> The premise behind bitcoin-the-game is that the current wave of buyers must guess when (or if) a subsequent wave of buyers will emerge, this second next wave's participation being contingent on when (or if) they believe a third wave of buyers to emerge. If they guess right, the early birds win at the expense of the late ones. ...
This is a truly tired analysis. It goes by various names, including "greater fool theory." Notice how it applies to almost every asset being traded today?
Stocks? Remember dividends? Not so much these days. Poster child is Amazon, but there's a slew of others that offer virtually nothing to investors other than price appreciation.
Government bonds? Do do negative interest rates sound? You buy one of these because either you have to or you think others will have to.
Real estate? Please. Take away price appreciation driven by easy money and few would bother "owning."
What this piece ignores is the world's ever-encroaching governments and the ongoing assault on privacy - with money as the fulcrum.
Stocks represent actual ownership in the company, potentially voting control of the boards decisions.
Government bonds are backed by the full force and trust of the government they represent, and repay the face value plus yield promised at the time they were bought. They represent the most reliable yield you can get.
Real estate? You mean that thing you live in?
This is all a bunch of a false equivocation with one goal: "please buy my Bitcoins and give me USD for them"
> Stocks represent actual ownership in the company, potentially voting control of the boards decisions.
A company is an abstract concept around a group of people, framed inside a legal entity. But yes, if you own many stocks you can sit at the table with some big boys. Most companies come with less risk than Bitcoin. But I rather buy Bitcoin than WeWork shares (assuming they list).
> Government bonds are backed by the full force and trust of the government they represent, and repay the face value plus yield promised at the time they were bought. They represent the most reliable yield you can get.
Until a government defaults. This doesn't happy every week, but ruling out that it doesn't is not the best investment strategy.
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I'm not denying Bitcoin is speculation, but so is everything else. Sure Bitcoin might be more speculative under your frame of reference. But it's not black and white.
> But I rather buy Bitcoin than WeWork shares (assuming they list).
Depends on the price. Thanks to limited liability, WeWork share can never be worth less than zero. And just liquidating their existing office supplis is probably worth at least a few thousand dollars. But, of course, you'd have to pay off creditors first.
If WeWork lists and doesn't go under, and assuming even a weak version of the efficient market hypothesis, the price their shares trade on will be about 'right'.
> Until a government defaults. This doesn't happy every week, but ruling out that it doesn't is not the best investment strategy.
Agreed. Though in the developed world, inflation is usually the bigger worry. (Unless you buy inflation indexed bonds.)
I find people's lack of knowledge about what makes Bitcoin valuable interesting.
The reason Bitcoin is valuable is because the work required to create one is significantly harder than Fiat currencies and it is one of the only truly scarce assets in human history (hard cap).
How much equipment do you need to counterfeit any fiat currency? Can you purchase the equipment for less than $10k?
Yes, easy.
How much equipment do you need to counterfeit Bitcoin? Can you purchase the equipment for less than $1 billion?
No, not easy.
You may think this is a trivial distinction but it has tremendous value knowing you have hard uncounterfeitable money with a hard cap.
The US treasury spends hundreds of millions of dollars a year fighting fake bills, that's only 1 of the dozen or so problems bitcoin solves. The second is that all the verification and security is done by the most powerful supercomputer in human history.
These things gives it its value.
Garbage company stocks, you can throw those in the trash if the central banks aren't busy helping pump them.
Hard money wins, soft money gets snuffed in the night.
I'm not a big fan of Bitcoin as a long term solution, I consider it little more than a proof of concept. It took a long time for steam engines to outperform horses, and it may take just as long for a crypto-driven economy to emerge that outperforms our current one. But I think it will happen, and those cryptocurrencies--I'm very excited about those.
Re stock: People are already working on blockchain voting mechanisms. Currently you need to own quite a sizeable chunk of a company's stock, and to go rather far out of your way, to actually influence the decision-making of a company you own stock in. Cryptos with on-chain governance, on the other hand, will remove most of that friction.
