If Bitcoin Looks Like It Isn’t Trading, It’s Because It Isn’t(wsj.com)
wsj.com
If Bitcoin Looks Like It Isn’t Trading, It’s Because It Isn’t
https://www.wsj.com/articles/if-bitcoin-looks-like-it-isnt-trading-its-because-it-isnt-11575637204
183 comments
I have a hard time believe its anything other than market makers providing the illusion of trades. Have you seen the price swings? If there was real volume and real transactions asides from trades, how would such insane swings be possible?
I'm not sure what it would be, but there's a lot of tricks big players used to use to manipulate markets that the SEC outlawed over the years. I'm sure clever people saw that cryptocurrencies are unregulated, dusted off that playbook, and are cashing in.
I’ll save your time by telling a story from close buddies who do real sales (not exchange-exchange, but offline trading from hedged volumes). For few months there is basically zero volume in trades, one tiny deal a week and a bunch of no-payment competitor fakes. Nobody’s buying or selling right now, except for 0.01 “investors” who aren’t worth all the clicking.
Last year was pretty active; solid volumes were sold at -6% for cash, now it just floats around the market price.
Last year was pretty active; solid volumes were sold at -6% for cash, now it just floats around the market price.
I don't have a crystal ball to claim I know what happens but swings are often due to futures trades and exchanges interested in liquidating longs and shorts.
I understand why exchanges are interested in wash trading but I don't know why market makers would provide any illusion since each transaction costs in order of 0.075% of its value.
I understand why exchanges are interested in wash trading but I don't know why market makers would provide any illusion since each transaction costs in order of 0.075% of its value.
I believe market makers are paid by exchanges to provide liquidity.
What you are referring to exists in regular stocks markets but not in cryptomarkets (at least, when we talk about relatively reputable exchanges).
Take Binance as the largest crypto-exchange. Market makers are the ones who put buy or less limit orders. Market takers are the ones who put market order to "eat" limit orders. Market markers are not paid to provide liquidity. However, their fees decrease from, e.g., 0.075% per trade to say 0.030% per trade if they trade millions $ per month.
Take Binance as the largest crypto-exchange. Market makers are the ones who put buy or less limit orders. Market takers are the ones who put market order to "eat" limit orders. Market markers are not paid to provide liquidity. However, their fees decrease from, e.g., 0.075% per trade to say 0.030% per trade if they trade millions $ per month.
Wash transactions are cheap compared to the rewards they gamble will occur.
Could you please provide an example?
Traders use stoploss orders when they enter a position. After a few days or weeks of this, there’s a huge pile of these stoploss orders, on both sides. A bit of movement is all it takes to trigger an avalanche.
That's true. I guess it kinda shows that Bitcoin isn't really being used out in the real world. If there was true utility, large sales would be eaten up quickly by entities needing to transfer money.
> I have a hard time believe its anything other than market makers providing the illusion of trades
Can you elaborate? I'm guessing you mean whales?
Also, how is this any better or different for that matter, for the most stock exchanges like NYSE when most of it is Algo based bit trading?
Bitcoin definitely suffers from volatility, how much you can attribute that to large holders (whales) is incredibly difficult; consider that the Japanese government, as were the US Marshalls, fill(ed) that role as they took over Mt. Gox and Silk Road respectively. Other local governments have also created large (relatively to a private individual) mining operations as job creator (Montana).
So, again, I'll first ask you to define what a Market is, and what exactly constitutes a Marker Maker, because what you're describing is not exactly clear nor is it intelligible given the context of what the aforementioned are and their roles in price discovery.
Can you elaborate? I'm guessing you mean whales?
Also, how is this any better or different for that matter, for the most stock exchanges like NYSE when most of it is Algo based bit trading?
Bitcoin definitely suffers from volatility, how much you can attribute that to large holders (whales) is incredibly difficult; consider that the Japanese government, as were the US Marshalls, fill(ed) that role as they took over Mt. Gox and Silk Road respectively. Other local governments have also created large (relatively to a private individual) mining operations as job creator (Montana).
So, again, I'll first ask you to define what a Market is, and what exactly constitutes a Marker Maker, because what you're describing is not exactly clear nor is it intelligible given the context of what the aforementioned are and their roles in price discovery.
Market Maker is a well defined term, see my comment below. . I believe that he was not aware that reputable crypto exchanges don't pay market makers.
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Well... Not only on an exchange the trades are real volume and transactions, but there is no other one.
You do have a point about BTC adoption as a mean of payment lagging, but here the topic is trading on exchanges. And as soon as LF matures a bit this is also going to get solved.
You do have a point about BTC adoption as a mean of payment lagging, but here the topic is trading on exchanges. And as soon as LF matures a bit this is also going to get solved.
Bitcoin is not a stock though. Forex markets do $5 trillion in daily volume against an $80 trillion base. For example.
Forex market are highly leveraged so it is better to compare them to Bitcoin Futures then. Bitcoin Futures have about $7 bil of volume today for $133 bil market cap (so the factor is similar). Obviously, trillions and billions are not on the same scale and I have no clue whether the factor should remain the same.
> Forex market are highly leveraged
Not really: spot and outright forwards are about $3tn of daily turnover in the OTC forex markets; with forex swaps amounting to about another $3.2tn.
There is about $100tn notional of OTC forex derivatives outstanding, but the actual total market value is only about $2.2tn. Exchange-traded forex futures and options have barely $170bn of daily average turnover of notional.
(all numbers courtesy of the Bank for International Settlements)
Not really: spot and outright forwards are about $3tn of daily turnover in the OTC forex markets; with forex swaps amounting to about another $3.2tn.
There is about $100tn notional of OTC forex derivatives outstanding, but the actual total market value is only about $2.2tn. Exchange-traded forex futures and options have barely $170bn of daily average turnover of notional.
(all numbers courtesy of the Bank for International Settlements)
I mean, Bitcoin isn't a fiat currency, either. Banks trade forex for completely different use cases than people/orgs trade Bitcoin.
There's no such thing as a "market cap" for Bitcoin - seriously, give me a definition of "market cap" for Bitcoin that makes any sense at all compared to something like the future value of cash flows from UNH equity.
Not my definition but the accepted one is price times number of bitcoins mined so far. Of course by selling 1% of all bitcoins you would clean all order books. However, George Soros used only a few billions to bet against the British pound.
> Not my definition but the accepted one is price times number of bitcoins mined so far.
