And the author figures out it is all about liquidity, which it is. The reason you might take a Euro for something is that you can give it to your bank and they can convert it into something you can use for more things (dollars, rupees what ever). I'm really curious though about what happens when someone walks up to Coinbase (as an example) and says "I've got 150,000BTC, please convert that into dollars for me at the…

It's not about liquidity. EURUSD is one of the most liquid currency pairs in the world. You can exchange millions or tens of millions in one trade at a firm price. That's liquidity at scale. In spite of that, Euro is still completely useless as a currency in the U.S. The liquidity argument is not a real argument.

Perhaps we're not talking about the same thing. For any national currency, a bank has a way of resolving your request to exchange their currency for a local, more acceptable, currency. That is part of what the banking system does, and BitCoin eschews.

In my fictional example, if an exchange didn't have deposits to cover the conversion they would go to their currencies central bank for the $90M and then exchange the BTC they got with the BTC central bank for $90M and pay back their overnight 'loan' from the local currency bank. How does that work for an exchange with BTC? Do you clean them out of all the dollars they have? Then what happens to other people who have BTC deposited and want dollars out? How does that work? Do the later people have to wait until someone buys some BTC and puts in dollars? If you have two people waiting for dollars out, who gets the dollars you just got? First one to request to get out? best customer? first one you can satisfy their complete withdrawal?

Those questions are the "liquidity argument" if you want to call it that. Who pays the price for not being able to convert coins? The exchange? The customer? Lets say the price of BTC plummets, people head for the doors and want their money in dollars now. Does the exchange give them dollars that they won't recover? Or do they wait on all withdrawals until the number stabilizes and the pay out at that price? In the former the institution takes the risk, in the later the customer takes the risk.

I totally get the BTC market as an awesome way to exchange markers securely. I'm not sure how it gets to be a currency without something providing the banking function. (one of those functions being liquidity as the author points out)

Re: How Dogecoin changed my perspective on cryptocurrency

#128

Post by minimax »

steveklabnik wrote: post #122
minimax wrote: post #117

Earlier quoted context omitted.

Sorry steveklabnik, I would have replied sooner but got stuck on a long phone call. I'm not angry. I thought the post was worthy of a reasonably harsh takedown comment (sidenote: HN loves harsh takedown comments) because of its hubris. "Ho hum. We SF computer guys have got this shit all figured out. Paper currencies are bullshit because x, y, z. Also U.S.A. will bomb you if you don't agree." It's so completely fallac…

It's all good. I enjoy your other comments on HN, i've upvoted many of them. I probably should have been working today rather than writing blog posts, oh well. I do not think paper currencies are bullshit. I really really hate it when people say 'fiat' as a derogatory term. I also agree that SF techies running into other people's fields is terrible. However, economics is a field that I have actually attempted to educ…

I think that you undervalue the role of imperialism with regards to the purchasing power of USD

Point me to a historical example of the US government saying "Use dollars or else!" and I'll change my tune. I think foreigners use dollars because dollars are actually a really great currency relative to the local alternative ... or bartering (3 goats for 1 iPhone sort of thing).

My objection to your argument is that USD is better than alternative cryptocurrencies because the Federal Reserve does a good job of managing the stability of the value of the currency, and that's a social good for everyone. If your latte costs 3 dogecoins today and 6 dogecoins tomorrow you can be like "lol. so latte. much coins." That's funny for you and that's great. But if a bushel of wheat doubles or triples in price overnight because it's priced in some weird volatile currency, people will starve. And that's not funny.

I moved to Chicago recently and I work on the technology behind some of the commodities markets here. I guess that has sort of forced me to think more about these kinds of things. If you are in Chicago hit me up and we can bullshit face to face (over coffee that's probably better than whatever you have in SF. Zing!)

Re: How Dogecoin changed my perspective on cryptocurrency

#129

Post by [deleted] »

twobits wrote: post #112
minimax wrote: post #83

Here we have more evidence of the miraculous ability of crypto currencies to turn unassuming computer programmers into economics experts. Let's take a look at some choice quotes. There’s no inherent reason that a piece of paper has a certain amount of value. There is a subjective reason, though: namely, that a large enough number of people agree that USD is a worthwhile commodity. They believe that for a number of re…

"That's a bunch of needlessly cynical and completely ignorant bullshit. We don't use the army to convince people to use dollars. That's quackery. People use dollars because the value is relatively stable, most goods for sale in the U.S. and exported from the U.S. are priced in dollars, people in the U.S. pay their taxes in dollars, oil tends to be priced in dollars internationally, foreign countries hold lots of doll…

[deleted]

Re: How Dogecoin changed my perspective on cryptocurrency

#130

Post by steveklabnik »

minimax wrote: post #128
steveklabnik wrote: post #122

Earlier quoted context omitted.

It's all good. I enjoy your other comments on HN, i've upvoted many of them. I probably should have been working today rather than writing blog posts, oh well. I do not think paper currencies are bullshit. I really really hate it when people say 'fiat' as a derogatory term. I also agree that SF techies running into other people's fields is terrible. However, economics is a field that I have actually attempted to educ…

I think that you undervalue the role of imperialism with regards to the purchasing power of USD Point me to a historical example of the US government saying "Use dollars or else!" and I'll change my tune. I think foreigners use dollars because dollars are actually a really great currency relative to the local alternative ... or bartering (3 goats for 1 iPhone sort of thing). My objection to your argument is that USD…

Basically, I agree with Greenspan, before he recanted:

> Without elaborating, he writes, "I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil."

http://www.washingtonpost.com/wp-dyn/content/article/2007/09...

Every so often, OPEC threatens to switch over to the Euro...

But really, I don't think modern imperialism works via direct threat. That was the style of the 1700s. You won't find a direct statement to 'use the dollar or else,' you'll just find lots of wars and economic sanctions.

I don't think cryptocurrencies are 'better' than USD. I agree that the Fed is good for basically everyone, or at least, I don't think abolishing the Fed is a good idea. I agree that the volatility of DOGE makes it bad for anything but playing around at this point, and BTC dropping 50% in a day means that it's also nothing more than a speculative commodity at this point.

I've been thinking about this more because I moved here to work for a payments company, so ha! I actually know someone in Chicago who's working in commodities market stuff, IIRC... I always thought I'd live in Chicago before SFO. I'll certainly tweet if I'm ever there, and feel free to go take the blue line to Forest Park and put some flowers on Emma Goldman's grave for me ;) (I bet the coffee is better there, luckily, I don't really have a taste for good coffee, it's all just about the chemicals for me.)

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