Re. government: Sure, right now this type of decision making only applies to either protocol design decisions or how to edit transaction history in the event of a problem, but once the proposal-vote-consensus-action pipeline is figured out and trusted, I see no reason it won't start getting applied to the same problems that we keep governments around to solve. So yeah, government bonds are safe nowadays because government's don't have anything to compete with besides other slow inefficient governments, but if people think that a collection of community maintained consensus algorithms are more effective than their government--well I wouldn't want to be holding fiat bonds when that happens, because why pay taxes when you get more bang for your services-for-society buck elsewhere?
As for real estate, just shooting from the hip I'd say that it's 10% real and 90% the game indicated in the article. In a world where large scale behavior of economies can be quickly altered by a vote and a parameter change, I certainly hope we can find a set of parameters that will eliminate the homeowners association and all of the waste associated with placing property resale value over utility. I'd much rather lose out on my "investment" in this house than continue to live in a world where my friends can't afford to live near me because of all the overpriced empty houses in the way--sucking up all the water for their perfectly manicured lawns that nobody touches while the poor kids down the road play on a field of gravel, broken glass, and thistle.
I don't hold much Bitcoin, but I promise that I don't value it because I think I can later dupe somebody into buying it at a higher price.
I value it because it's clumsily paving the way for a world with fewer parisitic middle-man institutions, and the further it gets before it falls over the sooner I'll get to live in that world. I guess that's called investing.
Surely there is a difference between investments that have underlying value, but are speculated on, and investments which have no underlying value except that due to speculation.
How is that valuable, aside from ones ability to speculate on how much people will want it in the future?
As an aside, I agree with the other poster that there is no intrinsic scarcity to bitcoin, because anyone can create bitcoinN which are nearly identical to bitcoin. I say nearly because you can’t necessarily replicate the network, so the scarcity really depends on complicated emergent human behavior.
Your "nearly" identical is why they are completely different. Only bitcoins are valid on the Bitcoin network. Any clonecoin's token will be rejected since nodes on the Bitcoin network validate transactions and blocks that are mined.
Take any of the past 2 years' forks of Bitcoin (e.g. Bitcoin Cash, Bitcoin Gold, Super Bitcoin, etc.) and try to submit a transaction to the actual legitimate Bitcoin network. It will fail.
One of Bitcoin's main technological achievements is solving this type of digital duplication problem. If anyone can just copy-and-paste new bitcoins into the system, it will fail.
You wouldn't try to submit it to the "actual legitimate Bitcoin network" though. You'd bootstrap a whole new network instead. People might prefer a new blockchain that starts with a more even distribution, instead of enriching early adopters of BTC.
That said, blockchain may not work at all, as applied to digital currencies. The abilities to revoke and expropriate are tools, like prisons are. Their use, on occasion, is just. Society might not want to see those tools discarded.
Of course you need to have demand for scarcity to be valuable. And I would argue that in the 10 years of it's existence so far, Bitcoin has proven that there is demand for it.
Of course, you can create an identical coin on paper. Many have tried and their attempts have failed because like you said, the human behavior (aka the social aspect, network effects, psychology, etc) also have a big effect.
In my opinion and feel free to disagree, I think Bitcoin has the true potential of being the internet's native currency, especially with many lightning network wallets coming online on the mainnet. It's far from being perfect and unfortunately has attracted many scammers and want-to-get-rich-quick-people over the last few years, but I believe it has a really great potential.
*If you read the article, it explains the demand was from the person behind Bitfinex printing a seemingly unlimited amount of Tether to steal BTC from other exchanges, so the demand is in effect a huge heist across all exchanges that supported Tether / USDT.
In Bitcoin's ideal use case, internet transactions - nearly all businesses have rejected BTC as a form of payment.
Stripe, the famous silicon valley payment processor discontinued Bitcoin support:
"At Stripe, we’ve long been excited about the possibilities of cryptocurrencies and the experimentation and innovation that’s come with them. In 2014, we became the first major payments company to support Bitcoin payments.
Our hope was that Bitcoin could become a universal, decentralized substrate for online transactions and help our customers enable buyers in places that had less credit card penetration or use cases where credit card fees were prohibitive.