Right, but that's essentially a lazy re-definition of the term. I get that it's a bit wordy to always say, "the current total value of all bitcoins is $X billion", but market cap is specifically about the total value of a security's outstanding shares. If people want bitcoin to be treated seriously as a currency, they should stop using terms that explicitly refer to non-currencies.
To put it another way, no one would reasonably talk about something like the "market cap of the Euro"[0], so why would you do that for something else claimed to be a currency?
[0] Entertainingly, when I search "euro currency market cap", most of the results that come up are related to cryptocurrency.
Right, but that's essentially a lazy re-definition of the term. I get that it's a bit wordy to always say, "the current total value of all bitcoins is $X billion", but market cap is specifically about the total value of a security's outstanding shares. If people want bitcoin to be treated seriously as a currency, they should stop using terms that explicitly refer to non-currencies.
To put it another way, no one would reasonably talk about something like the "market cap of the Euro"[0], so why would you do that for something else claimed to be a currency?
[0] Entertainingly, when I search "euro currency market cap", most of the results that come up are related to cryptocurrency.
> To put it another way, no one would reasonably talk about something like the "market cap of the Euro"[0], so why would you do that for something else claimed to be a currency?
Oh, but they do:
https://www.dailysabah.com/finance/2017/12/06/bitcoin-renews...
And while Market Cap may be on its surface misleading, its mere semantics, and is really in reference to what you've described; its just that as you said, its a currency and itself cannot have a strict Market-Cap but its a succinct way to describe the totality of its valuation for all issued satoshi's--which again, is misleading because of the 21 Million, its likely several million are lost forever.
Oh, but they do:
https://www.dailysabah.com/finance/2017/12/06/bitcoin-renews...
And while Market Cap may be on its surface misleading, its mere semantics, and is really in reference to what you've described; its just that as you said, its a currency and itself cannot have a strict Market-Cap but its a succinct way to describe the totality of its valuation for all issued satoshi's--which again, is misleading because of the 21 Million, its likely several million are lost forever.
Er, the article you linked does not even once use the term "market cap" to refer to anything.
Semantics are important. Often perception and optics are just as important as reality. Something that's been a hard lesson for me several times in life...
Semantics are important. Often perception and optics are just as important as reality. Something that's been a hard lesson for me several times in life...
I guess that one of the reasons for this notation is because Bitcoin is not yet a currency in its common sense (e.g., freely used within a country to be exchanges for products and services) but a speculative asset.
Which is nonsense since so many bitcoins have been lost and there is no underlying asset that owning a bitcoin grants you access to.
Sure, but that just makes Bitcoin's market cap smaller, and therefore its expected trading volume relative to similar assets even smaller, and therefore the original commenter's point even more accurate.
The market cap for UNH isn't calculated using future cash flows. The market cap for any security, by definition, is price-per-security * number-of-securities. Similar valuations also exist for gold-funds, which also have no cash flows.
You can argue that asset prices should be derived from future cash flows, and hence, both Bitcoin and gold should be almost worthless. But that has nothing to do with the formula for computing any entity's market cap
You can argue that asset prices should be derived from future cash flows, and hence, both Bitcoin and gold should be almost worthless. But that has nothing to do with the formula for computing any entity's market cap
> The market cap for UNH isn't calculated using future cash flows.
Yes it is...
> The market cap for any security, by definition, is price-per-security number-of-securities.*
How do you think you get the price-per-security for a stock? If Apple has $100B in cash, why is their Market Cap $1.2T?
This is why people are skeptical of most things crypto... it really seems like there's hardly anyone in the community who understand fundamental financial concepts.
> You can argue that asset prices should be derived from future cash flows, and hence, both Bitcoin and gold should be almost worthless.
No - I'd just argue that it's completely misleading to try and assign a "market cap" to any asset other than a security and that people who rely on them are doing so to mislead rather to inform.
Yes it is...
> The market cap for any security, by definition, is price-per-security number-of-securities.*
How do you think you get the price-per-security for a stock? If Apple has $100B in cash, why is their Market Cap $1.2T?
This is why people are skeptical of most things crypto... it really seems like there's hardly anyone in the community who understand fundamental financial concepts.
> You can argue that asset prices should be derived from future cash flows, and hence, both Bitcoin and gold should be almost worthless.
No - I'd just argue that it's completely misleading to try and assign a "market cap" to any asset other than a security and that people who rely on them are doing so to mislead rather to inform.
Again, market cap _is_ price per share multiplied by shares outstanding.
In practice, the amount of cash a company has has nothing to do with its market capitalization. There are companies with low cash, major debt, and sky high valuations. Stocks are supposed to be valued by discounted cash flows, but that doesn’t mean they are, by any means. The future values of companies are highly subjective.
Technically, cash doesn’t factor into future cash flows so much as it does book or liquidation value.
> This is why people are skeptical of most things crypto... it really seems like there's hardly anyone in the community who understand fundamental financial concepts.
I would argue one reason people are skeptical (annoyed is probably a better word) of crypto because it is full of folks who purport to know fundamental and even advanced financial concepts who are actually deluding themselves.
In practice, the amount of cash a company has has nothing to do with its market capitalization. There are companies with low cash, major debt, and sky high valuations. Stocks are supposed to be valued by discounted cash flows, but that doesn’t mean they are, by any means. The future values of companies are highly subjective.
Technically, cash doesn’t factor into future cash flows so much as it does book or liquidation value.
> This is why people are skeptical of most things crypto... it really seems like there's hardly anyone in the community who understand fundamental financial concepts.
I would argue one reason people are skeptical (annoyed is probably a better word) of crypto because it is full of folks who purport to know fundamental and even advanced financial concepts who are actually deluding themselves.
> The market cap for any security, by definition, is price-per-security number-of-securities
Market cap is an equities concept. The market value of a series of bonds isn't the issuance's market cap. The notional value of all options on a symbol is only useful to operations/settlement folk.
For Bitcoin, "market cap" is meaningless. It's too thinly and opaquely traded. Better would be flow of funds, i.e. value of new money flowing into and out of the system.
Put another way, if you bought all the shares in a company, you'd have the company. If you bought all the bonds of a company, you'd own the debt. The aggregates have meaning. If you bought every Bitcoin in existence (or dollar, for that matter), you would have nothing.
Market cap is an equities concept. The market value of a series of bonds isn't the issuance's market cap. The notional value of all options on a symbol is only useful to operations/settlement folk.
