I'd put myself in the "very intrigued by the idea of crypto but extremely skeptical in practice" camp. I do agree with him that it's largely a Ponzi scheme that will absolutely continue its cycle of boom and bust, but his "money" argument feels exceedingly weak.
I very rarely hear the bitcoin crowd claiming anything around bitcoin as money, but more like gold; a store of value that is admittedly difficult to move around. You can't pay your taxes in any asset that isn't money. The government isn't going to take a bar of gold (or if they will, I certainly don't know how to give it to them), and they definitely won't take your Micky Mantle baseball card or Rembrandt painting unless you've gotten so far down the hole that they've got people liquidating those things to wring the money out of them to pay your debt. There are a lot of things that represent monetary value that definitively aren't money and can't be used as such, but that doesn't negate their value.
The underlying asset has to have some intrinsic value for it to be a store of value. Gold is a value store because people can use it to make things, and historically it's been one of the assets that women could own.
One could argue that the "intrinsic value" of crypto is that it enables censorship resistant point-to-point data transfer (transactions). As long as some subset of people are using it for that purpose, it has value, even if it's a tiny minority. I imagine that of all the gold in the world, the vast majority of it is the "store of value" kind, and not the "computer chip ingredient" or "jewelry" kind.
> The underlying asset has to have some intrinsic value for it to be a store of value
That's an interesting claim, especially since you don't specify _stable_ store of value. Do you believe that trading cards are not a store of value? Or shares? The only inherent value of a trading card is that you can wipe your ass with it or set it on fire to stay warm, and yet people often pay hundreds of dollars (or more!) for them.
I recall when I first got internet access in the early 90ies, via a text terminal. I had access to both Gopher, and the WWW, via Lynx or some other text-based browser. I thought the WWW stuff looked very disorganized and ugly compared to the more nicely-organized and hierarchical Gopher, and wasn't really sure the 'web' thing would catch on.
I try and keep that in mind when I feel too tempted to get into the predictions game.
When I first got on the internet, there was Altavista and there were some web directories. Alstavista was nice, but the directories were much more organized and I saw them as the future, so much that at one point I even maintained some categories at dmoz. When Google took off to the point that non-tech people I knew recognized it and dmoz closed down, I was pretty disappointed even though Google was clearly the future by then (And it was better at actually finding stuff back then. Nowadays it's an echo chamber and worse, it just feeds you anything, I don't think I've seen a "no results found" page in a decade.).
Spoiler: the post boils down to an anti-Bitcoin warning using the old motto “it’s not real money” because you can’t pay your taxes with it. I can’t pay my taxes in Yen but that doesn’t mean Yen isn’t real money.
This is an example of a tech person extrapolating their expertise outside tech. Bitcoin is an experiment in economics as much as it’s an experiment in technology. Just because the network is slow to process transactions doesn’t mean the entire system is worthless.
The first 90% of the article isn’t bad, but IMO author didn’t really backup his claims.
> It is completely unambiguously obvious to me that Bitcoin, a brilliant achievement technically, is functioning as a Ponzi scheme, siphoning money from the pockets of rubes and into those of exchange insiders and China-based miners.
Can anyone confirm/debunk this claim:
> A few large holders commonly referred to as whales continue to own most Bitcoin. About 2% of the anonymous ownership accounts that can be tracked on the cryptocurrency’s blockchain control 95% of the digital asset, according to researcher Flipside Crypto.
95% controlled by 2% is surely not that shocking a statistic. It’s not too dissimilar if you look at personal wealth but one person could correspond to many Bitcoin accounts outside that 2%.
The best argument I've heard for
the long term success of bitcoin:
if you think Bitcoin is complex
and expensive to maintain, what
do you think it costs to run the
U.S. Dollar system?
For that reason and that reason
alone I would never ever bet against
BitCoin.
I also wouldn't bet my house on
it, but digital currencies really
could turn out to a be much
more efficient currency system
than our current state issued
currencies.
Bitcoin in particular would have really benefited from some basic understanding of monetary economics.
If you want it to be a currency, it needs to be able to expand its supply to meet demand as a medium of exchange. Otherwise you get huge deflation.
Instead, Bitcoin was designed to have a very finite amount of supply. And - shockingly - anyone trying to use it as a medium of currency would find that viewing the world through the lens of Bitcoin has been massively, hugely deflationary (meaning: the cost of a Bag Mac has fallen dramatically in terms of Bitcoin, as has your paycheck).