Over the past year or two, as block size limits have been reached, Bitcoin has evolved to become better-suited to being an asset than being a means of exchange. Given the overall success that the Bitcoin community has achieved, it’s hard to quibble with the decisions that have been made along the way. (And we’re certainly happy to see any novel, ambitious project do so well.)
This has led to Bitcoin becoming less useful for payments, however. Transaction confirmation times have risen substantially; this, in turn, has led to an increase in the failure rate of transactions denominated in fiat currencies. (By the time the transaction is confirmed, fluctuations in Bitcoin price mean that it’s for the “wrong” amount.) Furthermore, fees have risen a great deal. For a regular Bitcoin transaction, a fee of tens of U.S. dollars is common, making Bitcoin transactions about as expensive as bank wires.
Because of this, we’ve seen the desire from our customers to accept Bitcoin decrease. And of the businesses that are accepting Bitcoin on Stripe, we’ve seen their revenues from Bitcoin decline substantially. Empirically, there are fewer and fewer use cases for which accepting or paying with Bitcoin makes sense.
Therefore, starting today, we are winding down support for Bitcoin payments. Over the next three months we will work with affected Stripe users to ensure a smooth transition before we stop processing Bitcoin transactions on April 23, 2018.
Despite this, we remain very optimistic about cryptocurrencies overall. There are a lot of efforts that we view as promising and that we can certainly imagine enabling support for in the future. We’re interested in what’s happening with Lightning and other proposals to enable faster payments. OmiseGO is an ambitious and clever proposal; more broadly, Ethereum continues to spawn many high-potential projects. We may add support for Stellar (to which we provided seed funding) if substantive use continues to grow. It’s possible that Bitcoin Cash, Litecoin, or another Bitcoin variant, will find a way to achieve significant popularity while keeping settlement times and transaction fees very low. Bitcoin itself may become viable for payments again in the future. And, of course, there’ll be more ideas and technologies in the years ahead.
So, we will continue to pay close attention to the ecosystem and to look for opportunities to help our customers by adding support for cryptocurrencies and new distributed protocols in the future."
Case study in Bitcoin as a payment system where even highly technically proficient users were unable to reliably use BTC to buy digital goods (Steam games):
The same way gold is valuable. The industrial value of gold is near silver and therefore without speculation and its use as a store of value it would be worth closer to $100 instead of $1500.
Your clone of Bitcoin wouldn't be a 'clone' any more than a lead bar is a 'clone' of gold.
You might call it bitcoin all you want, but no actualy bitcoin software would be fooled. (You might trick some people, but fraud has existed long before computers).
It's a lot less expensive to reliably distinguish a fraudulent bitcoin from a fraudulent goal bar.
So even if you hold the position that there is no perfect scarcity because fraud is possible-- the cost, difficulty, and success rate of that fraud matters greatly.
My clone of bitcoin would have exactly the same properties as bitcoin. Your lead bar doesn't have any of the useful properties of gold (ductability, beauty, conductivity, etc).
If you want an element that acts like gold (doesn’t oxidize, high electrical conductivity, high thermal conductivity, malleable, etc.), you need gold. You can’t replace it with lead and get the same results.
If you want a string of bits that acts like bitcoin, you can replace it with Xcoin, for many values of X. You can even create your own coin which does whatever you need. You may not be able to replicate the network, which may provide some amount of scarcity, but it’s not the same as gold.
If you and 1 other person use the cloned Bitcoin, that's a network. How many other participants do you need before new Bitcoin is comparable in every tangible way to old Bitcoin?
Tell me, how do replicate the network effects of current miners? You know, the thing that prevents someone with decent mining power in their garage to take over your clone? (or do a doublespend, or whatever) The network effect is security. Which come from the expenditure. Which is sustainable with the rising price. Which was baked in through the declining emission curve. Beautifully well thought, and well executed.
I too was doubtful about bitcoin at first. It's just plain obvious now: first mover advantage, leading to the development of highly specific ASICs, with a side advantage of allowing the cross border trade of electricity when turned it into mining power. So if you live in some isolated place but with cheap energy, money!!