For Bitcoin, "market cap" is meaningless. It's too thinly and opaquely traded. Better would be flow of funds, i.e. value of new money flowing into and out of the system.
Put another way, if you bought all the shares in a company, you'd have the company. If you bought all the bonds of a company, you'd own the debt. The aggregates have meaning. If you bought every Bitcoin in existence (or dollar, for that matter), you would have nothing.
There is no new money in flow or out flow in bitcoin.
It's a zero sum game. If someone buys bitcoin his money goes to the person(s) who sold. Nothing goes "in Bitcoin".
I agree mcap is meaningless just like they mcap of USD/EUR/GOLD etc. It doesn't matter if is large or small it just has no meaning just like the price per unit has no meaning. Mcap is just a multiplication of the price.
I agree mcap is meaningless just like they mcap of USD/EUR/GOLD etc. It doesn't matter if is large or small it just has no meaning just like the price per unit has no meaning. Mcap is just a multiplication of the price.
>> Mcap is just a multiplication of the price.
Who claimed the opposite?
Who claimed the opposite?
No one? But why would anyone "see" any information in the mcap value if the price value doesn't have that info a multiplication of it certainly doesn't have it either. Mcap is literally the price tag on all coins while the price tag on a single coins already is arbitrary and has no meaning.
>> It's too thinly and opaquely traded
That claim about "thinly" contradicts the numbers given in my post above.
That claim about "thinly" contradicts the numbers given in my post above.
> That claim about "thinly" contradicts the numbers given in my post above
Most Bitcoin volume is non-economic [1]. Some of it is fraudulent printing. Some of it is wash trading.
That said, I don't doubt Binance's figures. The problem with taking a few trades and multiplying it by the outstanding coinage goes back to the aggregate being meaningless.
[1] https://www.sec.gov/comments/sr-nysearca-2019-01/srnysearca2...
Most Bitcoin volume is non-economic [1]. Some of it is fraudulent printing. Some of it is wash trading.
That said, I don't doubt Binance's figures. The problem with taking a few trades and multiplying it by the outstanding coinage goes back to the aggregate being meaningless.
[1] https://www.sec.gov/comments/sr-nysearca-2019-01/srnysearca2...
More than 90% of Bitcoin volume is fake, there is no question about that.
However, if you believe Binance's figures then these figures alone are sufficient to support Bitcoin's current market cap in the sense that its volume / market cap is about the same as for well-traded stocks from S&P500. In other words, the claim that the volume is too small is not well supported because it is as small as for other financial assets, e.g., between 0.2-1% of market cap per day.
However, if you believe Binance's figures then these figures alone are sufficient to support Bitcoin's current market cap in the sense that its volume / market cap is about the same as for well-traded stocks from S&P500. In other words, the claim that the volume is too small is not well supported because it is as small as for other financial assets, e.g., between 0.2-1% of market cap per day.
> if you believe Binance's figures then these figures alone are sufficient to support Bitcoin's current market cap in the sense that it market cap / volume is about the same as for well-traded stocks from S&P500
You're defending a metric by citing the metric.
The only utility for market cap with Bitcoin would appear to be to make arguments like this one. Comparing a nonsensical ratio to a similarly-sounding meaningful one. To someone who isn't thinking through what the numbers and their resulting ratios mean, I suppose it sounds authoritative.
You're defending a metric by citing the metric.
The only utility for market cap with Bitcoin would appear to be to make arguments like this one. Comparing a nonsensical ratio to a similarly-sounding meaningful one. To someone who isn't thinking through what the numbers and their resulting ratios mean, I suppose it sounds authoritative.
>> To someone who isn't thinking through what the numbers and their resulting ratios mean, I suppose it sounds authoritative.
Is it an insult, Arnav? Thousands of scientists use my research and they would probably disagree that I am "someone who isn't thinking through what the numbers and their resulting ratios mean".
Is it an insult, Arnav? Thousands of scientists use my research and they would probably disagree that I am "someone who isn't thinking through what the numbers and their resulting ratios mean".
Not an insult. An observation regarding the metric.
The product of Bitcoin's price and its current circulation is financially meaningless. It's meaningless for fundamental reasons. (It’s even more meaningless to compare it to an equity market cap.)
That doesn't mean it is useless. People talk about it because it's a marketable metric. But so is community-adjusted Ebitda or the theoretical value of a comet's mineral wealth derived from multiplying its mass by the latest commodity trade.
These are narrative tools. Not analytic ones. Both are okay, but they have different roles.
The product of Bitcoin's price and its current circulation is financially meaningless. It's meaningless for fundamental reasons. (It’s even more meaningless to compare it to an equity market cap.)
That doesn't mean it is useless. People talk about it because it's a marketable metric. But so is community-adjusted Ebitda or the theoretical value of a comet's mineral wealth derived from multiplying its mass by the latest commodity trade.
These are narrative tools. Not analytic ones. Both are okay, but they have different roles.
> You can argue that asset prices should be derived from future cash flows, and hence, both Bitcoin and gold should be almost worthless.
Which points to what IMO underpins whatever Bitcoin's underlying value is: a fear - or for some a hope - that typical vehicles investments will have precipitously declining future cash flow.
In that way it's like gold (minus the part about being pretty and useful for selling overpriced audio cables - is that still a thing?).
Unlike gold, though, it's in a way harder to secure, either by individuals or governments, because it isn't held behind physical security measures. Rather it's subject to the same large scale attacks as any other information on the Internet.
Which points to what IMO underpins whatever Bitcoin's underlying value is: a fear - or for some a hope - that typical vehicles investments will have precipitously declining future cash flow.
In that way it's like gold (minus the part about being pretty and useful for selling overpriced audio cables - is that still a thing?).
Unlike gold, though, it's in a way harder to secure, either by individuals or governments, because it isn't held behind physical security measures. Rather it's subject to the same large scale attacks as any other information on the Internet.
Market Capitalization: The amount of capital allotted an asset in the market.
This can be computed as number-of-coins x price-per-coin.
This can be computed as number-of-coins x price-per-coin.
This could result in the common misconception that market cap is equal to the influx of money into an asset. E.g. market cap increasing by 5bil doesn't mean that 5 billion worth of currency was invested into it.
It could. However, you average Joe crypto hodler from reddit understands this phenomenon, e.g., after reading about Tether & friends.
(number of bitcoin) * (price per coin).
All three of those stocks pay dividends. Doesn't that tend to reduce volume vs float?
Also, if you're going to compare Bitcoin to stocks, does that mean you accept that Bitcoin's value is in speculation and not as a currency?
