[wdewind]

The technology is part of the institutions, which are both derivative of the politics, which is where these systems are really designed. I'm not saying the banking system is perfect, but the ideas coming out of crypto aren't new from an economic perspective, and frankly aren't really even interesting.

[seibelj]

I think you are being extraordinarily flippant in your descriptions of cryptocurrency. They are fascinating and have captured the popular imagination, at least in terms of awareness of bitcoin and how frequently it’s mentioned.

You have clearly made up your mind and I won’t attempt to change it. But for anyone reading, an asset, created out of nowhere, that has no control from any authority and cannot have any control, is worth $100 billion in a decade. This is an amazing feat, and is indeed very interesting.

[wdewind]

I don't think I am. I've spent a ton of time in the community, I've owned a bunch of different currencies, and I've spent a lot of time thinking about the implications of the technology. The ideas are fun, but they aren't new, and we can reason about why they still wont work.

One reason cryptocurrency "wont work" (admittedly vague term, but I'm happy to shoot down any definition of "work" you have because I think they are truly useless outside of a tiny portion of people with very specific needs) is simple specialization of labor: people do not want to be engaged in the process of running a currency or a government, which is why, among many other reasons, banks and representative governments exist. And you see this pattern already repeated with crypto where any meaningfully large currency has extremely concentrated ownership. This is just swapping one set of large, monolithic bankers for another one.

Another reason cryptocurrency "wont work" is that everything it depends on is completely derivative of political and technical systems that are designed to prevent decentralized control. The internet exists on networks owned by companies like Verizon, on computers owned by Amazon, and is regulated by the US government. If cryptocurrency was going to be truly revolutionary in anyway the US federal government (and others) already have multiple built in kill switches for it. Sure you can cold store your hashes (even though we all know most people just have Coinbase wallets), but the utility of the network is trivial to compromise or destroy for a state level actor. And as an aside: most crypto is actually regressive from a privacy/personal liberty standpoint when compared with cash, or even the current banking system in many ways.

One more reason crypto "wont work" is that I just haven't heard a single use case for it. The classic "remittances" use case makes no sense because you still have to change the crypto for real currency, which is where the cost is, (yes, only until the currency is meaningfully bootstrapped, let me know when that happens). You don't pay Western Union 15% to flip bits in their servers, you pay them 15% because they put a guy with a gun next to the actual money in the relatively less safe country you are sending money to.

I will remind you that Lehman Brothers was worth about $70B at its peak, in a highly regulated market. $100B is big but far stranger things have happened than an unregulated public market being wrong about things this size. The incentives to pump something like this up are massive, and the market is irrational in the short and medium term. There are a LOT of really rich people out there who feel like if they hadn't missed "the internet" they could be even richer, and we managed to convince them crypto might be the next internet. To your point: that in and of itself, from a sociological perspective, is fascinating.

I do have strong opinions, but they are held loosely and they are ones I hope to be wrong about, so I'm open to discussion.

[dlubarov]

> people do not want to be engaged in the process of running a bank or a government

But casual users can choose to store their crypto assets with a bank/custodian/exchange. Granted, it defeats some of the benefits, but not all. E.g. most crypto has low inflation compared to USD. Even though CPI inflation is ~2%, the money supply inflates around ~10% per year, whereas most crypto will inflate <1% long term.

> the utility of the network is trivial to compromise or destroy for a state level actor

For smaller PoW currencies, absolutely -- a state level actor could acquire majority hash power, then build their own fork which contained no transactions. For Bitcoin, it'd take time and lots of money, but it's possible.

But PoS currencies are more resilient. With something like Cardano, I don't see what governments could do, apart from banning its use within their own jurisdiction. Even if they purchased a 51% stake, once they start the malicious fork, the community would know which accounts were participating and could organize a hard fork to ban them.

> most crypto is actually regressive from a privacy/personal liberty standpoint when compared with cash, or even the current banking system in many ways

That's a fair criticism of Bitcoin etc., but future iterations of cryptocurrencies will surely include ZeroCash-style privacy at least as an optional feature, if not for every transaction.

