The intellectual incoherence of cryptoassets(stephendiehl.com)
stephendiehl.com
The intellectual incoherence of cryptoassets
https://www.stephendiehl.com/blog/crypto-absurd.html
104 comments
> Why does a person invest in land? Because they expect something to flourish in the vicinity of their land, and they'll be able to capture some of that increased productivity in the form of rent (or appreciation).
Most people buying land are not doing it as a speculative investment. There are many who buy real estate as an investment, but most people buy real estate for personal use. Even those who buy real estate as an investment they typically make money from improvements whether that’s farming or residential.
Most people buying land are not doing it as a speculative investment. There are many who buy real estate as an investment, but most people buy real estate for personal use. Even those who buy real estate as an investment they typically make money from improvements whether that’s farming or residential.
Maybe they wouldn’t articulate it as speculation but that’s still what they are doing (even if they are living in the property). They are speculating that the value will not decrease, or that rents will increase. Otherwise they’d rent.
ETH does have a return currently of ~5% through staking.
ETH does have a return currently of ~5% through staking.
People living in the property are almost always buying it as both a place to live and as an investment.
Investment is not the same as speculation.
Even without guaranteed appreciation in value people will buy homes because they have an asset compared to alternatives like renting. When renting you’re guaranteed a loss on rent paid.
Investment is not the same as speculation.
Even without guaranteed appreciation in value people will buy homes because they have an asset compared to alternatives like renting. When renting you’re guaranteed a loss on rent paid.
I expect my property, my house and yard, to appreciate less than the S&P 500. I expect the value of my property to go up a little, but not a lot. By choosing to buy property, instead of living in the cheapest rental I could find, there is an opportunity cost. And I'm OK with that.
If money was the only goal, renting something extremely inexpensive and investing would give me a better financial return.
If money was the only goal, renting something extremely inexpensive and investing would give me a better financial return.
It's all relative. If home prices drop while you're renting that's a huge gain relative to owning property.
You’re right that it’s all relative, but that’s not necessarily true.
Where I live buying is much cheaper than renting and even if my home is worth 25% less than I paid for it by the time it’s paid off I can come out ahead because I still have an asset worth let’s say $100k and I’ve spent less money than I would renting. That’s without factoring in the other reasons people buy homes.
Where I live buying is much cheaper than renting and even if my home is worth 25% less than I paid for it by the time it’s paid off I can come out ahead because I still have an asset worth let’s say $100k and I’ve spent less money than I would renting. That’s without factoring in the other reasons people buy homes.
If your home is down 25% isn’t all or most of your equity “gone” anyway? Guess it depends how slowly, but if it happens immediately you basically lost your entire down payment
Thats just homes, there are tons of other property classes outside of personal residential.
> They are speculating that the value will not decrease, or that rents will increase. Otherwise they’d rent.
That assumes you're getting the same product, but when renting you don't necessarily have any guarantee that the lease will be renewed when your rental term is up. Owning your own home is a more stable arrangement since you generally face no risk of eviction as long as you keep up with any applicable mortgage and property tax payments (barring exceptional circumstances such as eminent domain).
If you expect to move frequently then it might come down to just rent vs. mortgage and property value, but if you intend to stay in one place for the long term then ownership has other advantages to offer.
That assumes you're getting the same product, but when renting you don't necessarily have any guarantee that the lease will be renewed when your rental term is up. Owning your own home is a more stable arrangement since you generally face no risk of eviction as long as you keep up with any applicable mortgage and property tax payments (barring exceptional circumstances such as eminent domain).
If you expect to move frequently then it might come down to just rent vs. mortgage and property value, but if you intend to stay in one place for the long term then ownership has other advantages to offer.
> you don't necessarily have any guarantee that the lease will be renewed when your rental term is up
Yep, that's exactly my point. It cuts both ways because your landlord also has no such guarantee; if prices decrease then the commitment is a liability not an asset. It just depends on the situation.
Yep, that's exactly my point. It cuts both ways because your landlord also has no such guarantee; if prices decrease then the commitment is a liability not an asset. It just depends on the situation.
Disagree.
Most people wouldn't pay the exorbitant interest, taxes, mortgage paper fees if they didn't think they'd get appreciation on the property — "like always!".
Most people wouldn't pay the exorbitant interest, taxes, mortgage paper fees if they didn't think they'd get appreciation on the property — "like always!".
They don't need to get appreciation, they just need to have the home be less costly than renting. Once you throw in the mortgage interest deduction that's a pretty low bar.
The old joke is that you invest in land because they're not making it any more.
That's not the case with cryptocurrencies. Not just that they're still mining them, but that new cryptocurrencies are invented every day. You can hold a unique hold on a land, because there's only so much of it, but you can clone Etherium in a heartbeat. Or design your own that works better for something.
The hope is that one of these blockchains will get so many people behind it that it becomes the natural monopoly of whatever blockchain is good for, and then the money you spent mining/investing won't be wasted. You'll get network effects, a la Facebook -- everybody wants to be in the same place. But I don't see anybody really wanting to get behind giving money to those who got there first, not when they can make up their own.
That's not the case with cryptocurrencies. Not just that they're still mining them, but that new cryptocurrencies are invented every day. You can hold a unique hold on a land, because there's only so much of it, but you can clone Etherium in a heartbeat. Or design your own that works better for something.
The hope is that one of these blockchains will get so many people behind it that it becomes the natural monopoly of whatever blockchain is good for, and then the money you spent mining/investing won't be wasted. You'll get network effects, a la Facebook -- everybody wants to be in the same place. But I don't see anybody really wanting to get behind giving money to those who got there first, not when they can make up their own.
Paul Krugman, writing in August of 2002:
"To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."
It's been a while since Krugman said this, but it illustrates a basic fact about how many western governments do economics today: it's bubbles all the way down.
I like the article, but I think its charge of intellectual incoherence could be applied to a broader category of financial products than just beanie babies, tulips, and bitcoin. Many things, like houses, have simple explanatory narratives for why they have some value, but progressively more complex (and more incoherent) narratives for why they have their actual value.
In an essentially nihilistic economic model, where growth consists of stacking bubbles upon bubbles and hoping to inflate new ones before old ones pop, bitcoin is only marginally more demented than everything else.
"To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."
It's been a while since Krugman said this, but it illustrates a basic fact about how many western governments do economics today: it's bubbles all the way down.
I like the article, but I think its charge of intellectual incoherence could be applied to a broader category of financial products than just beanie babies, tulips, and bitcoin. Many things, like houses, have simple explanatory narratives for why they have some value, but progressively more complex (and more incoherent) narratives for why they have their actual value.
In an essentially nihilistic economic model, where growth consists of stacking bubbles upon bubbles and hoping to inflate new ones before old ones pop, bitcoin is only marginally more demented than everything else.
I like this point. Bubbles all the way down. If one becomes fixated on the troublesome qualities of crypto its intellectually dishonest to ignore the similarities in every other non-crypto investment vehicle.
The difference is that for some assets you can calculate value based on fundamentals. IE, humans need shelter, hence estimate future value of shelter (real estate) based on migration trends and other factors. How do you estimate future value of bitcoin? Lack of predictability is probably why serious investment funds don't go into crypto
Where are the bubbles currently shifting? Deflating?
> There can be no separation of money and state, because the state is the only party that could issue money almost by definition.
A state is not an atomic entity. It’s an abstract object comprised of its citizens. If a part of the population agrees, they may practically form a state even within another state. Think of the mafia, the church or getthos.
So crypto enthusiasts may practically form a state (at least as money issuing entity).
A state is not an atomic entity. It’s an abstract object comprised of its citizens. If a part of the population agrees, they may practically form a state even within another state. Think of the mafia, the church or getthos.
So crypto enthusiasts may practically form a state (at least as money issuing entity).
A lot of weak arguments, but the author manages to even contradict himself:
> This is strictly inferior than assets like stocks which either pay dividends from their revenue, buy back their own stock, or have mergers and acquisition events
> grow the pool of greater fools to buy the token so that early token holders can be paid out by later token holders
According to him, it's ok for a company to buy back it's own stock, thus giving it value, but not ok if a later token holder buys crypto from you, which is exactly the same thing.
> Zinc is a commodity because it’s a stable element at room temperature with 30 electrons and it’s shell configuration makes it useful in tools and conducting electricity, as a commodity it does not depend on a narrative or shared collective delusion to give rise to this utility.
Author should open a Zinc price chart, and zoom in on 2005-2009, when Zinc prices quadrupled, and then crashed back to earth, together with other commodities in that commodity bubble. Totally not a collective delusion and financial speculation back then.
https://tradingeconomics.com/commodity/zinc
Also, tulips and beanie babies, really? Are we still beating this dead horse?