Also, if you're going to compare Bitcoin to stocks, does that mean you accept that Bitcoin's value is in speculation and not as a currency?
Returns of top S&P 500 stocks would be around 6-8% annually when computing over say 10-20 years. When dividends are included, you end up with something like 10-12%. However, I don't think it impacts volume by more than some one digit percentage (when average over the whole year) since it happens very occasionally.
>> does that mean you accept that Bitcoin's value is in speculation and not as a currency?
Today, it is a speculative asset.
>> does that mean you accept that Bitcoin's value is in speculation and not as a currency?
Today, it is a speculative asset.
Bitcoin seems intrinsically 'neutral' to me, its 'value' (as a tool) is/becomes what its users do with it.
Markecap is a meaningless value for a "currency".
Comparing it to the marketcaps of companies is even more meaningless.
And comparing Bitcoin trade volume with stock trade volume is another meaningless thing.
It's very common in the crypto space to use all kinds of correctly calculated nonsense.
It's very common in the crypto space to use all kinds of correctly calculated nonsense.
Bitcoin is not a currency in its common sense, it is a speculative asset. Call everything meaningless is pretty meaningless as well.
>> Comparing it to the marketcaps of companies is even more meaningless
Wrong.
>> And comparing Bitcoin trade volume with stock trade volume is another meaningless thing.
Wrong.
>> Comparing it to the marketcaps of companies is even more meaningless
Wrong.
>> And comparing Bitcoin trade volume with stock trade volume is another meaningless thing.
Wrong.
It doesn't matter if it' a currency in your definition or if it isn't. Gold is also not a currency by todays definition. Still no one care about the mcap of gold an certainly no one compares it to mcap of companies because gold isn't a company and neither is bitcoin.
>Wrong. Good argument
>Wrong. Good argument
> I don't think that Binance is wash-trading
Given most of these exchanges are completely unregulated and typically go to great lengths to conceal their identities.... you know they aren't wash-trading how exactly?
Given most of these exchanges are completely unregulated and typically go to great lengths to conceal their identities.... you know they aren't wash-trading how exactly?
Which exchanges are completely unregulated? Last time I checked Coinbase, Bitpanda, etc had a KYC acquisition process identical to the one of a retail bank.
Please clarify, otherwise your statement is misinformation.
I don't say I know, I say that I think. It remains a possibility that they are wash-trading.
> It remains a possibility that they are wash-trading.
I'd say they all have every single incentive to wash-trade, front-run, and otherwise cheat the hell out of their system to their advantage. After all, they are completely unregulated and almost always operate well outside any jurisdiction who would care to go after them. I'd say you'd be silly to assume they aren't doing ultra-shady crap.
I'd say they all have every single incentive to wash-trade, front-run, and otherwise cheat the hell out of their system to their advantage. After all, they are completely unregulated and almost always operate well outside any jurisdiction who would care to go after them. I'd say you'd be silly to assume they aren't doing ultra-shady crap.
The trade-off is the following. If serious traders don't make any profit on a platform but make it on another one, they will leave. That is the primarily reason for an exchange to steal money at a reasonable rate instead of doing some super greedy stuff.
Their target isn’t “serious traders” like folks on Wall Street. Most bitcoin people think they are the “serious traders” but in fact they are the very rubes that get scammed by these exchanges.
With most things bitcoin you are either the one doing the scamming or the one being scammed. Often you can even play both roles! It is what keeps the ecosystem interesting!
With most things bitcoin you are either the one doing the scamming or the one being scammed. Often you can even play both roles! It is what keeps the ecosystem interesting!
Their BNB coin used to pay fees outperforms bitcoin past year. Is that wash trading as well?
Not necessarily, it could be a Ponzi scheme instead.
it's a public blockchain. can it even be a ponzi scheme?
Most exchange trades aren’t done on-chain.
>It remains a possibility that they are wash-trading.
https://cryptopotato.com/95-of-bitcoin-trading-volume-is-fak...
https://cryptopotato.com/95-of-bitcoin-trading-volume-is-fak...
I was referring specifically to Binance, see my text. It is a common knowledge that most other exchanges wast trade.
There are a lot of reports on this, but this one is the most comprehensive:
https://www.sec.gov/comments/sr-nysearca-2019-01/srnysearca2...
https://www.sec.gov/comments/sr-nysearca-2019-01/srnysearca2...
Except those other market caps are companies, where you’re discussing changing ownership, whereas BTC is a currency, whose only point is to be traded.
MZM velocity of money of USD is 1.3
Today, Bitcoin has little to no adoption as a currency, that is true.
Correct. Bitcoin is mainly a hoarding and speculation asset.
Yeah it's not the digital cash we were promised.
But it's great as a store of value, censorship-resistant money, and one of the fastest and cheapest ways to do cross-border remittances.
But it's great as a store of value, censorship-resistant money, and one of the fastest and cheapest ways to do cross-border remittances.
> it's great as a store of value
BTC/USD is down 18% in the last 30 days. That's not a great store of value.
> censorship-resistant money
Correct, but only within its own economy. The moment you want to convert to "real" money (fiat), you're out of luck
> and one of the fastest and cheapest ways to do cross-border remittances
Depends on which borders you're talking about. Within first world western countries with similar monetary policies, TransferWise is generally cheaper and quicker. Within the EU, SEPA fits that bill too.
(Disclaimer: I am long bitcoin)
BTC/USD is down 18% in the last 30 days. That's not a great store of value.
> censorship-resistant money
Correct, but only within its own economy. The moment you want to convert to "real" money (fiat), you're out of luck
> and one of the fastest and cheapest ways to do cross-border remittances
Depends on which borders you're talking about. Within first world western countries with similar monetary policies, TransferWise is generally cheaper and quicker. Within the EU, SEPA fits that bill too.
(Disclaimer: I am long bitcoin)
Many reasons to be dubious about bitcoin and its liquidity and how much wash trading goes on, but it seems a bit odd to judge it by the amount of outstanding coin being traded. How much gold that exists is actively traded? Or even the same question for a typical company stock?
That's one of the standard metrics to judge any currency. Bitcoin is not advertised as an asset but as a digital currency. But it has clearly become primarily an asset, given the minimal uses of it as a currency.
Once transaction fees exceeded $20 back in 2017, it was pretty clear Bitcoin was an asset not a currency.
Horrible properties for a currency. Usual properties for a collectible asset.