That same 'feature' is what made it the darling of speculators. It's like the feature that makes it a dysfunctional currency is also what made it successful as a tool of speculation.
That's not an indictment of crypto generally - hopefully other coins that were designed to more intelligently expand supply as the demand for them increased as a medium of exchange, and these other coins would exhibit more price stability, a core requirement of a functional currency.
Crypto brings some great decentralized features, and its creators deserve credit for it. But combining that innovation with some understanding of monetary economics would truly unleash its potential as an alternative to state-sponsored currency.
I agree with you, but Bitcoin is popular precisely because it’s a speculative tool. A cryptocurrency with more agreeable qualities for a currency couldn’t be a get rich quick scheme, so there is no demand for it.
> An ECB publication states that bitcoin’s theoretical roots are in Austrian economics[11]. Bitcoin corresponds with Austrian economic ideas in that bitcoin was intended to provide a monetary alternative that is beyond the reach of governments to regulate. Bitcoin has correspondence with libertarian ideas, which have some relationship with Austrian ideas. In the USA, my experience is that bitcoin proponents appear to have obtained their theory from science-fiction, radical libertarian popular literature, anti- government/anti-tax activism, and often from nothing that is apparent except their own thoughts.
No, that's not the argument. That argument is that the global bitcoin network is slow as shit, and it would take 5 entire months just to process 140 million US citizens' taxes. Meaning that it's not really viable, unless some technological breakthrough happens.
But that's sort of a straw-man representation of what (most) Bitcoin adherents see as the future of Bitcoin / crypto. I don't think anyone serious expects the raw blockchain to power every single transaction in real time, rather it's seen as a mechanism to supplant clearing houses. Consider that every night, banks submit batch files to a network of clearing houses in order to electronically transact US dollars (credit cards, Venmo, etc are all just abstractions on top of this ultimate step). The slow, asynchronous blockchain transaction is meant to be a replacement for that step.
The steel-man version of the Bitcoin/crypto future is that most people would use trust-based institutions to perform instant transactions (like credit cards and Venmo), just that the ultimate step involves an hour long blockchain transaction rather than a days-long ACH batch file. The fact that the Blockchain also enables individual point-to-point payments (albeit slowly) in a trust-less way is more of a replacement to having to mail somebody an envelope/briefcase full of cash, which is currently the only way one can transact if one is blacklisted by the centralized institutions. And depending on your political leanings, you might still prefer to use centralized payments on top of Bitcoin/crypto instead of on top of USD because with the former, there's little room for funny business by central bank reserve messing with the supply of money.
Same-day ACH exists today. Even for international transactions. Most ACH batch files can be processed in as little as an hour. To the extent there's anything preventing "instant transactions" its (1) AML regulations and (2) internal/contractual (Visa, etc.) fraud prevention, not the ACH process.
That's not the point though, the point is that Bitcoin is not comparable to the entire financial system, rather it's comparable to raw cash. Just like it's pretty infeasible for everyone to always use cash all the time, it would be pretty infeasible for everyone to always use Bitcoin-on-the-blockchain to buy a cup of coffee.
What Bitcoin allows you to do is build a financial system comprised of products that look like Venmo, credit cards, banks, etc on top of a currency system that's 1) censorship resistant (unlike ACH), and 2) independent of central bank monetary policy (unlike most fiat currencies).
The degree to which you care about (2) is obviously based on your political leanings, but (1) basically turns paper-money in-person transactions into something that can happen between strangers over the Internet unencumbered. Most crypto bulls hope that the vast majority of people use instant bank-driven payments, just based on the blockchain at the lowest layer, rather than USD-over-ACH.
And to be clear, I'm not really a crypto bull and I don't really have a horse in the race. But this is the steel-man argument for crypto.
I think I'm missing something. If the system doesn't have that much capacity for transactions, wouldn't that still be a problem, even if you do the Venmo-like stuff instantly and batch the reconciliation overnight?
The system has just about as much capacity for transactions as batch-driven ACH clearing houses today. Until very recently, the expectation for ACH was that a transaction would clear after days (sometimes weeks). The end user of that product (at scale) is banks, not individuals. Bitcoin/crypto solves the problem of being able to essentially do a "briefcase full of cash" transaction over the internet, a use case that obviously only matters to a tiny sliver of people. The remaining majority would simply use more trust-based institutions (like the Lightning network) to facilitate convenient/instant transactions. The fact that you can run an hour long transaction in a trust-less way on the blockchain is just an option, but realistically not the use-case for most people.