> This is strictly inferior than assets like stocks which either pay dividends from their revenue, buy back their own stock, or have mergers and acquisition events
> grow the pool of greater fools to buy the token so that early token holders can be paid out by later token holders
According to him, it's ok for a company to buy back it's own stock, thus giving it value, but not ok if a later token holder buys crypto from you, which is exactly the same thing.
> Zinc is a commodity because it’s a stable element at room temperature with 30 electrons and it’s shell configuration makes it useful in tools and conducting electricity, as a commodity it does not depend on a narrative or shared collective delusion to give rise to this utility.
Author should open a Zinc price chart, and zoom in on 2005-2009, when Zinc prices quadrupled, and then crashed back to earth, together with other commodities in that commodity bubble. Totally not a collective delusion and financial speculation back then.
https://tradingeconomics.com/commodity/zinc
Also, tulips and beanie babies, really? Are we still beating this dead horse?
A stock buyback is a good example of how a centralized entity can control value of a stock relative to some other entity. It’s not the only thing that gives it value, but it’s a tool for value control, like issuing new shares. Crypto lacks this mechanism.
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I noticed an apparent contradiction, between these two statements.
> There can be no separation of money and state, because the state is the only party that could issue money almost by definition. <
Here, he attributes value, only if it is established via government backing of the asset, which is currency.
> Securities are effectively a collective fiction, they’re a financial product that exists within a legal framework about a contract that gives buyers and sellers legal rights to cashflows of a common enterprise. <
Here, he attributes fictional value or no intrinsic value, because the government establishes the use of the asset class, supposedly only by backing the asset, which is securities.
In both cases, he treats whether or not the asset has value, as depending on government backing. In one case, he gives value to the asset, only because of government backing. In the latter case the asset is treated as being deprived of having any real value, because it's ability to be used as an asset, exists only by being government backed.
Both of these claims are made by handling them as being true "by definition". When claims are made "by definition", there is no proof needed, or given. At least within these true "by definition" statements themselves, there is no proof given.
So this begs the questions, "what, if anything, is the real value of the assets, and why?". If you take away the assumed worth or worthlessness of government backed assets, then those questions still need to be answered.
There is another word for when something is treated as being true "by definition". That word is "assumption". Until he provides better reasons for his rejection of crypto assets, as having any real and lasting value, I will have to reject his view, at least as it is explained in this article.
Not that this alone would flip me to crypto. The questions assumed to be answered, in this article, still need to be answered.
> There can be no separation of money and state, because the state is the only party that could issue money almost by definition. <
Here, he attributes value, only if it is established via government backing of the asset, which is currency.
> Securities are effectively a collective fiction, they’re a financial product that exists within a legal framework about a contract that gives buyers and sellers legal rights to cashflows of a common enterprise. <
Here, he attributes fictional value or no intrinsic value, because the government establishes the use of the asset class, supposedly only by backing the asset, which is securities.
In both cases, he treats whether or not the asset has value, as depending on government backing. In one case, he gives value to the asset, only because of government backing. In the latter case the asset is treated as being deprived of having any real value, because it's ability to be used as an asset, exists only by being government backed.
Both of these claims are made by handling them as being true "by definition". When claims are made "by definition", there is no proof needed, or given. At least within these true "by definition" statements themselves, there is no proof given.
So this begs the questions, "what, if anything, is the real value of the assets, and why?". If you take away the assumed worth or worthlessness of government backed assets, then those questions still need to be answered.
There is another word for when something is treated as being true "by definition". That word is "assumption". Until he provides better reasons for his rejection of crypto assets, as having any real and lasting value, I will have to reject his view, at least as it is explained in this article.
Not that this alone would flip me to crypto. The questions assumed to be answered, in this article, still need to be answered.
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The author makes claims about hundreds of different assets without actual investigation, citation, or even reference to the particular use-cases, business models, or technologies of individual assets, and naturally, the author arrives at her (probably) preordained conclusion. If you want to actually investigate whether the crypto-space is viable, valuable, or useful, then do so, with evidence and specific examples, counter-examples. As it is, the author appears to exercise a sort-of pseudo analysis with intellectual pretensions that only a fool would base their investments upon.
Name one.
That is on the author who was making a thesis about their intellectual incoherence as an asset.
But if you are asking me, I'd bring up several:
1. Vechain: https://www.vechain.org/ A blockchain focused on supply chain transparency and authentication. 2. Theta: https://www.thetatoken.org/ A blockchain from the co-founder of youtube that seeks to increase performance, lower costs, and decentralize video streaming of ultra-ultra high definition content. 3. Oracles like Chainlink: https://chain.link/ Use cases of crypto increase the more that real-world data can be linked to blockchain contracts.
But if you are asking me, I'd bring up several:
1. Vechain: https://www.vechain.org/ A blockchain focused on supply chain transparency and authentication. 2. Theta: https://www.thetatoken.org/ A blockchain from the co-founder of youtube that seeks to increase performance, lower costs, and decentralize video streaming of ultra-ultra high definition content. 3. Oracles like Chainlink: https://chain.link/ Use cases of crypto increase the more that real-world data can be linked to blockchain contracts.
You don’t explain why I should trust this over a regular boring SQL database. Let alone exactly what the actual problem is that is addressed here.
“Supply chain transparency”, sounds fancy though.
The problem is that the data must come from somewhere and blockchain can’t guarantee that the data is valid, only that it hasn’t been tampered with. We can assure that with less energy intensive solutions, no blockchain stuff needed.
And we know how well smart contracts (code is law) are doing.
Trust can never be replaced with technology. Trustless is bullshit.
“Supply chain transparency”, sounds fancy though.
The problem is that the data must come from somewhere and blockchain can’t guarantee that the data is valid, only that it hasn’t been tampered with. We can assure that with less energy intensive solutions, no blockchain stuff needed.
And we know how well smart contracts (code is law) are doing.
Trust can never be replaced with technology. Trustless is bullshit.
You hadn't asked. But since you do now: Using Vechain as an example: Immutability is the difference and it’s what matters the most when building parts for products because it provides an unchangeable audit trail verifying the quality/parts of a product.
But don't get me wrong, there may be better centralized SQL solutions, but the market will decide, won't it.
> it provides an unchangeable audit trail verifying the quality/parts of a product
How? How does the blockchain verify, for example, that the electronic parts used to build my widget aren't inferior quality counterfeits with lower lifespans?
How? How does the blockchain verify, for example, that the electronic parts used to build my widget aren't inferior quality counterfeits with lower lifespans?
Through a nfc chip tagging scheme.
https://www.vechain.com/solution/retail https://destift.nl/official-vechain-nfc-chip-label/
https://www.vechain.com/solution/retail https://destift.nl/official-vechain-nfc-chip-label/
In other words, it doesn’t. The real work is being done by the trusted auditors who verify that the NFC tags are legitimate, have been attached to a legitimate product, and remained there all the way to the consumer. If you don’t have that, you’re still vulnerable to all of the common attacks businesses have been fighting for aeons; if you do, you don’t need a blockchain.
Well, yes any system is going to have multiple actors, and you can, if you want, say where the "real" work is being done. It is still the case that the record of NFC codes will be in an immutable database (the chain), which is much more than the current supply chain does.
The point is that blockchains are very expensive. When, as in this case, there are no benefits to using it over basic PKI or even tradition audit structures, it’s unlikely to succeed long term against more efficient competitors.
Well, in the case of today's byzantine supply chain solutions, we've had a lot of failures, and I do not mean the current events. I mean that there is a lot of fraudulent products with no way for end users, or even final step-manufacturers to even know what is in their product. With Vechain, and consumer can look up the complete immutable record of every piece of his product, chip, board, screen, etc, signed by each supplier. Also, blockchains are not that expensive once you move past proof--of-work.
> I mean that there is a lot of fraudulent products with no way for end users, or even final step-manufacturers to even know what is in their product. With Vechain, and consumer can look up the complete immutable record of every piece of his product, chip, board, screen, etc, signed by each supplier.
This is missing the point: the hard part is being able to trust the values put in those records. What you described works just as well with regular PKI at much lower cost — the problem is putting in place the audit framework which ensures that the values being signed are correct and that the physical item you're holding is in fact the same one which was inspected.
Most of the scams we see reflect breakdowns in that trust relationship: an unscrupulous supplier selling defective parts, someone swapping tags from higher-priced items onto similar but lower-quality ones and pocketing the difference, etc. The security of the system you described comes down to how well they can provide physical auditing to ensure that the database view of the world matches the real one, at which point you don't need a blockchain. A distributed ledger might have some useful qualities but it's not revolutionary and there are other ways to achieve the same benefits without the same reliability and cost considerations.