Horrible properties for a currency. Usual properties for a collectible asset.
I'd argue that IRS tax treatment of Bitcoin as an asset (and thus making every currency-like purchase - even when exchanging for good or services - a taxable event) is another significant factor.
Fees may have made this inevitable, but having to deal with taxes has definitely made me much more wary of using it for small purchases. Bitcoin tax accounting is tedious, and I think once a company solves non-custodial record keeping for the purposes of automated tax accounting, it will increase velocity of spending.
Fees may have made this inevitable, but having to deal with taxes has definitely made me much more wary of using it for small purchases. Bitcoin tax accounting is tedious, and I think once a company solves non-custodial record keeping for the purposes of automated tax accounting, it will increase velocity of spending.
The IRS treats essentially everything ownable as an asset: gold, paper currency, bitcoin, art, postage stamps.
You obviously never pay capital gains tax on USD, because it never changes value relative to USD.
AFAIK a Bitcoin is no different than a Euro tax-wise.
You obviously never pay capital gains tax on USD, because it never changes value relative to USD.
AFAIK a Bitcoin is no different than a Euro tax-wise.
There's a gigantic difference: an exemption for almost all personal transactions. In practice almost every foreign currency transaction you make is exempt[1]. The IRS doesn't allow that exemption for Bitcoin and technically you are required to calculate and report gains for every single Bitcoin transaction you make (regardless of whether dollars are involved). Imagine reporting every Starbucks purchase on your tax return. It's a completely unreasonable burden for a currency.
[1] The actual rule is $200 of capital gains per transaction, and you'd usually have to spend substantially more than $1000 in a single transaction to get there.
[1] The actual rule is $200 of capital gains per transaction, and you'd usually have to spend substantially more than $1000 in a single transaction to get there.
No, the $200 limit is the limit on the exchanges for the year.
EUR/USD exchange rate changed 3-4% from a year ago, so spending $5-6k in Euros would surpass the threshold (though in this particular case, as a loss).
The BTC/USD exchange rate more than doubled over the past year, so you'd have to spend less than a few hundred dollars to remain under <$200 gains.
The $200 tax exemption would make little practical difference. Even for traditional stable currencies, it's relatively easy to exceed that in any significant use. And with BTC's historical volatility, it's virtually guaranteed.
EUR/USD exchange rate changed 3-4% from a year ago, so spending $5-6k in Euros would surpass the threshold (though in this particular case, as a loss).
The BTC/USD exchange rate more than doubled over the past year, so you'd have to spend less than a few hundred dollars to remain under <$200 gains.
The $200 tax exemption would make little practical difference. Even for traditional stable currencies, it's relatively easy to exceed that in any significant use. And with BTC's historical volatility, it's virtually guaranteed.
I am not an accountant and may be wrong, but if a US citizen exchanges $1000 USD to euro, and then euro appreciates 10%, and then they spend that euro to make a purchase, I was under the impression that that purchase is not subject to capital gains. Exchanging back to USD would be, but I thought currency classification exempted cap gains on purchases of goods and services.
Am I wrong? Have never held any significant amount of foreign currency, so have never dealt with this personally.
Am I wrong? Have never held any significant amount of foreign currency, so have never dealt with this personally.
My understanding is that a gain or loss in that currency is recognized upon spending/trading it.
Quick search brought me to https://thismatter.com/money/tax/foreign-currency-transactio... which agrees with that.
Like use tax, I suspect it is often just neglected.
Quick search brought me to https://thismatter.com/money/tax/foreign-currency-transactio... which agrees with that.
Like use tax, I suspect it is often just neglected.
Interesting, thanks for correcting me.
It looks like there may be an exemption for small amounts under $200 (https://smallbusiness.chron.com/foreign-currency-exchange-ta...), which would make Bitcoin much more functional (if it would apply to Bitcoin anyways, mute point as BTC is classified as an asset), but not to the extent of my misconception.
It looks like there may be an exemption for small amounts under $200 (https://smallbusiness.chron.com/foreign-currency-exchange-ta...), which would make Bitcoin much more functional (if it would apply to Bitcoin anyways, mute point as BTC is classified as an asset), but not to the extent of my misconception.
The lack of a de minimis exemption for bitcoin is key here, and a major way in which it's not treated like a foreign currency.
Yeah there is specific tax code for gains on foreign currency. It is actually worse than capital gains tax. https://smallbusiness.chron.com/irs-tax-laws-regarding-forei...
Bitcoin can't be a currency until it is legal to use as a form of tender.
These days, I see bitcoin like the ivory trade. Plenty of it out there, not much public movement, and it is illegal to do with it what everyone wants to do with it. So people are hoarding it while appearing to distance themselves from it for tax/legality purposes. I no longer look into this topic too regularly so this may be a naive thing to say, but there are far more naive people than me out there with money in bitcoin...
These days, I see bitcoin like the ivory trade. Plenty of it out there, not much public movement, and it is illegal to do with it what everyone wants to do with it. So people are hoarding it while appearing to distance themselves from it for tax/legality purposes. I no longer look into this topic too regularly so this may be a naive thing to say, but there are far more naive people than me out there with money in bitcoin...
That same standard exists for currencies too!
How much of M0 is of the total supply
How does everyone walk past good criticisms of bitcoin and bang their head against a wall of the dumbest criticisms ever? I mean specifically holding Bitcoin to a fictional higher standard that no asset satisfies just because they dont respect that particular asset
How much of M0 is of the total supply
How does everyone walk past good criticisms of bitcoin and bang their head against a wall of the dumbest criticisms ever? I mean specifically holding Bitcoin to a fictional higher standard that no asset satisfies just because they dont respect that particular asset
Because Bitcoin is (at least theoretically) a currency. You're comparing it to a commodity or store of value.
The power of a currency is the ability to trade it for goods and services. If that is no longer happening with Bitcoin it has morphed into something else entirely.
The power of a currency is the ability to trade it for goods and services. If that is no longer happening with Bitcoin it has morphed into something else entirely.
I've never owned or traded bitcoin, but as I understand it the main attraction is that it's like the gold standard (of course for people who don't understand why the gold standard was a bad idea).
Gold standard is great for individuals who want to store wealth, but a bad idea for a fiat currency with policy goals like increasing spending, investment and economic velocity. Deflationary currencies are good stores of value, but slow the economy (because why invest/buy now if your money gets more powerful the longer you refrain from spending it).