> The classic "remittances" use case makes no sense because you still have to change the crypto for real currency, which is where the cost is, (yes, only until the currency is meaningfully bootstrapped, let me know when that happens).

Here's how bootstrapping could happen:

- {Apple,Google,Samsung}Pay add support for various cryptocurrencies. Initially, most stores may not support crypto payments, either because the POS (often Verifone) doesn't support it, or because the merchant doesn't want to deal with it.

- POS vendors start supporting crypto, starting with more agile companies like Square. For them, there's no downside apart from development costs. Online processors like Stripe and PayPal add support as well.

- As processor support improves, gradually more and more merchants accept crypto payments, either for PR reasons, or for the low fees, quick settlement, lack of chargebacks, etc. Some offer discounts for crypto payments.

- Payroll providers and and tax services eventually add support crypto payments. Again, no downside besides development costs. So people who want to can do everything in their favorite cryptocurrency, even though it's converted to and from fiat in the background.

- After several generations, taxes are the one thing people still (indirectly) use fiat for. The government still makes money from inflation tax, but eventually they realize that it's essentially a wealth tax, with tons of fees going to exchanges. They replace it with an explicit wealth tax, or (optimistically) something that makes more economic sense, like land value tax.

I'm not saying it's a sure thing at all, but it seems somewhat plausible, no?

[pjc50]

> the money supply inflates around ~10% per year, whereas most crypto will inflate <1% long term.

Money supply is not the same thing as inflation! Inflation is an aggregate measure of the level of prices and wages, and since almost all crypto transactions are pegged to fixed underlying USD values while the crypto price level floats, it's not at all possible to say that the purchasing power of crypto varies.

You've been lead astray by the virtual goldbugs.

(Also, Apple etc are not going to get on board with a system that doesn't support refunds by design, and the most likely attack on PoW is declaring that it's the biggest environmental threat since tetraethyl lead or CFCs and putting a global ban on participating in it)

[dlubarov]

> Money supply is not the same thing as inflation!

Understood; I wasn't trying to say anything about spending power. I like to talk about inflation of money supplies since it sheds light on raw monetary policy. CPI metrics are more meaningful for some purposes, like retirement planning, but it didn't seem useful to me in this context.

> Apple etc are not going to get on board with a system that doesn't support refunds by design

You could be right. At least Apple/Google haven't banned crypto wallets from their app stores, so I think there's a chance. And there's talk about some phone vendors potentially shipping crypto wallets [1].

[1] https://insights.samsung.com/2018/07/02/why-smartphones-have...

[wdewind]

> But casual users can choose to store their crypto assets with a bank/custodian/exchange.

It's not clear to me that this is meaningfully different than our current financial system.

> Granted, it defeats some of the benefits, but not all. E.g. most crypto has low inflation compared to USD. Even though CPI inflation is ~2%, the money supply inflates around ~10% per year, whereas most crypto will inflate <1% long term.

It's really not clear to me that this is a benefit, and even if it is was, there is nothing stopping the Bitcoin network, for instance, from deciding it wants to inflate after it has mined all the coins. The fact that the vast majority of mining is controlled by a handful of Chinese companies and that this is seen as preferable to The Fed for deciding whether or not to inflate seems crazy to me. But it's possible, even probable, that the people who make real money selling bitcoins will vote to make more bitcoins after they run out of bitcoins to sell, ie: squeeze blood from the stone.

> With something like Cardano, I don't see what governments could do, apart from banning its use within their own jurisdiction.

You're talking about a government that reads literally every single piece of internet traffic and likely has backdoors into many encryption products.

> That's a fair criticism of Bitcoin etc., but future iterations of cryptocurrencies will surely include ZeroCash-style privacy at least as an optional feature, if not for every transaction.

No, because anyone who wants to make a serious business out of these will be required to become a Money Services Business, and have a Know Your Customer (KYC) process. As I mentioned in my previous posts: we've thought about this problem before, we don't want money floating around that isn't easily traceable, and so we already have laws governing this stuff. It's not a matter of "design the right mathematical system to create anonymity." The Dudes With the Guns do not want that so it will not happen. These systems cannot meaningfully exist outside of the current political system without a real, guns and explosions, revolution.