This is missing the point: the hard part is being able to trust the values put in those records. What you described works just as well with regular PKI at much lower cost — the problem is putting in place the audit framework which ensures that the values being signed are correct and that the physical item you're holding is in fact the same one which was inspected.
Most of the scams we see reflect breakdowns in that trust relationship: an unscrupulous supplier selling defective parts, someone swapping tags from higher-priced items onto similar but lower-quality ones and pocketing the difference, etc. The security of the system you described comes down to how well they can provide physical auditing to ensure that the database view of the world matches the real one, at which point you don't need a blockchain. A distributed ledger might have some useful qualities but it's not revolutionary and there are other ways to achieve the same benefits without the same reliability and cost considerations.
The marked may be full of idiots, I don't care.
It's the concept that is ridiculous, a solution in search of a problem.
It's the concept that is ridiculous, a solution in search of a problem.
Over 30 companies within the Fortune 500 have live solutions running on VeChain including Walmart, BMW, LVMH, Renault, Deloitte, and PwC. They are obviously interested enough to to examine costs and benefits of the system.
The hyper-rationalistic world view of this article is striking. Crypto, as an asset class, is easy to understand. It has the same basis as collectables or art: human mimetics, desire and scarcity. If you look for "intrinsic value" you miss a lot of human motivation.
Describing it as being like art is the third attempt to rebrand after failing to be usable as a currency or store of value but it’s even harder to buy that sales pitch because there is no inherent desirability to random hashes and there’s no effective scarcity when everyone can create or fork a chain rather than pay a premium for other people’s hashes.
That is why it is more like performance art. The drama around forks and the market are part of the performance.
He addressed the art "narrative"-- and dismissed that basis because cryptocurrencies "aren’t being discussed or valued in terms of this model." I think he has a point. He doesn't discuss NFTs though, which seems pretty directly related to art.
> The hyper-rationalistic world view of this article
The author is anything but rational about crypto.
He actually is fanatically against it to the point where I'm thinking we can consider ourselves lucky he didn't chose to fixate on anything religion-related instead.
Which is not surprising if you read anything else he has written (like on FP stuff): the guy simply does not have the mechanisms/wires for nuanced opinions in his brain.
What would be interesting is figuring out the actual why he developed such a deep hatred of cryptos.
It's probably buried somewhere in the stuff he's been spewing over the years, but to find it, you'd have to read a lot of it, and my limit when I read his prose is around 5mn.
If anyone happens to land on the relevant nugget, please post it here.
The author is anything but rational about crypto.
He actually is fanatically against it to the point where I'm thinking we can consider ourselves lucky he didn't chose to fixate on anything religion-related instead.
Which is not surprising if you read anything else he has written (like on FP stuff): the guy simply does not have the mechanisms/wires for nuanced opinions in his brain.
What would be interesting is figuring out the actual why he developed such a deep hatred of cryptos.
It's probably buried somewhere in the stuff he's been spewing over the years, but to find it, you'd have to read a lot of it, and my limit when I read his prose is around 5mn.
If anyone happens to land on the relevant nugget, please post it here.
I think he's upset that more people don't like Haskell.
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The thing that I really don't get about all the crypto promotors and the nay-sayers is why they don't even try to determine and admit their biases before writing stuff like this.
Talk about 'intellectual incoherence'.
Talk about 'intellectual incoherence'.
What sort of biases are relevant that you can't infer from the article?
Paragraphs 4 and 5 are wholly biased opinions.
Author seems to have absolute faith in policymakers to do the correct thing, and has a cartoon-like assumption about people only hoarding money.
Author seems to have absolute faith in policymakers to do the correct thing, and has a cartoon-like assumption about people only hoarding money.
So it seemed you inferred his biases just fine? (I certainly wasn't suggesting this was a neutral article on crypto!)
Do you think it would have helped for him to explicitly lay out his worldview or whatever, like the person I responded to seemed to think?
Do you think it would have helped for him to explicitly lay out his worldview or whatever, like the person I responded to seemed to think?
He does a good enough job laying his views it out in the article.
> misreadings of basic economics
Willing to bet he has never read Basic Economics[1]. If he had, he would know that several of the assumptions he makes in this text are fallacies. Of course, the author does not mean the work of Sowell when he says "basic economics," he means "Keynesian Economics 101 as taught at your local academy."
> The actual desirable property of a currency is one...
Desirable to who? Is it really desirable for savers to have their money debased?
The author subtly admits he is a collectivist, and does not care for the individualist perspective.
When it comes to money and value though, all transactions are performed by individuals of their own volition, unless otherwise coerced. An economy is an emergent property of the individuals. Making decisions about transactions 'for the sake of the collective' is a luxury of the already wealthy (and it is more virtue-signalling than actually benefiting of the collective).
> "with a variable supply which a central bank can control to target a specific low inflation rate by measuring the purchasing power of the currency with respective to the domestic costs of goods."
Author assumes it is even possible to target a specific rate of inflation and to even measure if that target is met, and whether meeting any target is a result of any interventions. Of course this is not possible because there are far too many variables. Mises and Hayek have both written in depth about the economic calculation problem[2]. Prices are the most efficient method for individuals to determine their economic activity - not central planning.
> "A controlled inflationary currency with interventionist monetary controls encourages economic growth and stability over time."
May or may not be true. I won't bother arguing with whether or not I think that is the case, but will note that the author assumes that the interventionist controls will be utilized correctly to the benefit of all. This goes back again to assuming that everyone has the same goals (collectivism), but more worryingly, there are some clear examples of the interventionists creating immeasurable struggle for millions of people. Consider Venezuela, or Zimbabwe. Moving zeroes does not create wealth.
> "A national currency’s value is derived from the requirement to pay taxes in the currency ...
Absolutely false. Won't explain.
> "However deflationary currencies do nothing but encourage hording
True, when competing currencies are present. People will hoard the good money and trade the bad money.
Eventually, people will not accept the bad money for payment of goods and services. They must spend the good money to meet their needs. People offering services will find ways to avoid providing those services to people wishing to pay only with the bad money, or will offer discounts to people paying with the good money.
> ... untethered to the cost of goods ...
The fiat money clearly can't be tethered to the cost of goods because prices keep increasing, almost without fail. The only exceptions are in highly deflationary markets where technological innovation outpaces inflation.
If the price of X increases by 5% in one year, does this tell me that the product became more valuable or scarce, or does it tell me that the money became worth less?
Fiat money can't tell you this. It is impossible to separate one from the other because the intervention influences prices and the prices then influence intervention. This "stability" is like a cat chasing its own tail. It is short-lived stability.
Historically there has never been a "reference" commodity which could be used to determine if the currency is losing value or if other goods are increasing in value over time. The fiat money is typically used as the reference because it doesn't fluctuate much over short periods of time (assuming there no economic catastrophes, which is a big assumption in itself). The author admits he has a high time-preference and he seems unwilling to discuss the long-term effects, such as that on pensions and savings.
A dollar today is 0.7 dollars in 5 years.
1/21M is still 1/21M in 5 years. This is the real stability we want if our goal is to measure how prices change over time. A fixed scale.
> "As we see in crypto, they exhibit extremely volatility since no economic activity can be denominated in terms of them. One could never price a thirty year mortgage in bitcoin because its volatility makes it completely unpredictable and no sensible bank could calculate the risk of covering that debt.
Here the author shows his lack of imagination. Sure it is the case that the bitcoin/fiat exchange rates are volatile now, but how does that change if bitcoin adoption continues to grow? What happens if bitcoin adoption reaches 50%, and has equal market share as fiat money? Does the exchange rate then tell you how volatile bitcoin is, or how volatile dollars are?
In fact, the dollar has lost 99% of its value against bitcoin in one decade[4]. Talk about volatility!
> There can be no separation of money and state, because the state is the only party that could issue money almost by definition.
Wrong again.
Money is an emergent property of people selecting the most saleable commodity, in their own subjective opinion, to conduct trade[3].
The State can only intimidate and coerce through violence. When given free choice, people will act in their best self-interest, which is probably counter to the interests of the central bank and the cronies surrounding it.
[1]:https://en.wikipedia.org/wiki/Basic_Economics
[2]:https://en.wikipedia.org/wiki/Economic_calculation_problem
[3]:https://mises.org/library/origins-money-0
[4]:https://usdsat.com/
> misreadings of basic economics
Willing to bet he has never read Basic Economics[1]. If he had, he would know that several of the assumptions he makes in this text are fallacies. Of course, the author does not mean the work of Sowell when he says "basic economics," he means "Keynesian Economics 101 as taught at your local academy."
> The actual desirable property of a currency is one...
Desirable to who? Is it really desirable for savers to have their money debased?
The author subtly admits he is a collectivist, and does not care for the individualist perspective.