I think Bitcoin is similar to the gold standard, and its popularity lies in the mismatch of goals between government desires for fiat issuance and individuals for storing value.
I think Bitcoin is similar to the gold standard, and its popularity lies in the mismatch of goals between government desires for fiat issuance and individuals for storing value.
> Deflationary currencies are good stores of value, but slow the economy (because why invest/buy now if your money gets more powerful the longer you refrain from spending it).
Logically speaking it is irrelevant; instead of holding gold and calling it money an investor can still hold gold except it gets called an investment; but their holding will perform the same way because it is linked to the value of gold. The practical difference is tax treatment which gets complicated. Theoretically if I recall expected inflation/deflation in the currency doesn't change the economic equilibrium because everyone just factors it in to the interest rates and salary negotiations to keep the focus on real value.
And in execution any consistent % inflation/deflation of the money supply makes things weird and confusing because the measuring stick used to measure wealth keeps changing.
Logically speaking it is irrelevant; instead of holding gold and calling it money an investor can still hold gold except it gets called an investment; but their holding will perform the same way because it is linked to the value of gold. The practical difference is tax treatment which gets complicated. Theoretically if I recall expected inflation/deflation in the currency doesn't change the economic equilibrium because everyone just factors it in to the interest rates and salary negotiations to keep the focus on real value.
And in execution any consistent % inflation/deflation of the money supply makes things weird and confusing because the measuring stick used to measure wealth keeps changing.
Bitcoin attracts three different niche markets:
- Crypto enthusiasts who are infatuated with the technology or the math involved
- Anti-Fed Libertarian types who want to use something that isn't controlled by a government
- HFTs and speculators who either use it in part of their models or as a pump and dump vehicle
Some people also use it to buy illegal stuff, but most of them have moved onto Monero as the primary privacy-based cryptocurrency.
- Crypto enthusiasts who are infatuated with the technology or the math involved
- Anti-Fed Libertarian types who want to use something that isn't controlled by a government
- HFTs and speculators who either use it in part of their models or as a pump and dump vehicle
Some people also use it to buy illegal stuff, but most of them have moved onto Monero as the primary privacy-based cryptocurrency.
> Crypto enthusiasts who are infatuated with the technology or the math involved
I agree that it attracts these people, but I can't figure out how they make the leap from "clever math" to "this has monetary value and I want in."
I agree that it attracts these people, but I can't figure out how they make the leap from "clever math" to "this has monetary value and I want in."
So where do online drug dealers fit in the first 2 options?
Or Saudi / Chinese / Russian business types that are trying to extract wealth and avoid the blowback of a regime change?
They probably fit under #2 but I certainly wouldn't call a lot of those libertarian in ideology or even in practice, just opportunists.
Or Saudi / Chinese / Russian business types that are trying to extract wealth and avoid the blowback of a regime change?
They probably fit under #2 but I certainly wouldn't call a lot of those libertarian in ideology or even in practice, just opportunists.
Exactly, like a currency on the gold standard. But not an asset like gold.
It's nothing like the gold standard. What made the gold standard a bad idea does not apply to Bitcoin.
You mean that there is a cap on the supply that cannot keep pace with the growth of the real economy?
The cap is irrelevant. Instead of printing more the value per unit goes up in the end it does the same it adjust for growth just fine.
It's just not practical for a fiat currency to change it's value depending on the economy situation. If for example the USD would have a fix cap and its value would swing with the economy, people would speculate with it. At peaks everyone would want to buy and at the lows everyone would pay salaries and debs etc. the growth isn't the problem the swings and uncertainty about the value makes it unusable for a currency. Bitcoin doesn't have this problem is kinda like gold no one really want to pay with it (beside the bitcoin maxis).
You sound like you know nothing about how currencies actually work. Both exchange rate and purchasing power of the USD do change over time. People do speculate with currencies. And the cap is absolutely not irrelevant if you were to have a global Bitcoin economy. The US would not be able to set the prices on its own, and those would instead be determined by the global market forces. This means the country loses and and all ability to do monetary policy.
No one care what you think I know or don't know bring arguments that support your opinion.
Whats the mcap of USD? Whats the mcap of EUR? Whats the mcap of Gold? Why does no one know exactly? Because It's irrelevant meaningless and basically impossible to know because of lost units and secret holdings (in case of gold)
Ofc people speculate with currencies but not the average joe, whos supposed to use it as a medium of exchange. And that's the whole point. Small fluctuations or small inflation doesn't matter for its use as medium of exchange.
The whole "global bitcoin economy" thing wasm't the topic of my post no clue why you tell me this. Also the price of btc is already determined by "global market force" if you wanna call it that way. although it has not much to do with any other market. It's just supply and demand that make the price.
Whats the mcap of USD? Whats the mcap of EUR? Whats the mcap of Gold? Why does no one know exactly? Because It's irrelevant meaningless and basically impossible to know because of lost units and secret holdings (in case of gold)
Ofc people speculate with currencies but not the average joe, whos supposed to use it as a medium of exchange. And that's the whole point. Small fluctuations or small inflation doesn't matter for its use as medium of exchange.
The whole "global bitcoin economy" thing wasm't the topic of my post no clue why you tell me this. Also the price of btc is already determined by "global market force" if you wanna call it that way. although it has not much to do with any other market. It's just supply and demand that make the price.
>> Whats the mcap of USD?
Start here https://fred.stlouisfed.org/graph/?id=CURRSL,
and here
https://fredblog.stlouisfed.org/2014/09/how-much-money-is-th...
The currency component of USD doubles every 10 years.
Start here https://fred.stlouisfed.org/graph/?id=CURRSL,
and here
https://fredblog.stlouisfed.org/2014/09/how-much-money-is-th...
The currency component of USD doubles every 10 years.
I didn't ask for the mcap of USD. It was a rhetoric question.
Ofc you can find numbers and statistics about it. But they are obviously not correct as stated above they do not include any lost money. Also the value is meaningless. Not a single person on this planet does any educated decision based on that value. It's completely irrelevant. And that was my whole point.
If you trade fiat/precious metal or similar assets no chart will ever show the mcap of said asset. But somehow bitcoin and crypto included that value. The only obvious reason that this is a thing, seems to be because crypto space was created by people who have no clue about "money" or how irrelevant the mcap is for these assets.
If you trade fiat/precious metal or similar assets no chart will ever show the mcap of said asset. But somehow bitcoin and crypto included that value. The only obvious reason that this is a thing, seems to be because crypto space was created by people who have no clue about "money" or how irrelevant the mcap is for these assets.