BTC is too big to fail. A success that can't be replicated or taken down as it was ignored for too long. Even more unimaginable now that it benefits some people who wouldn't let them happen without a fight, and who have the power and the money to give this fight.
Which will be promptly rejected as invalid since the nodes on the Bitcoin network validate everything. This is partially why (among other reasons) Bitcoin is transformative tech. It can resist quite easily individuals trying to forcefully change aspects of it, like say, cloning the entire supply of bitcoin.
Bitcoin is a non-sovereign, hard-capped supply, global, immutable decentralized digital store of value. It’s an insurance policy against monetary and fiscal policy irresponsibility from governments and central banks globally.
Bitcoin’s genesis block contains a reference to the 2008 financial crisis; Bitcoin is pretty clearly a response to what was happening October 2008, when the Bitcoin white paper was released.
Ironically, the global economy is contracting even as we’re still dealing with the quantitative easing that was used to keep things afloat the last time. Say what you will, but there’s a good chance bitcoin will be the safe haven, which it currently is for Argentina and Venezuela.
There has been a slowdown in growth, yes. Google search suggests that we are still expecting 1.9% real GDP growth in the US for 2019. The article you linked some talks about specific sectors and measures shrinking.
Slower growth is still not a contraction. And the US is not the globe.
At least with stock, even if they aren't paying a dividend in theory you own a portion of the earnings stream; it is instead reinvested in the company. But still a lot of companies do pay them (e.g. AAPL). If you owned all the shares of these companies you'd own something quite valuable that could return to you a lot of money, I think we all agree on that. (The ones with no dividend and you don't vote or control anything is worse).
>Stocks? Remember dividends? Not so much these days.
This one I have real issue with, ignores the much scorned buyback or any facet of capital investment.
Your issue trades at a certain eps multiple, you take earned cash, buy shares with it.
Sort of in a vacuum, it's the same business, why should the earnings change? But now you have less shares outstanding, so now your shares are in a more empirical sense worth more. If you want to consider it, the capital return can come from the company buying your shares.
It can be harder with a company like amazon when they had a X00 eps, but it's still all about valuation. Amazon circa 2019 /= Amazon 1997.
>Government bonds? Do do negative interest rates sound? You buy one of these because either you have to or you think others will have to.
Yeah, some truth here. Alternatively, you do it because you think rates might go lower still, and their returns aren't highly correlated to equities. There's also a theory I'm partial to where in the pockets of the world that have a crazy high amount of savings, even past encouraging entities to find better returns, negative interest rates make no bones about making the the cost of savings clear.
>Real estate? Please. Take away price appreciation driven by easy money and few would bother "owning."
In a personal sense, real estate you own is rent you don't have to pay. In an external sense, real estate you own/operate is cash flows you can bring in. The elevated markets admittedly tend not to look so great in cash flow metrics.
Well, you could apply this to almost any of the highly abstracted financial instruments currently traded. Derivatives, options, etc. People claim they're "investing in real companies" (which at a very low level they are), but most of the time what is actually happening, is you are betting on whether other people will invest in the company, or what investor sentiment will be x months down the track. You aren't directly investing in the success of the company, you're investing in the investor confidence in the company. Buying stocks directly is of course, at least a bit different.
I see Bitcoin as much the same. Sure, it could be used as a real currency, in the same way that I could use options or bonds as real currency. I could ask you if you'd be willing to sell your car to me for x number of options I currently hold. But I haven't created a new currency, and the value behind that "currency" is just the investor opinion of it at any given time.
Somebody probably made the same arguments when the first paper money was printed and when the first government fiat came about. This is the next money and it's important because corrupt governments can not steal it or devalue it by printing.
Then I would say gold is exactly the same. In fact, gold would be a riskier betting game as information is less transparent (estimating supply, how fast It's mined etc) compared to bitcoin.
Gold is similar. It's got more history. But it's more difficult to transact with. Bitcoin appears to be this generation's (late-boomer to early-millennial) gold or trading cards or what-have-you.