When it comes to money and value though, all transactions are performed by individuals of their own volition, unless otherwise coerced. An economy is an emergent property of the individuals. Making decisions about transactions 'for the sake of the collective' is a luxury of the already wealthy (and it is more virtue-signalling than actually benefiting of the collective).
> "with a variable supply which a central bank can control to target a specific low inflation rate by measuring the purchasing power of the currency with respective to the domestic costs of goods."
Author assumes it is even possible to target a specific rate of inflation and to even measure if that target is met, and whether meeting any target is a result of any interventions. Of course this is not possible because there are far too many variables. Mises and Hayek have both written in depth about the economic calculation problem[2]. Prices are the most efficient method for individuals to determine their economic activity - not central planning.
> "A controlled inflationary currency with interventionist monetary controls encourages economic growth and stability over time."
May or may not be true. I won't bother arguing with whether or not I think that is the case, but will note that the author assumes that the interventionist controls will be utilized correctly to the benefit of all. This goes back again to assuming that everyone has the same goals (collectivism), but more worryingly, there are some clear examples of the interventionists creating immeasurable struggle for millions of people. Consider Venezuela, or Zimbabwe. Moving zeroes does not create wealth.
> "A national currency’s value is derived from the requirement to pay taxes in the currency ...
Absolutely false. Won't explain.
> "However deflationary currencies do nothing but encourage hording
True, when competing currencies are present. People will hoard the good money and trade the bad money.
Eventually, people will not accept the bad money for payment of goods and services. They must spend the good money to meet their needs. People offering services will find ways to avoid providing those services to people wishing to pay only with the bad money, or will offer discounts to people paying with the good money.
> ... untethered to the cost of goods ...
The fiat money clearly can't be tethered to the cost of goods because prices keep increasing, almost without fail. The only exceptions are in highly deflationary markets where technological innovation outpaces inflation.
If the price of X increases by 5% in one year, does this tell me that the product became more valuable or scarce, or does it tell me that the money became worth less?
Fiat money can't tell you this. It is impossible to separate one from the other because the intervention influences prices and the prices then influence intervention. This "stability" is like a cat chasing its own tail. It is short-lived stability.
Historically there has never been a "reference" commodity which could be used to determine if the currency is losing value or if other goods are increasing in value over time. The fiat money is typically used as the reference because it doesn't fluctuate much over short periods of time (assuming there no economic catastrophes, which is a big assumption in itself). The author admits he has a high time-preference and he seems unwilling to discuss the long-term effects, such as that on pensions and savings.
A dollar today is 0.7 dollars in 5 years.
1/21M is still 1/21M in 5 years. This is the real stability we want if our goal is to measure how prices change over time. A fixed scale.
> "As we see in crypto, they exhibit extremely volatility since no economic activity can be denominated in terms of them. One could never price a thirty year mortgage in bitcoin because its volatility makes it completely unpredictable and no sensible bank could calculate the risk of covering that debt.
Here the author shows his lack of imagination. Sure it is the case that the bitcoin/fiat exchange rates are volatile now, but how does that change if bitcoin adoption continues to grow? What happens if bitcoin adoption reaches 50%, and has equal market share as fiat money? Does the exchange rate then tell you how volatile bitcoin is, or how volatile dollars are?
In fact, the dollar has lost 99% of its value against bitcoin in one decade[4]. Talk about volatility!
> There can be no separation of money and state, because the state is the only party that could issue money almost by definition.
Wrong again.
Money is an emergent property of people selecting the most saleable commodity, in their own subjective opinion, to conduct trade[3].
The State can only intimidate and coerce through violence. When given free choice, people will act in their best self-interest, which is probably counter to the interests of the central bank and the cronies surrounding it.
[1]:https://en.wikipedia.org/wiki/Basic_Economics
[2]:https://en.wikipedia.org/wiki/Economic_calculation_problem
[3]:https://mises.org/library/origins-money-0
[4]:https://usdsat.com/
That is because somehow it is OK for the state to have no say in which god to believe in, yet for Dahl it is OK for the state to say what money to believe in.
If anyone wants to read his other crypto pieces, here's all of them from this year. If you want even more, just check out his twitter.
https://www.stephendiehl.com/blog/crypto-scams.html
https://www.stephendiehl.com/blog/destroy-bitcoin.html
https://www.stephendiehl.com/blog/non-innovation.html https://www.stephendiehl.com/blog/ransomware.html
https://www.stephendiehl.com/blog/banbitcoin.html
https://www.stephendiehl.com/blog/ponzi.html
https://www.stephendiehl.com/blog/chernobyl.html
https://www.stephendiehl.com/blog/gamestop.html
https://mobile.twitter.com/smdiehl
https://www.stephendiehl.com/blog/crypto-scams.html
https://www.stephendiehl.com/blog/destroy-bitcoin.html
https://www.stephendiehl.com/blog/non-innovation.html https://www.stephendiehl.com/blog/ransomware.html
https://www.stephendiehl.com/blog/banbitcoin.html
https://www.stephendiehl.com/blog/ponzi.html
https://www.stephendiehl.com/blog/chernobyl.html
https://www.stephendiehl.com/blog/gamestop.html
https://mobile.twitter.com/smdiehl
He is on a mission and I support it fully. When the music stops, so many people will get seriously hurt financially.
Yeah i know some true believers and they are way overexposed to this nonsense. The rush for an exit is going to look like The Squid Game.
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What people don’t understand, even intellectuals like the author, is that money transmission is heavily regulated in the United States. This fact is why cryptocurrencies have such a seemingly difficult time finding grounding to the marketplace. It’s not transaction times or energy usage. It’s the BSA Travel Rule, it’s KYC, AML, OFAC, and a regulatory minefield designed to maximize the government’s ability to track and curtail financial flows.
> This fact is why cryptocurrencies have such a seemingly difficult time finding grounding to the marketplace. It’s not transaction times or energy usage.
Don't you think it's overly simplistic to claim there's only one reason? Transaction times (or ETH gas costs or whatever) have made them infeasible to use in a bunch of cases.
But isn't part of it also that every fiat currency has a baked in demand, in that if you don't pay your taxes in that currency you go to jail? As a US citizen, even if every business I frequent accepted BTC, I would still need USD. Using cryptocurrencies by contrast is entirely optional. And to the degree that you believe in the usefulness of cryptocurrencies, would you really spend it on a regular basis?
Don't you think it's overly simplistic to claim there's only one reason? Transaction times (or ETH gas costs or whatever) have made them infeasible to use in a bunch of cases.
But isn't part of it also that every fiat currency has a baked in demand, in that if you don't pay your taxes in that currency you go to jail? As a US citizen, even if every business I frequent accepted BTC, I would still need USD. Using cryptocurrencies by contrast is entirely optional. And to the degree that you believe in the usefulness of cryptocurrencies, would you really spend it on a regular basis?
Look, you don’t need to trust or believe me, but every major country central bank is evaluating switching to cryptocurrencies and real-time instant payment settlement systems. Google keywords “Central Bank Digital Currency”.
Central Banks, FIs, and FinTechs are hyper aware of the value of distributed ledgers.
Central Banks, FIs, and FinTechs are hyper aware of the value of distributed ledgers.
I think you’re right but that comes from mixing a couple of distinct concepts: most blockchain fans class distributed ledgers as a separate category because they don’t need anonymity and the expense of proof-of-work mechanisms.
I’d be unsurprised if whatever the next round of modernization ends up being is called a blockchain for marketing reasons (unless the big consulting firms have moved on by then) but ends up being a far more conventional ledger system because they have existing trust relationships and don’t even want anonymity.
I’d be unsurprised if whatever the next round of modernization ends up being is called a blockchain for marketing reasons (unless the big consulting firms have moved on by then) but ends up being a far more conventional ledger system because they have existing trust relationships and don’t even want anonymity.
Are they valuing a distributed ledger, or are the various CBDC projects more of a faster-horses answer for ACH?
A significant part of the need for distributed systems goes away when you're no longer trying to be trustless, and much of the role of a central bank is to be a central anchor of trust. They can run the whole damn ledger, and there's a solid case for doing so being part of a modern financial system.
The more sinister factor I could see is that bad actors like distributed systems because they represent a workaround for KYC/AML/capital control regulations. If Chase allows an account opened by $boogeyman_of_the_week, heads will roll. There's nobody that can be readily sued or intimidated to encourage a decentralized network into excluding a participant.
A significant part of the need for distributed systems goes away when you're no longer trying to be trustless, and much of the role of a central bank is to be a central anchor of trust. They can run the whole damn ledger, and there's a solid case for doing so being part of a modern financial system.
The more sinister factor I could see is that bad actors like distributed systems because they represent a workaround for KYC/AML/capital control regulations. If Chase allows an account opened by $boogeyman_of_the_week, heads will roll. There's nobody that can be readily sued or intimidated to encourage a decentralized network into excluding a participant.