If the typical user would use a trust-based institution, then what is the advantage to the end user over the traditional banking model? It's hard for me to see why I as an end user would want to use such a thing, outside of speculating on the price of the cryptocurrency. Put differently, if there were a cryptocurrency whose price did not fluctuate, how would you convince me to use it?
> If the typical user would use a trust-based institution, then what is the advantage to the end user over the traditional banking model?
In theory, it's two-fold:
1) That you have the option to use the same money in that account in a trust-less way. In the USD/cash world, the only way to do this is to withdraw money from my bank, put it in an envelope, and mail it to the recipient. In the crypto world, you might still use a Visa card or a centralized money transfer product to transact day-to-day, but if you want to (just as an example) donate to an adult entertainer on OnlyFans/PornHub (blacklisted by the major CC networks), you can do that off the same crypto wallet via the blockchain. Another (perhaps more topical) example: there are a handful of companies that are effectively persona non grata to the tech world, like Parler and Gab, effectively cut off from PayPal/Visa/MC/etc. If you want to transact with them digitally, the crypto model allows you to do that without mailing briefcases of cash.
2) The underlying currency is deflationary and immune to the whims of a state-run central bank. This is only valuable to you if you're worried about hyperinflation and the money printer.
> Put differently, if there were a cryptocurrency whose price did not fluctuate, how would you convince me to use it?
If the above reasons aren't important to you, the other point I think is that crypto doesn't need 100% adoption to be successful. It's another currency option for those that don't trust the USD or JPY or EUR, and a fully realized crypto/fintech ecosystem affords one the ability to live their entire life off of one of these cryptocurrencies while still interoperating with fiat currencies via exchanges like Coinbase. ~1.5% of the world uses JPY day-to-day, and that’s a perfectly viable currency.
It needs a social/political breakthrough, not technological. You could just make block sizes 1000x larger and be done with it. Literally just a configuration variable if everyone would get on board.
There's simple trade-off between decentralized and bandwidth requirements. If you raise the limit you reduce the pool of those that run full nodes thereby centralizing the network at which point you're undermining the point of a decentralized ledger.
Right. Almost an impossible task based on precedent. But my point was that it isn't like the system as designed can't handle way more transactions than it currently does.
If you have a sports car that is limited to do 15mph, but can actually do 215mph if you remove the artificial limiter, then you don't need a technological breakthrough to get the car to go to 215mph.
The author also assumes there will be no changes or innovation to speed up the network. I think that's a bad assumption to make. Beyond that, I know in my own experience I don't use btc for any transactions that I need settled instantly--that doesn't make it valueless, it just gives it a different purpose than, for example, usd credit card payments.
yeah, while I enjoyed those stories it feel wrong at the end, because it is an appeal of authority fallacy. "I was was right about unrelated fact A, B, C I am an authority so trust me on this."
This is an interesting instance of cherry-picking and retrospective determinism in an attempt to convince the reader that the author's personal bias is valid and deserved.
After reading this we should be careful not to make an argument from fallacy. This may be a fallacious argument but that does not mean the conclusion is wrong.
It does however show how consistently rather knowledgeable people in one domain confidently make bad faith arguments about how bitcoin is bad with bad logic.
Is there a trusted broker that can be used to short Bitcoin? It's unclear to me if BTC will work in the long run, but it would be nice if all the people claiming it's going to crash would put their money where their mouth is. It's possible that the BTC market "can remain irrational longer than you can remain solvent", but people have been saying this for the past decade and it's boring to see people make claims without updating their beliefs based on new evidence. At least the TSLA bears are investing money into short positions as a demonstration of their beliefs.
The most regulated way to short it is via CME Bitcoin futures[0]. However, it's quite heavily leveraged at 5 bitcoins per contract -- meaning each contract is ~$157k of notional value at today's close. This, combined with the volatility of the thing, is easily above my personal risk tolerance, but obviously YMMV.
Given the history of how financial bubbles play out, I personally would not recommend shorting it outright.
Just because it might be a bad idea to go long Bitcoin doesn't necessarily mean that it's a good idea to short Bitcoin.
As you mention, market timing is always a problem in such trades. A problem more specific to Bitcoin is that the market is not all that liquid, and that it is subject to the whims of some whales. Last of all, I suspect that Bitcoin bets might carry a significantly higher counterparty risk that e.g. shorting TSLA.
"It is completely unambiguously obvious to me that" the author is an intellectually lazy rube who recycles tired old arguments. Anyone who talks about "China-based" miners hasn't done their research on the actual hashrate distribution today. That's a talking point from like 2015.