Read again "The currency component of USD doubles every 10 years."
Therefore,
"they do not include any lost money"
is irrelevant unless you believe people lose about half of their money over a single decade
"Not a single person on this planet does any educated decision based on that value. It's completely irrelevant. And that was my whole point."
That is false. Smartest people do take into account the fact that the market cap of USD doubles every decade. Printed money have to go somewhere, they do go in US stocks with the smallest loss on the way. Therefore, US stocks also double every decade. Therefore, it does not make sense to search for investments which deliver less than 8% a year since you are basically losing money relatively to the actual total amount.
>> If you trade fiat/precious metal or similar assets no chart will ever show the mcap of said asset.
Seems like you never traded in your life. First, look at Interactive Brokers, the most popular retail platform. For any stock you click, you see its market cap. Investor do invest differently depending on whether it is large cap or low cap. Google it, learn something. Even Yahoo Finance shows market cap.
You basically have no clue what you are talking about. Not need to reply, you are wasting my time. Cheers.
Therefore,
"they do not include any lost money"
is irrelevant unless you believe people lose about half of their money over a single decade
"Not a single person on this planet does any educated decision based on that value. It's completely irrelevant. And that was my whole point."
That is false. Smartest people do take into account the fact that the market cap of USD doubles every decade. Printed money have to go somewhere, they do go in US stocks with the smallest loss on the way. Therefore, US stocks also double every decade. Therefore, it does not make sense to search for investments which deliver less than 8% a year since you are basically losing money relatively to the actual total amount.
>> If you trade fiat/precious metal or similar assets no chart will ever show the mcap of said asset.
Seems like you never traded in your life. First, look at Interactive Brokers, the most popular retail platform. For any stock you click, you see its market cap. Investor do invest differently depending on whether it is large cap or low cap. Google it, learn something. Even Yahoo Finance shows market cap.
You basically have no clue what you are talking about. Not need to reply, you are wasting my time. Cheers.
You can not see that the mcap doubles in 10 years if you check the current mcap. You just explained why the mcap is pointless. Everyone know USD gets printed. Inflation isn't a secret either. No one need to check the mcap daily over several years to see that. People may wanna know the inflation rate in % per year or how much money was printed in the last year etc. The current mcap however says nothing. The history may show a trend but that's something completely different and the actual current value isn't relevant do determine a trend.
Also you totally bullshitting neither Interactive Brokers nor Yahoo Finance shows mcap for any fiat or precious metals. It however show mcap for cryto (Yahoo) but that doesn't make it a useful value. Its most probably just copied form CoinMarketCap.
>For any stock you click, you see its market cap.
Sure, but I said fiat/gold not stocks. The whole discussion started because people think the mcap of bitcoin somehow makes bitcoin or other cryptos comparable to stocks or fiat/gold. But that's nonsense because the value itself has no meaning for these assets.
Again, no none care that you think I have no clue. Bring arguments/sources for your claims or stop wasting everyone's time.
Also you totally bullshitting neither Interactive Brokers nor Yahoo Finance shows mcap for any fiat or precious metals. It however show mcap for cryto (Yahoo) but that doesn't make it a useful value. Its most probably just copied form CoinMarketCap.
>For any stock you click, you see its market cap.
Sure, but I said fiat/gold not stocks. The whole discussion started because people think the mcap of bitcoin somehow makes bitcoin or other cryptos comparable to stocks or fiat/gold. But that's nonsense because the value itself has no meaning for these assets.
Again, no none care that you think I have no clue. Bring arguments/sources for your claims or stop wasting everyone's time.
Yes, it has morphed. The devs in charge of Bitcoin have purposely abandoned the idea of it being a currency. On-chain transactions are artificially limited to about four per second, and they refuse to change that. They call it a "store of value" now.
Other cryptocurrencies are working hard on scaling to the point of being workable currencies.
Other cryptocurrencies are working hard on scaling to the point of being workable currencies.
It's more complex than that. It's the miners, not the devs, on the Bitcoin network refuse to come to a consensus on what Bitcoin should be. It's like a weird 21st-century internet tragedy of the commons.
This is why I think "decentralization" will never work. It's just a power vacuum, that will be filled/abused one way or the other.
Precisely. It turns out that despite some of it's flaws, having your currency managed by a central organization that is incentivized for stability tends to work better than a handful of data miners stealing electricity in China.
And whoever owns the domain https://bitcoin.org.
> The devs in charge of Bitcoin have purposely abandoned the idea of it being a currency. On-chain transactions are artificially limited to about four per second, and they refuse to change that. They call it a "store of value" now.
I don't think they abandoned the idea of it being a currency, I think they just have different ideas about how exactly to go about scaling it. The block size limit (and therefore the transactions per second limit) was raised 2x rather than significantly more because they don't think scaling onchain is a viable long term solution [0].
Lightning, and other second layer networks have always been discussed as the solution to this scaling problem, and while they are still very early, there's already a fair amount of usage. I work at a company that accepts Bitcoin, and as of today, > 90% of our transaction volume is via lightning.
[0] https://en.bitcoin.it/wiki/Block_size_limit_controversy#Argu...
I don't think they abandoned the idea of it being a currency, I think they just have different ideas about how exactly to go about scaling it. The block size limit (and therefore the transactions per second limit) was raised 2x rather than significantly more because they don't think scaling onchain is a viable long term solution [0].
Lightning, and other second layer networks have always been discussed as the solution to this scaling problem, and while they are still very early, there's already a fair amount of usage. I work at a company that accepts Bitcoin, and as of today, > 90% of our transaction volume is via lightning.
[0] https://en.bitcoin.it/wiki/Block_size_limit_controversy#Argu...
is your company hiring? I am a backend java developer who is looking for opportunities in bitcoin world.
> Because Bitcoin is (at least theoretically) a currency.
Bitcoin is many things, but pinning it as a currency is very reductionist.
It can be used as a currency, but in its current form, it isn't very practical (lighting is aiming to, and will likely succeed in fixing that).
It is IMOH very much more useful for all the other use cases (eg store of value, doing away with government brain-hared management of fiat currencies, etc ...)
Bitcoin is many things, but pinning it as a currency is very reductionist.
It can be used as a currency, but in its current form, it isn't very practical (lighting is aiming to, and will likely succeed in fixing that).
It is IMOH very much more useful for all the other use cases (eg store of value, doing away with government brain-hared management of fiat currencies, etc ...)