CBDC’s are anything but cryptocurrencies. This is a major misunderstanding of why central banks are pursuing them.
You’re correct about the internal layers, but incorrect about the external layers of the proposed systems.
If crypto's only advantage over the traditional finance sector is doing an end-run around regulations, it's no surprise that this advantage won't be sustainable.
No one in the business of connecting the US Dollar market to the cryptocurrency domain wants to “do an end-run” around any regulations. That’s a bad take. In the compliance space, people don’t “move fast and break stuff”.
Look at all of the fraudulent ICOs out there which replayed financial fraud history. The question is practically "are there any ICOs which aren't scams?".
Uhh, right? The FBI isn’t going to suddenly give up on fraud investigations and the IRS isn’t going to disappear if Bitcoin were to replace USD. You still have to follow the laws or you go to jail.
I am afraid that too many of the HN visitors have a stake in crypto and may downvote/ flag articles that may hurt their bottom line.
In some sense it is funny that those are the same people that rave about perceived anti-censorship properties of crypto.
In some sense it is funny that those are the same people that rave about perceived anti-censorship properties of crypto.
There are plenty of articles every day talking about how crypto is a scam or w/e. Anyone that's worried about one more on the pile is being irrational.
No amount blog articles is going to materially impact the long-term outlook of web3/crypto projects that aren't the actual scams/cash-grabs. =)
No amount blog articles is going to materially impact the long-term outlook of web3/crypto projects that aren't the actual scams/cash-grabs. =)
Anti crypto articles are at the top of hackernews every other day, your worry seems unfounded.
HN is more skeptical of crypto than the general tech audience in my experience (compared to my SWE coworkers).
HN is more skeptical of crypto than the general tech audience in my experience (compared to my SWE coworkers).
I observe a similar thing in HN. I suspect HN gathers a specific type of techie-crowd, who has missed out on the crypto-scene while working hard on "conventional" tech projects. I have been and I feel the sentiment.
HN is not exactly an early-adopter community for a specific time period (say 5 years of early inception of a new tech). It is a busy-working community.
HN is not exactly an early-adopter community for a specific time period (say 5 years of early inception of a new tech). It is a busy-working community.
> may downvote/ flag articles that may hurt their bottom line.
No such thing as bad publicity, or so they say.
No such thing as bad publicity, or so they say.
> As we know from the history every of every other speculative mania, popular delusions based on the madness of crowds cannot sustain themselves indefinitely.
Madness such as governments printing trillions of dollars of fiat to artificially prop up the stock market and in the process dilute the salaries of the world's entire productive workforce while rewarding incompetent executives by pumping up their stock prices? I agree, such popular delusions based on the madness of crowds cannot be sustained. Not to mention the ridiculous, over-sized, multi-billion dollar government contracts which are repeatedly handed out to big corporations and which add no value at all to society (how many trillions did the government waste on Afghanistan again? How many billions did they then award to Microsoft to build military VR gizmos?)... And what about the huge superannuation/401K funds which invest other people's retirement savings, without their explicit approval, into inefficient, frothy, zombie corporations (run by their friends) which are going to collapse once people actually start retiring and start cashing out their pensions in mass... And the government will then print more money to (yet again) bail them out and keep screwing over the average salary earner and taxpayer. That's why we need cryptocurrency.
If you think cryptocurrency is mad, if you think Dogecoin and SHIBA INU coins are mad, you don't understand the fiat monetary system.
Madness such as governments printing trillions of dollars of fiat to artificially prop up the stock market and in the process dilute the salaries of the world's entire productive workforce while rewarding incompetent executives by pumping up their stock prices? I agree, such popular delusions based on the madness of crowds cannot be sustained. Not to mention the ridiculous, over-sized, multi-billion dollar government contracts which are repeatedly handed out to big corporations and which add no value at all to society (how many trillions did the government waste on Afghanistan again? How many billions did they then award to Microsoft to build military VR gizmos?)... And what about the huge superannuation/401K funds which invest other people's retirement savings, without their explicit approval, into inefficient, frothy, zombie corporations (run by their friends) which are going to collapse once people actually start retiring and start cashing out their pensions in mass... And the government will then print more money to (yet again) bail them out and keep screwing over the average salary earner and taxpayer. That's why we need cryptocurrency.
If you think cryptocurrency is mad, if you think Dogecoin and SHIBA INU coins are mad, you don't understand the fiat monetary system.
I get where you're coming from, but two wrongs don't make a right - pointing out that the fiat system is broken is a red herring of sorts.
Having said that, I think the author is far too pessimistic in his outlook. The fact that cryptocurrencies are physically intangible does not simply mean it is invaluable. One can speculate that digital assets are like tulips, but what the dot com bubble taught us is that tech is here to stay. And who is to say that humans will not ascribe value to digital coins to last into the next millennium? This is coming from a believer in the gold standard.
Having said that, I think the author is far too pessimistic in his outlook. The fact that cryptocurrencies are physically intangible does not simply mean it is invaluable. One can speculate that digital assets are like tulips, but what the dot com bubble taught us is that tech is here to stay. And who is to say that humans will not ascribe value to digital coins to last into the next millennium? This is coming from a believer in the gold standard.
Interesting that the negative comments so far consist entirely of ad hominem attacks on the author, arguments for blockchain (which the article doesn’t mention once), examples of fraud and bubbles in other contexts (irrelevant — no one says crypto is the only Ponzi or bubble), and libertarian attacks on fiat currency and government control of currency that don’t address the utility of crypto.
PayPal and Stripe and other financial players haven’t adopted crypto. They have inserted themselves as intermediaries, taking a cut at no risk to themselves, and with no commitment to moving from dollars to crypto. They are in the same position as every grocery store and gas station selling Beanie Babies 20 years ago: offering what people will buy to make a profit (in dollars).
PayPal and Stripe and other financial players haven’t adopted crypto. They have inserted themselves as intermediaries, taking a cut at no risk to themselves, and with no commitment to moving from dollars to crypto. They are in the same position as every grocery store and gas station selling Beanie Babies 20 years ago: offering what people will buy to make a profit (in dollars).
> " If you sell your crypto and make a profit in dollars, it’s only because someone else bought it at a higher price than you did."
Note: Making a profit in dollars does not necessarily imply making an increase in purchasing power. If you profit ~5% in dollars, you've still lost ~10% in purchasing power due to inflation.
Lesson: Don't save in dollars. Find something which can't be deliberately debased by policymakers.
Note: Making a profit in dollars does not necessarily imply making an increase in purchasing power. If you profit ~5% in dollars, you've still lost ~10% in purchasing power due to inflation.
Lesson: Don't save in dollars. Find something which can't be deliberately debased by policymakers.
I think more than "intellectual incoherence", as with everything, differing views about crypto come down to differing values.
> The actual desirable property of a currency is one with a variable supply which a central bank can control to target a specific low inflation rate by measuring the purchasing power of the currency with respective to the domestic costs of goods.
Desirable for who? I think this is desirable for a _state_ which seeks to have a growing and stable economy. That can differ meaningfully from what is desirable for a given large account/wallet holder.
> The value of everyday things like wheat, metals, semiconductors, and even synthetic products like stocks, interest rate swaps and bonds are well understood. We have rational valuation models for these products and there’s a market that purchases these products because of their intrinsic value or exposure they bring to collective human economic activity.
I.e. he adopts the basic assumption that value is defined by how something can be used. That's often a useful definition, but as the 'art' section indicates, it's not comprehensive, and it doesn't acknowledge that the value of those uses ultimately bottoms out at human preferences (e.g. zinc is used in making electronics, but we assign a value to electronics because they facilitate lots of other things that we value).
The people he's criticizing seem to define value as what someone will pay for something, which may be based on just rarity. Certainly gold, silver, and jewels were all highly valued before we had industrial processes that specifically used them.
> Setting all these models aside, there are two far more coherent perspectives on the crypto assets that have far more explanatory power for the behavior we see. Crypto assets are the synthesis of a speculative mania and a financial scam built around an opaque technology, phoney populism, with a tolerance for intellectual incoherence at its core.
"Mania", "scam", and "phoney populism" are at emotionally charged terms that weren't selected for their "explanatory power."
One can have a view of crypto which is intellectually coherent, but still worth criticizing. Its claims are something like:
- something is worth what people will pay for it; here's a thing that people will pay for.
- as with other financial and investing decisions, individuals make choices around what serves them, not what serves society as a whole. Expecting otherwise is unrealistic.
- the marketing for many products is not intended to give purchasers a full understanding of what they're buying and how it works. If that were a requirement, no complex technical innovation could be marketed and sold. How many people understand the working mechanisms of both a computer chip and a prescription drug?