I guess it comes down to what we mean by easier. If we don’t count the entire mining network, developers and source code, all the maintenance and electricity costs, block chain explorers and wallet software...
Gold has a actual use as a commodity, eg in electronics and other equipment, and derives a minimum value as such. So whilst how gold is used in trading circles might have similarities to BTC, this difference IMO makes them nothing alike.
Bitcoin has a just as relevant, or more so, actual use in buying drugs and frowned upon things on the internet, escaping government restrictions on money, etc.
Gold has those same uses but at an international level and is generally approved of. The gold may never actually move, but ownership will transfer between countries.
But you have to use a middleman or intermediary. The genius of bitcoin was when Satoshi removed that and solved the double-spending problem in a decentralized way.
There are practical limits to the supply of gold. There is no limit to the supply of crypto currency. That can be created out of thin air by anyone at any time.
> There is no limit to the supply of crypto currency
the whole point of bitcoin — whether or not you believe it has a future —is that it allows for (and has) scarcity in a digital environment in which double-spending/scarcity were previously hard to enforce without an intermediary.
there are only ever going to be 21 million bitcoin. there is a limit :)
Except it isn't. There's BTC, BCH, BSV, etc. that are all forked from bitcoin, and there is an ever-growing number of tokens started from scratch (ETH, LTC, etc.). There is an infinite supply of crypto tokens.
So many articles about Bitcoin and cryptocurrencies today! I've devoted a lot of my career to blockchain, and here is my brief summary:
- Blockchain typically means a tamper-proof, distributed database.
- Smart contracts are like stored database procedures.
- Blockchains allow you to transact valuable assets - even billions! - without needing to trust your counter-party.
- However, you must trust the underlying software! This is a fundamentally different risk from usual financial transactions where you trust the institutions servicing the exchange, but not necessarily the counter-party. This turns finance upside-down!
- People can create financial products and services - even extremely complex ones - without any governmental permission, or if they need a real-world presence, permission from a regulatory body that is very amenable. And once granted, it's very easily to transact globally!
- Cryptocurrency and blockchain are some of the most debated, and IMO misunderstood technologies of 2019. They are interesting from not just a pure computer science perspective but also economics, philosophy, and psychology.
> However, you must trust the underlying software! This is a fundamentally different risk from usual financial transactions where you trust the institutions servicing the exchange, but not necessarily the counter-party. This turns finance upside-down!
No, this is just normal finance: most of the financial service industry is providing exactly what blockchain provides—a way to have a trusted set of institutions and processes in places of trusting counterparties.
It's different that the crypto world likes to pretend it's just the automated processes embedded in software that need to be trusted—until those processes produce unacceptable results which requires social intervention, revealing that, yes, ultimately it's still trusting people—whereas traditional finance is overt about social constraints backstopping blind process.
It's not the same. If the bank messes up a multi-million dollar wire transfer, you have recourse. If you mess up your multi-million dollar Bitcoin transfer, you have no recourse! Period!
I agree that there's a bit of hippocracy around the way crypto communities claim that they're trustless until something goes terribly wrong, at which point various key people in those comminutes are trusted to author a hard fork that will undo the damage.
But hippocracy aside, I still think it's a better system than the one you find in fiat currencies. At least in the crypto case the people in the trusted position have something to lose--if they behave badly, people will lose faith in the currency and go elsewhere. It doesn't take much to move your assets between cryptos. If you control enough hashpower (assuming POW) or coin (assuming POS) you could easily lose it all overnight if you support a malicious fork.
In a fiat currency there's way more friction keeping people entrenched. This means that the banks can behave badly and still bet on a majority of their users sticking with their platform.
Besides, Bitcoin just proved the concept. If you don't accept that its fork mechanism has merit as is then I hope you can at least admit that there could be a system that is more effective than our current bureaucratic mess. And whatever that system is, it seems likely that one of the fledgling next-gen cryptos will find a way to make it happen.