> I'm not saying it's a sure thing at all, but it seems somewhat plausible, no?

There is literally no upside for the vast majority of the actors in your proposal. If a currency is truly deflationary consumers wont want to spend it, if it's not it's not meaningfully different. Consumers also want a layer of protection, which credit cards offer them. Big vendors (Microsoft, Valve/Steam, Overstock etc.) who accepted crypto have already decided to stop, and transaction volume is plummeting so I think your proposed series of events is extremely unlikely.

The market is surely irrational, and there are a ton of things that exist that shouldn't, so who knows. But this stuff is not a good idea, there isn't any "mystery" left to it. We understand what's being proposed, it's basically all been proposed before, and it's an idea filled with huge problems that have only begun to surface because it is a nascent system.

[jstanley]

A lot of your answers come down to "we've already decided how our world will be and your ideas aren't welcome". The cryptocurrency community is saying exactly the same thing: we've decided how our world will be and your ideas aren't welcome.

[wdewind]

No, you're misunderstanding. My argument is based on Conway's Law: The technology will reflect the politics. If you want to change this building technology that enables it is not a prerequisite. Go change the legislation, then the systems that follow that legislation would naturally emerge.

To go back to the accredited investor example: we don't need cryptocurrency to enable companies to raise money from a wide variety of sources. It's not even close to the best solution if that's your goal.

What's frustrating to me is watching people built technology without knowing anything about economics and thinking that they've built new economic ideas, when in fact they are extremely late to the conversation and don't have a real sense of what the state of the art is, nor the important moving parts are.

[dlubarov]

> there is nothing stopping the Bitcoin network, for instance, from deciding it wants to inflate after it has mined all the coins

But at least it would be up to a community of users, rather than government decree. I doubt any of the crypto communities would decide to have ~10% long term inflation like USD.

> The fact that the vast majority of mining is controlled by a handful of Chinese companies and that this is seen as preferable to The Fed for deciding whether or not to inflate seems crazy to me.

Also a fair point against Bitcoin, but I think the future is PoS.

> No, because anyone who wants to make a serious business out of these will be required to become a Money Services Business, and have a Know Your Customer (KYC) process. As I mentioned in my previous posts: we've thought about this problem before, we don't want money floating around that isn't easily traceable, and so we already have laws governing this stuff.

Right, I'm not saying that ZEC will let people get around KYC controls etc. Businesses will need to apply the same processes when accepting a large ZEC deposit or a large suitcase of cash. I'm just saying that crypto privacy can be as good as cash.

> If a currency is truly deflationary consumers wont want to spend it

I doubt low-inflation currencies would actually change spending/hoarding behavior significantly. People who want to hoard wealth can do so already, with gold, land, TIPS, etc.

There would be a shift in the assets used for savings, from gold etc. to crypto, but that doesn't mean less economic activity. Currency that's "locked up" in long term savings just doesn't affect the economy (unless there's some reason to believe that velocity will change). For some evidence look at M2 supply, M2 velocity and the CPI.

[wdewind]

> But at least it would be up to a community of users, rather than government decree. I doubt any of the crypto communities would decide to have ~10% long term inflation like USD.

Voting which is heavily centralized to a few massive owners is not a significant improvement on The Fed, I'm sorry, that's just ridiculous.

> Also a fair point against Bitcoin, but I think the future is PoS.

PoS has huge numbers of different problems, mainly that it is a system designed around plutocracy.

> I'm just saying that crypto privacy can be as good as cash.

And I'm saying that if the crypto currencies that actually allowed for cash-like privacy levels (ie anonymous transactions etc.) actually reached any level of scale FINRA would immediately shut them down. Anonymous transactions are not a technical feat, they are a political one. Again, the guys with guns already decided we don't get anonymous transactions so just writing the code for it isn't going to change things.

> I doubt low-inflation currencies would actually change spending/hoarding behavior significantly. People who want to hoard wealth can do so already, with gold, land, TIPS, etc.

Right, and the thing those things have in common is that they are "Not Currencies."

[ddtaylor]

> we've thought about this problem before, we don't want money floating around that isn't easily traceable

You mean like the vast amount of paper money?