- as with many other industries, crypto mining expends energy to produce something of value, and benefits from a lack of effective taxes on the CO2 emitted. If we're gonna appropriately price carbon, just do it but don't preach at cherry-picked industries.
The criticism should recognize that these characteristics aren't unique to crypto; they're totally of a piece with real estate speculation, complex and opaque financial instruments, and a world economy that built itself around extractive industries. If you want a society where people or organizations receive value commensurate with _doing_ something useful rather than just owning stuff, where forthrightness is present in financial products, and where economic activity isn't based on environmentally unsustainable practices ... you haven't been living in that society for a long time and you should rail against something bigger than crypto.
> The actual desirable property of a currency is one with a variable supply which a central bank can control to target a specific low inflation rate by measuring the purchasing power of the currency with respective to the domestic costs of goods.
Desirable for who? I think this is desirable for a _state_ which seeks to have a growing and stable economy. That can differ meaningfully from what is desirable for a given large account/wallet holder.
> The value of everyday things like wheat, metals, semiconductors, and even synthetic products like stocks, interest rate swaps and bonds are well understood. We have rational valuation models for these products and there’s a market that purchases these products because of their intrinsic value or exposure they bring to collective human economic activity.
I.e. he adopts the basic assumption that value is defined by how something can be used. That's often a useful definition, but as the 'art' section indicates, it's not comprehensive, and it doesn't acknowledge that the value of those uses ultimately bottoms out at human preferences (e.g. zinc is used in making electronics, but we assign a value to electronics because they facilitate lots of other things that we value).
The people he's criticizing seem to define value as what someone will pay for something, which may be based on just rarity. Certainly gold, silver, and jewels were all highly valued before we had industrial processes that specifically used them.
> Setting all these models aside, there are two far more coherent perspectives on the crypto assets that have far more explanatory power for the behavior we see. Crypto assets are the synthesis of a speculative mania and a financial scam built around an opaque technology, phoney populism, with a tolerance for intellectual incoherence at its core.
"Mania", "scam", and "phoney populism" are at emotionally charged terms that weren't selected for their "explanatory power."
One can have a view of crypto which is intellectually coherent, but still worth criticizing. Its claims are something like:
- something is worth what people will pay for it; here's a thing that people will pay for.
- as with other financial and investing decisions, individuals make choices around what serves them, not what serves society as a whole. Expecting otherwise is unrealistic.
- the marketing for many products is not intended to give purchasers a full understanding of what they're buying and how it works. If that were a requirement, no complex technical innovation could be marketed and sold. How many people understand the working mechanisms of both a computer chip and a prescription drug?
- as with many other industries, crypto mining expends energy to produce something of value, and benefits from a lack of effective taxes on the CO2 emitted. If we're gonna appropriately price carbon, just do it but don't preach at cherry-picked industries.
The criticism should recognize that these characteristics aren't unique to crypto; they're totally of a piece with real estate speculation, complex and opaque financial instruments, and a world economy that built itself around extractive industries. If you want a society where people or organizations receive value commensurate with _doing_ something useful rather than just owning stuff, where forthrightness is present in financial products, and where economic activity isn't based on environmentally unsustainable practices ... you haven't been living in that society for a long time and you should rail against something bigger than crypto.
> The people he's criticizing seem to define value as what someone will pay for something, which may be based on just rarity.
Without reading the rest of his blog, this piece reads like he read some Keynes-derived macro-econ without understaning the supporting micro-econ. Pretty much everyone in economics (with a few notable exceptions like Marxists) believes in the subjective marginalism theory of value.
Without reading the rest of his blog, this piece reads like he read some Keynes-derived macro-econ without understaning the supporting micro-econ. Pretty much everyone in economics (with a few notable exceptions like Marxists) believes in the subjective marginalism theory of value.
Imo this line of thinking is flawed:
It's not X, it's not Y therefore it must be Q. It can also be a different asset class, a new one. Keeping an open mind is paramount in the super fast tech lane.
It's not X, it's not Y therefore it must be Q. It can also be a different asset class, a new one. Keeping an open mind is paramount in the super fast tech lane.
Consider: what would the prevailing interest in crypto be -- think of the US Gemini exchange for example -- if at the end of they day Gemini couldn't extract US dollars from it. I don't think Gemini would be a going concern. Therein is incoherence: all the tap dancing and hand waving by crypto adherents is undone without the ability to extract fiat currency. I think that says a lot.
There's a lot of noise which can lead to people completely missing the signal.
Speculation on "crypto" coins and fiat gainz is the noise. The KYC exchanges are the noise. Smart contracts are noise. NFTs are noise.
Bitcoiners are not betting on getting fiat dollars out of their bitcoin. They are betting on completely replacing easy monies with money that cannot be intentionally debased. They will never sell their bitcoin for fiat currency, and you would have to prise their hardware wallets from the dead cold hands, only to find you don't have the correct passphrase to unlock it.
It isn't solely about wealth. For many, it's almost a religious pursuit. The goal is not only to be better off financially yourself, but to make your fellow man better off by having money which is resistant to multiple forms of theft.
Without an understanding of history and the motivation for saving, it probably just looks like a bunch of gambling.
The noise doesn't matter. Bitcoiners will continue to save despite it. New users will move their savings to bitcoin to avoid inflation (aka daylight robbery). The feedback cycle cannot be stopped. You can only remain ignorant and miss the opportunity to acquire cheap sats.
Speculation on "crypto" coins and fiat gainz is the noise. The KYC exchanges are the noise. Smart contracts are noise. NFTs are noise.
Bitcoiners are not betting on getting fiat dollars out of their bitcoin. They are betting on completely replacing easy monies with money that cannot be intentionally debased. They will never sell their bitcoin for fiat currency, and you would have to prise their hardware wallets from the dead cold hands, only to find you don't have the correct passphrase to unlock it.
It isn't solely about wealth. For many, it's almost a religious pursuit. The goal is not only to be better off financially yourself, but to make your fellow man better off by having money which is resistant to multiple forms of theft.
Without an understanding of history and the motivation for saving, it probably just looks like a bunch of gambling.
The noise doesn't matter. Bitcoiners will continue to save despite it. New users will move their savings to bitcoin to avoid inflation (aka daylight robbery). The feedback cycle cannot be stopped. You can only remain ignorant and miss the opportunity to acquire cheap sats.
> It isn't solely about wealth. For many, it's almost a religious pursuit.
Ok, hot take. Let’s see where this goes.
> The goal is not only to be better off financially yourself, but to make your fellow man better off by having money which is resistant to multiple forms of theft.
Oh, ok, so it is all about wealth.
Ok, hot take. Let’s see where this goes.
> The goal is not only to be better off financially yourself, but to make your fellow man better off by having money which is resistant to multiple forms of theft.
Oh, ok, so it is all about wealth.
> Oh, ok, so it is all about wealth.
It's about not having your time and hard work stolen by pigs.
And being able to transact and move freely even if despicable humans rate your "social credit score" too low if you do not go along with their tyranny.
It's about not having your time and hard work stolen by pigs.
And being able to transact and move freely even if despicable humans rate your "social credit score" too low if you do not go along with their tyranny.
Well, some new religions really do become successful. But your merchants and customers all need to convert, what if they dont wanna?
Merchants will prefer to accept the good money as payment (Thiers' Law) because it can retain value for longer.
They will offer discounts for customers paying with the good money.
Thus, customers might prefer to pay with the good money (assuming they have a low-friction means to convert their bad money to good money).
They will offer discounts for customers paying with the good money.
Thus, customers might prefer to pay with the good money (assuming they have a low-friction means to convert their bad money to good money).
> Merchants will prefer to accept the good money as payment (Thiers' Law) because it can retain value for longer.
While it is true that merchants prefer to accept good money as payment that in itself isn't Thiers law. Thiers law is about good money displacing bad money when bad money becomes worthless or there are no legal tender laws.
> They will offer discounts for customers paying with the good money.
> Thus, customers might prefer to pay with the good money (assuming they have a low-friction means to convert their bad money to good money).
This is not true. The only way a customer might prefer to pay with good money in this situation, all things being equal, is if the discount for paying with good money is bigger than the value of holding good money compared to bad money.
Good money doesn't displace bad money because customers prefer it but because merchants stop accepting bad money.
While it is true that merchants prefer to accept good money as payment that in itself isn't Thiers law. Thiers law is about good money displacing bad money when bad money becomes worthless or there are no legal tender laws.
> They will offer discounts for customers paying with the good money.
> Thus, customers might prefer to pay with the good money (assuming they have a low-friction means to convert their bad money to good money).