I was reading about decred the other day, for instance. Voting on potential forks and then healing the partial schism caused by the vote is baked into their protocol. Apart from the necessary bit about trusting other stakeholders to vote reasonably, I think that in a scenario like that the trust placed directly in the protocol is not insignificant.
BTW something I've read here and I adopted as my tagline: it quite fun to come on ycombinator and read every single time the rambling of all the people predicting the doom of bitcoin -- you know, the thing that has managed without venture backing to become more valuable that ALL the ycombinator companies PUT TOGETHER.
TLDR2 : Sour grapes :)
I remember reading about a swedish guy that said he had seen the light and converted all of his savings in BTC. He was torn to shred by so many posters.
Funny thing: I haven't heard about him since, but I sure have read the moaning of the same people who had predicted he'd end up destitute. I think he's doing ok while they aren't.
I sure wish I had seen the light like he did, but I don't blame him for his hindsight. And after I saw most of the negative posts as sour grapes who just regretted they didn't act on the information that was available to them, I decided to act. Like you did.
Maybe more people should follow your example and stop misunderstanding the problem. Yes it needs economics + philosophy + psychology, but it can be learned. For those who don't want to learn, please don't blame those who do. Even more important: don't try to strop those who want. We need fewer sour grapes. Not more.
EDIT: Came from another thread to apologize when I saw my karma going to new lows. Sorry for rubbing it in. Downvote if it makes you feel any better about yourself and your past action.
The author just described how bitcoin has property of money (being a speculative bet that a given asset will carry value in the future), and deduced that bitcoin is not money.
In banking and finance everything is speculation. Pork bellies are speculation. Gold is speculation. That they consider money to be speculation as well is just a matter of perspective.
The problem with the Bitcoin game is there is no longer the 'millionaire overnight' scenario as a possibility. Sure, you could buy 1 coin and it could go up 10x, yet you'd still only be (at this time) $90k richer. Which isn't bad but the big climb from decimal places up to full dollars is where there was more possibility. Common folks can take a gamble on 100 coins for $1 a piece, they really can't take a gamble at $3k+ per coin. Thus, that's why we sit in the $3k to $9k range. Too few people to join, too many people holding on because they bought at a higher price.
I also don't think psychologically people want to own a decimal place of something but that's a different issue. If people could still buy 100 bitcoins, they'd probably do so.
Like I implied, yeah, it would be fine with a lot of people. But that's not the same as buying 100 coins for $100 and then those coins are worth $10k each and you're a millionaire. That big multiplier is what got people interested in the first place, but it's gone. The equivalent of that now (with coins at $9.3k) is 100 coins at $933k. Sure, to make a million you just need to just over double the bitcoin price but you need almost a million dollars to make that happen.
Another psychological phenomenon which I suspect is relevant- people don’t want to buy into something at an exponentially higher price than their peers. I think there’s a spite/jealousy thing between “OG Bitcoiners” and “no coiners”
If you had bought $10 worth of bitcoin starting on Oct 21, 2015, and continued to do so every month for the next four years, your total investment of $480 would be worth around $3,337 today — a gain of 595% (as of 10/21/19).
He’s looking at Bitcoin in terms of dollars, but dollars also have zero utility, so they have to be traded for something, and there are an awful lot of them created every day. We’re way overcaptilalized, so most of this is going into speculative investment rather than consumable utility. In that regard, it hardly matters what form that speculation takes, the prices are mostly determined by capital flows rather than internal returns.
I think this article is kind of missing the point. Literally any tradeable thing can be used for speculation like this. The problem with bitcoin is that it seems to be primarily used for speculation.
This is a truly tired analysis. It goes by various names, including "greater fool theory." Notice how it applies to almost every asset being traded today?
Stocks? Remember dividends? Not so much these days. Poster child is Amazon, but there's a slew of others that offer virtually nothing to investors other than price appreciation.
Government bonds? Do do negative interest rates sound? You buy one of these because either you have to or you think others will have to.
Real estate? Please. Take away price appreciation driven by easy money and few would bother "owning."
What this piece ignores is the world's ever-encroaching governments and the ongoing assault on privacy - with money as the fulcrum.