What the author misses, and what many on HN miss, is that technical expertise does not translate into financial/economic expertise. You may grok Bitcoin on the CS level and still totally misunderstand the economics.
Slowness of transactions and low throughput is a weak argument against Bitcoin. With innovation, or workarounds, I just don't see that as a real hangup here. Anyways, would be interested in author's opinion of other cryptocurrencies such as Ethereum.
What is the problem crypto is trying to solve? We have wire transfers to move money around. If we wanted to create a public ledger of all money transactions, we could do it using a lot less energy than we are using on crypto right now.
Digital money without trusting a centralized authority. However, Ethereum is even more interesting in that it can be a 'world computer' for things other than money.
Something I rarely see discussed is the risk around power regulation as it pertains to bitcoin. As virtual currencies become more popular and easier for people to utilize, the demand to create coins will increase. I've seen some articles discussing how mining coins has put a strain on some power grids that are already stressed beyond capacity. Could this reach a point where governments require something to the effect of additional carbon credits or such?
Is he talking about Bitcoin specifically or cryptocurrency as a whole? If just Bitcoin, yes, I agree that the transactions per second (TPS) is too low for global adoption. But as far as I know, there's no technical reason it has to be that slow for all cryptocurrencies. Ethereum 2.0 is supposed to support 100,000+ TPS according to Vitalik. https://twitter.com/VitalikButerin/status/127796159495847116...
I mostly agree with him, but very hard to say it's wrong to speculate on crypto/bitcoin. I personally know at least two people who do not have to work because of the amount of money they made from bitcoin (they were very early adopters). Yes, it is largely building castles in the sky, but some people will get genuinely wealthy from it.
In my opinion you should approach it like you would any other form of speculation: risk what you're comfortable losing and have a plan for when you'll take your winnings.
Saying what you got right in the past isn't enough - Tim should also post about the things that he had a hunch about and then turned out completely wrong.
When it comes to Bitcoin, I kind of see it as being similar to gold in the modern world. See Buffett's 2011 letter:
> The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.
> What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As “bandwagon” investors join any party, they create their own truth – for a while.
[…]
> Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.
> Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?
[…]
> A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.
In some ways this is a form of Greater Fool Theory: you'll only make a profit if someone comes along later and is willing to pay more for it, as it otherwise doesn't not have any productive use.
And given it was designed to have a finite amount, that means it is deflationary over the long-term which incentivizes hoarding.
An observation from a paper I ran across:
> An ECB publication states that bitcoin’s theoretical roots are in Austrian economics[11]. Bitcoin corresponds with Austrian economic ideas in that bitcoin was intended to provide a monetary alternative that is beyond the reach of governments to regulate. Bitcoin has correspondence with libertarian ideas, which have some relationship with Austrian ideas. In the USA, my experience is that bitcoin proponents appear to have obtained their theory from science-fiction, radical libertarian popular literature, anti- government/anti-tax activism, and often from nothing that is apparent except their own thoughts.
I remain skeptical about any mainstream use. Though having a bit (<5%) in one's portfolio isn't crazy as some 'play money'.
Similarly I don't bother holding gold (bullion or ETFs), but if someone has a portfolio with a few percentage points' worth it isn't unreasonable. Generally gold isn't as useful as many people think it is:
The author seems to keep making the same mistakes - the latest being on iPhones and BTC.
Do I care that Android devices have larger market share? Not at all. Apple is on the high end, profitable part.
Should you care that the crypto ecosystem has a few bad actors, and may not be for 90% of the population? Not at all, and for the same reason.
Some customers are said to be the "harbinger of failure" [1]. Considering the author employment history, I might say the same: some employees may be harbingers of doom for the company that hires them.
If he had been working at Apple (=>iPhone) instead of Sun then Google, he might have had more of a point... but still, past performance not being indicative of future performance, I'm extremely cautious about old hackers who think they know it all and extrapolate WAY outside their area of competence.
I very rarely hear the bitcoin crowd claiming anything around bitcoin as money, but more like gold; a store of value that is admittedly difficult to move around. You can't pay your taxes in any asset that isn't money. The government isn't going to take a bar of gold (or if they will, I certainly don't know how to give it to them), and they definitely won't take your Micky Mantle baseball card or Rembrandt painting unless you've gotten so far down the hole that they've got people liquidating those things to wring the money out of them to pay your debt. There are a lot of things that represent monetary value that definitively aren't money and can't be used as such, but that doesn't negate their value.