This is not true. The only way a customer might prefer to pay with good money in this situation, all things being equal, is if the discount for paying with good money is bigger than the value of holding good money compared to bad money.
Good money doesn't displace bad money because customers prefer it but because merchants stop accepting bad money.
What makes you say smart contracts are noise? Executing code with the same trustless properties of transferring bitcoin seems pretty huge assuming you value the latter no?
>And finally there’s the claim that crypto assets are like art. Essentially Satoshi’s whitepaper is a piece of performance art split into 21 million pieces as a parody of hypercapitalism or to make a political statement about anarcho-capitalism.
Isn't this a misunderstanding on the author's part? The claim that some crypto assets are treated as 'art' is not as a performance piece of Satoshi's work, but in form of NFTs on OpenSea (as an example) that utilize Ethereum as the exchange platform.
Isn't this a misunderstanding on the author's part? The claim that some crypto assets are treated as 'art' is not as a performance piece of Satoshi's work, but in form of NFTs on OpenSea (as an example) that utilize Ethereum as the exchange platform.
Pretty sure that‘s a joke.
I was in crypto for part of the run earlier this year, but ended up selling it all as I reached a very similar conclusion to the author.
Basically ask yourself this. If there is a market panic, or people just decide to sell for whatever reason, what is the logically lowest price bitcoin can go to?
The answer, of course, is 0. There's 0 intrinsic value or math you can do to justify one price over another. Can you explain to me why Bitcoin should be worth 50k and not 10k?
The stock market can crash too, and prices can fall below intrinsic value for a time... but you have plenty of math and formulas you can use to assign an intrinsic value to equities. Sometimes the market bubbles up, but in the long run it always tends to revert to some mean of fair valuation. There is no mean of fair valuation for cryptos.
Another thing that's difficult to get around is application of the block chain. I can buy that there could be an "open source" ecosystem of finance, but where is it? Almost all Defi stuff only makes sense in the context of crypto... e.g. get interest on this coin by lending to somebody else, but the coin still has inherently 0 value. Would be nice to see some inkling of any value that can be directly tied to the real world. Anyone aware of meaningful projects with an actual substantial impact, that can't be solved better through other means? Not toy projects, but an actual gamechanging application in finance?
I can buy that Bitcoin could act as a deflationary sort of money. But the value of bitcoin can't really be stable unless it's actually used as a widespread medium of exchange. I don't buy OPs arguments about central banks... central banks are a large part of why cryptos are so popular. They've horrendously extended the scope of their mandate and abused their powers. Part of bitcoin's popularity is to try to escape the overreaching central banks.
The closest analogue is Gold. Gold actually has many powerful chemical properties, but is too scarce to use for industrial production by and large (outside of trace amounts). Yet people have used it as a store of wealth for thousands of years. Because of this, I think bitcoin could have potential long term.
But gold is physical, so it's not prone to panic selling. You have to physically transfer it to somebody else, so it's more protected from flash crashes that crypto is prone to. Yes, there are gold derivatives that are traded, but they reflect a real good underneath.
At the end of the day, why are 90% of people in crypto? They're doing it to speculate and make money, not for practical reasons where holding crypto actually tangibly improves their lives (via some utility of it). I don't think prices will ever be stable while that's the case.
Basically ask yourself this. If there is a market panic, or people just decide to sell for whatever reason, what is the logically lowest price bitcoin can go to?
The answer, of course, is 0. There's 0 intrinsic value or math you can do to justify one price over another. Can you explain to me why Bitcoin should be worth 50k and not 10k?
The stock market can crash too, and prices can fall below intrinsic value for a time... but you have plenty of math and formulas you can use to assign an intrinsic value to equities. Sometimes the market bubbles up, but in the long run it always tends to revert to some mean of fair valuation. There is no mean of fair valuation for cryptos.
Another thing that's difficult to get around is application of the block chain. I can buy that there could be an "open source" ecosystem of finance, but where is it? Almost all Defi stuff only makes sense in the context of crypto... e.g. get interest on this coin by lending to somebody else, but the coin still has inherently 0 value. Would be nice to see some inkling of any value that can be directly tied to the real world. Anyone aware of meaningful projects with an actual substantial impact, that can't be solved better through other means? Not toy projects, but an actual gamechanging application in finance?
I can buy that Bitcoin could act as a deflationary sort of money. But the value of bitcoin can't really be stable unless it's actually used as a widespread medium of exchange. I don't buy OPs arguments about central banks... central banks are a large part of why cryptos are so popular. They've horrendously extended the scope of their mandate and abused their powers. Part of bitcoin's popularity is to try to escape the overreaching central banks.
The closest analogue is Gold. Gold actually has many powerful chemical properties, but is too scarce to use for industrial production by and large (outside of trace amounts). Yet people have used it as a store of wealth for thousands of years. Because of this, I think bitcoin could have potential long term.
But gold is physical, so it's not prone to panic selling. You have to physically transfer it to somebody else, so it's more protected from flash crashes that crypto is prone to. Yes, there are gold derivatives that are traded, but they reflect a real good underneath.
At the end of the day, why are 90% of people in crypto? They're doing it to speculate and make money, not for practical reasons where holding crypto actually tangibly improves their lives (via some utility of it). I don't think prices will ever be stable while that's the case.
Helium has built the largest contiguous wireless network using a crypto incentive model. They have started with LoRaWAN and are moving into 5G neutral hosting using CBRS spectrum.
Helium effectively solves the chicken and egg problem in wireless network infra. The protocol pays users for providing provably useful wireless coverage, allowing time for demand to catch up and eventually fund the operation of nodes.
Helium effectively solves the chicken and egg problem in wireless network infra. The protocol pays users for providing provably useful wireless coverage, allowing time for demand to catch up and eventually fund the operation of nodes.
Helium isn't really a cryptocurrency by most definitions: it relies on hardware blessed by a central authority doing the 'mining': there's no way to participate in the consensus of the network without getting the permission of this authority. Secondarily the incentives are pure speculation: miners make money by minting tokens, they do not make any significant amount of money from users of the network (given fees are fixed and the token is pegged to the dollar there is little reason this should change even if demand on the network increases substantially).
Arguably this is a 'crypto incentive model' (as in most crypto purchases are incentivised by speculation, not utility), but it does not bode well for the long term life of the network. If it does manage to stay around it will be because speculators essentially paid for the installation costs with no return, which represents savvy or lucky positioning by those who set it up but no intrinsic value to the 'cryptocurrency' part itself.
Arguably this is a 'crypto incentive model' (as in most crypto purchases are incentivised by speculation, not utility), but it does not bode well for the long term life of the network. If it does manage to stay around it will be because speculators essentially paid for the installation costs with no return, which represents savvy or lucky positioning by those who set it up but no intrinsic value to the 'cryptocurrency' part itself.
Nitpick: validation is the consensus process and resembles proof of stake, you don't need to buy any mining hardware to do this. Proof of coverage rewards require the approved hardware.
You can make your own packet forwarder and get paid for data transmission, but not proof of coverage. Pure DIY with no central body blessing.
There are around 70 different manufacturers in some stage of blessing. Its really not a meaningful hurdle. The approval process is there to insure manufacturers incorporate adequate security protection of chain access keys.
Network buildout is called a chicken and egg problem for a reason. Speculation is just another tool and is used to phenomenal effect by Helium. The proof is in the pudding because a majority of Americans and Europeans have coverage now, where once was nothing.
You can make your own packet forwarder and get paid for data transmission, but not proof of coverage. Pure DIY with no central body blessing.
There are around 70 different manufacturers in some stage of blessing. Its really not a meaningful hurdle. The approval process is there to insure manufacturers incorporate adequate security protection of chain access keys.
Network buildout is called a chicken and egg problem for a reason. Speculation is just another tool and is used to phenomenal effect by Helium. The proof is in the pudding because a majority of Americans and Europeans have coverage now, where once was nothing.
Interesting, I'll have to read more into it.
So what role does the crypto play in this model... Is it just a payment method? If so, where is the tangible value add of crypto, versus paying in currency?
Or is the idea that the public finances the project by assigning some value to the token? Thus creators need no capital to start, public finances project by determining a free market value for the token. If so, that's just following the pyramid scheme-esque pattern described before.
So what role does the crypto play in this model... Is it just a payment method? If so, where is the tangible value add of crypto, versus paying in currency?
Or is the idea that the public finances the project by assigning some value to the token? Thus creators need no capital to start, public finances project by determining a free market value for the token. If so, that's just following the pyramid scheme-esque pattern described before.
The crypto value add is early adopter rewards as well as settlement when using the network. So, you basically captured it in your post. If the initial conditions are structured properly it becomes a virtuous cycle.
You can call it a pyramid scheme, but you should also acknowledge it solved a real world problem. Many old school players have failed to do literally the same thing with Lorawan...raise money...hire a team...find installers...make agreement with vertical asset owners...find customers... etc.
Helium is a team of a few dozen accomplishing success 100x bigger than teams of 1000 doing it the old way.
You can call it a pyramid scheme, but you should also acknowledge it solved a real world problem. Many old school players have failed to do literally the same thing with Lorawan...raise money...hire a team...find installers...make agreement with vertical asset owners...find customers... etc.
Helium is a team of a few dozen accomplishing success 100x bigger than teams of 1000 doing it the old way.
I just spent a few minutes reading into it, will have to explore more. Certainly the tech/presentation is pretty slick.
So somebody can buy a miner/access point of sorts to publish a hotspot. They get rewarded with these HNT tokens for providing this service.
But what gives the HNT token value... is the value purely driven by speculators? That's where it starts to fall apart for me. How can that be a sustainable model in the long run?
I guess for this project, the cost to run the miner is relatively low, so even if the value of the tokens are purely speculative, you'll still get people setting up access points for a chance at the lottery ticket. In that sense, this seems like a good application.
I can see crypto having tangible value for these kind of cases, where you need many people to participate in a network, and the cost of entering is somewhat low. Having that small additional incentive/lottery ticket motivates people to take the small effort to set it up.
But I don't know how stable this model will be in the long run. If crypto crashes, will the network stay maintained, or fall into disrepair?
I just looked at some of the miners, and the cost goes up to 1k USD, which is kinda nuts. The token price would have to support the unit economics of that... which I doubt will continue in perpetuity.
These kind of projects would work better in the long run as charities where people really understand the intent of participating, rather than strictly speculating, which is likely not going to be long lasting. Having a crypto/token kind of obfuscates what the long run reward will be, which does incentivize participation, for sure.
So somebody can buy a miner/access point of sorts to publish a hotspot. They get rewarded with these HNT tokens for providing this service.
But what gives the HNT token value... is the value purely driven by speculators? That's where it starts to fall apart for me. How can that be a sustainable model in the long run?
I guess for this project, the cost to run the miner is relatively low, so even if the value of the tokens are purely speculative, you'll still get people setting up access points for a chance at the lottery ticket. In that sense, this seems like a good application.
I can see crypto having tangible value for these kind of cases, where you need many people to participate in a network, and the cost of entering is somewhat low. Having that small additional incentive/lottery ticket motivates people to take the small effort to set it up.
But I don't know how stable this model will be in the long run. If crypto crashes, will the network stay maintained, or fall into disrepair?
I just looked at some of the miners, and the cost goes up to 1k USD, which is kinda nuts. The token price would have to support the unit economics of that... which I doubt will continue in perpetuity.
These kind of projects would work better in the long run as charities where people really understand the intent of participating, rather than strictly speculating, which is likely not going to be long lasting. Having a crypto/token kind of obfuscates what the long run reward will be, which does incentivize participation, for sure.
I'm happy you looked into. But I adamantly refute your point that these networks function better as charities, because the charity approach has been tried with an identical LoRaWAN network with something called The Things Network. Coverage is abysmal but its free to use and you can participate in a community of nerds who like to do this in their free time. The charity case doesn't solve the problem of ubiquitous coverage.
Where does Helium token derive value? Their economic policy resembles a utility token, where transacting on the network costs a fixed dollar value per packet, and these 'credits' are derived from burning the native network token HNT. There are a few other burning mechanisms as well. The credits get paid out to the node which routes traffic. Helium nodes costs less than $2/month to operate (5-10W electricity).
The longevity is uncertain, for sure. Its easy to call this growth model a resounding success but people are hesitant to build entire products on top of it because of the questions you raise. For now the Helium team is having good success convincing disparate Lorawan networks to roam onto Helium as a sort of extended coverage product, where range is high but may not be super reliable.
All things considered this is a very new way of bootstrapping network infrastructure and appears very promising, and tokens are priced accordingly. It doesn't stop with Lorawan, 5G and wifi offload are launching this month and next year respectively. As with most things in crypto, they will either swallow the competition or fade into obscurity. I believe Helium is a strong asymmetric bet on disruption of network operator, neutral hosts and vertical asset industries.
Where does Helium token derive value? Their economic policy resembles a utility token, where transacting on the network costs a fixed dollar value per packet, and these 'credits' are derived from burning the native network token HNT. There are a few other burning mechanisms as well. The credits get paid out to the node which routes traffic. Helium nodes costs less than $2/month to operate (5-10W electricity).
The longevity is uncertain, for sure. Its easy to call this growth model a resounding success but people are hesitant to build entire products on top of it because of the questions you raise. For now the Helium team is having good success convincing disparate Lorawan networks to roam onto Helium as a sort of extended coverage product, where range is high but may not be super reliable.
All things considered this is a very new way of bootstrapping network infrastructure and appears very promising, and tokens are priced accordingly. It doesn't stop with Lorawan, 5G and wifi offload are launching this month and next year respectively. As with most things in crypto, they will either swallow the competition or fade into obscurity. I believe Helium is a strong asymmetric bet on disruption of network operator, neutral hosts and vertical asset industries.
Can you elaborate on this point?
"Where does Helium token derive value? Their economic policy resembles a utility token, where transacting on the network costs a fixed dollar value per packet, and these 'credits' are derived from burning the native network token HNT. There are a few other burning mechanisms as well. The credits get paid out to the node which routes traffic. Helium nodes costs less than $2/month to operate (5-10W electricity)."
You say transacting on the network costs a fixed dollar amount. Does that mean people are paying USD to use this network? Who is paying these fees in USD?
Trying to disentangle the financial/incentive aspect.
"Where does Helium token derive value? Their economic policy resembles a utility token, where transacting on the network costs a fixed dollar value per packet, and these 'credits' are derived from burning the native network token HNT. There are a few other burning mechanisms as well. The credits get paid out to the node which routes traffic. Helium nodes costs less than $2/month to operate (5-10W electricity)."
You say transacting on the network costs a fixed dollar amount. Does that mean people are paying USD to use this network? Who is paying these fees in USD?
Trying to disentangle the financial/incentive aspect.
> Nobody full understands (in reference to crypto)
We'll if you frame it that way no one fully understands anything. Nobody fully understands equities markets. Surely nobody even comes close to understanding all of the millions of dark scary corners of the derivatives markets. I would say bitcoin is much more of a known quantity than many of these markets.
We'll if you frame it that way no one fully understands anything. Nobody fully understands equities markets. Surely nobody even comes close to understanding all of the millions of dark scary corners of the derivatives markets. I would say bitcoin is much more of a known quantity than many of these markets.
There's a lot of words here. I won't deny there's a ton of shenanigans in the current space, but the ultimate test is this:
The "task" of crypto, arguably is -- moving money through the 'net without a centralized authority.
Is it reasonable to believe that "the task" has been proven technically possible, and attractive enough such that a decent number of people will use it?
At the end of it all, I'm thinking the answer will be yes.
The "task" of crypto, arguably is -- moving money through the 'net without a centralized authority.
Is it reasonable to believe that "the task" has been proven technically possible, and attractive enough such that a decent number of people will use it?
At the end of it all, I'm thinking the answer will be yes.
My argument for owning Eth is that it's like buying real estate (yes, I'm making another loose analogy). Why does a person invest in land? Because they expect something to flourish in the vicinity of their land, and they'll be able to capture some of that increased productivity in the form of rent (or appreciation).
Ethereum is a programmable ledger, and Eth is its unit of capital. A programmable ledger is a tool that can be used to create things like a money supply the author describes. The next question here is "why would someone prefer to use an analogous system created on Ethereum over whatever exists today" and that answer can be some combination of transparency, usability, and legitimacy. If we want something like the elastic-supply currency the author describes, we can create one for ourselves. We can do so without providing limitless power to a centralized authority (i.e. the Fed). To some, the resulting currency will be more legitimate as a result. (checkout Rai or Liquity for examples of elastic/"algorithmic" stablecoins on Ethereum).
In this view, today's value of Eth is largely speculative. On the other hand, this gives a way to fund development. New protocols like the ones I mentioned are able to capture the value they create only because there's already so much $ in this ecosystem, and that money's eager to pay a 0.1% fee for the benefit of this new product.
There's a lot of circular activity going on, sure. Deflationary rewards, leverage, etc. If you haven't seen an 80% drop in crypto yet, be ready for it (seriously). But as long as the influx in capital facilitates some level of actual new products -- as it does appear to me to be doing -- then what really is the issue here? Maybe we can be satisfied in viewing it as a rather complicated machine for capital allocation? My biggest worry is that impending 80% drop: crypto is notorious for its volatility, but still each bull run draws in newcomers who think we're past all the drops and find themselves surprised when they lose 80%.