If they didn't want to be a currency they likely should have not used terms like Wallet and have their landing page say "Bitcoin is an innovative payment network and a new kind of money."
BTC has always had more in common with rare gemstones like Taaffeite than currencies or even metals.
No practical value, no industrial value, no means to materially change the rate of production, nothing special at all except that it is rare, only a few people care about it, and its price will always depend primarily on the behavior of a very small number of market participants.
No practical value, no industrial value, no means to materially change the rate of production, nothing special at all except that it is rare, only a few people care about it, and its price will always depend primarily on the behavior of a very small number of market participants.
You can google any ticker symbol and find the volume relative to the outstanding shares.
> How much gold that exists is actively traded?
A better analogy would be: how much gold is actually being physically moved from one vault to another.
A better analogy would be: how much gold is actually being physically moved from one vault to another.
100s of billions of dollars of gold is traded each day.
That could be the same gold being traded multiple times per day. What % of all gold extracted from the ground is traded annually?
Why does it matter if it's the same gold?
Say a 100 people each own a 100 gold pieces. And they all buy and sell 100 gold pieces worth of goods and services per day.(10,000 gold pieces are traded) Why would it matter if this is physically the same gold coin traded 10,000 times or 10,000 gold coins being traded once?
Say a 100 people each own a 100 gold pieces. And they all buy and sell 100 gold pieces worth of goods and services per day.(10,000 gold pieces are traded) Why would it matter if this is physically the same gold coin traded 10,000 times or 10,000 gold coins being traded once?
Because the WSJ article specifically talks about the number of bitcoins traded as a percentage of the whole number of coins mined. This is why I keep asking for this percentage for other assets like gold and stocks.
On options maybe.
Is it actually gold that's being traded, or papers/promises/options/whatever-else-but-physical-gold saying 'x amount of gold' is actually traded?
Well, physical Bitcoins aren't being traded either.
Because there aren't physical Bitcoins.
Because there aren't physical Bitcoins.
Actual custody is being traded though.
Same for gold (again legally, not physically).
For gold, typically ownership is traded, not custody.
> About 9.1 million bitcoins, representing about 51% of those outstanding, haven’t changed hands in at least six months, according to Flipside. About two million of those bitcoin haven’t moved in more than two years.
Transaction volume has always been a difficult metric. For one thing, most transactions are likely to happen off-chain. That can occur in a centralized system like Coinbase. This has always been a possibility dating back to the first exchanges like Mt. Gox.
More recently, Lightning Network means that decentralized off-chain transactions can play a bigger role in Bitcoin's total transaction volume. Lightning involves two parties setting up a contract (Bitcoin has supported them from day one). This contract defines rules that allow the parties to update a private transaction (without counterparty risk) until settlement on the block chain is required. At that point a transaction is published. That transaction may represent one, a handful, or hundreds of thousands of intermediate transactions. There aren't very good ways to determine how many, and this will tend to make Bitcoin's transaction volume ever more opaque over time.
Exchanges are starting to support Lightning as a method to move bitcoin in and out.
Second, absolute transaction count doesn't take coin value or age into account. For example, I can just flip the same 0.001 BTC back and forth to myself rapidly. That would add many transactions but wouldn't reveal much of value.
An alternative metric is "bitcoin days destroyed" (BDD). BDD equals the value of the coin being spent multiplied by its age in days, summed over all transactions in a given period:
https://bitcoin.stackexchange.com/questions/845/what-are-bit...
When BDD spikes you know that either old coins are being spent or that lots value in younger coins is being spent. That metric might be more economically valuable. There's a realtime chart here:
https://blockchair.com/bitcoin/charts/coindays-destroyed?int...
Transaction volume has always been a difficult metric. For one thing, most transactions are likely to happen off-chain. That can occur in a centralized system like Coinbase. This has always been a possibility dating back to the first exchanges like Mt. Gox.
More recently, Lightning Network means that decentralized off-chain transactions can play a bigger role in Bitcoin's total transaction volume. Lightning involves two parties setting up a contract (Bitcoin has supported them from day one). This contract defines rules that allow the parties to update a private transaction (without counterparty risk) until settlement on the block chain is required. At that point a transaction is published. That transaction may represent one, a handful, or hundreds of thousands of intermediate transactions. There aren't very good ways to determine how many, and this will tend to make Bitcoin's transaction volume ever more opaque over time.
Exchanges are starting to support Lightning as a method to move bitcoin in and out.
Second, absolute transaction count doesn't take coin value or age into account. For example, I can just flip the same 0.001 BTC back and forth to myself rapidly. That would add many transactions but wouldn't reveal much of value.
An alternative metric is "bitcoin days destroyed" (BDD). BDD equals the value of the coin being spent multiplied by its age in days, summed over all transactions in a given period:
https://bitcoin.stackexchange.com/questions/845/what-are-bit...
When BDD spikes you know that either old coins are being spent or that lots value in younger coins is being spent. That metric might be more economically valuable. There's a realtime chart here:
https://blockchair.com/bitcoin/charts/coindays-destroyed?int...
Lightning network comes up just about every discussion involving bitcoin transactions, but because it requires the bitcoin network to make confirmations, Lightning only scales with the number of transactions, not users. This is still a problem.
Example of the problem:
* For 2 users to make 10,000,000 transactions between each other, it would take 10 minutes on the lightning network.
* For 10,000,000 users to make just 2 transactions between each other, it would take 46 days on the lightning network.
This means that if the entire state of Georgia used Lightning Network as a payment system, people wouldn't even be able to pay their monthly rent on time. Lightning Network is an over-engineered solution to a Bitcoin problem, which is why nobody is seriously adopting it.
Example of the problem:
* For 2 users to make 10,000,000 transactions between each other, it would take 10 minutes on the lightning network.
* For 10,000,000 users to make just 2 transactions between each other, it would take 46 days on the lightning network.
This means that if the entire state of Georgia used Lightning Network as a payment system, people wouldn't even be able to pay their monthly rent on time. Lightning Network is an over-engineered solution to a Bitcoin problem, which is why nobody is seriously adopting it.
>but because it requires the bitcoin network to make confirmation
It doesn't require the Bitcoin network to make confirmation at all. Two users could do millions of txn/s between each other. The only limitation is their internet speed. The bitcoin network does not need to confirm or even know about anything other than the initial deposits. It could even happen entirely offline in a closed network, though that would be insecure. That is the whole idea behind lightning so I am not sure how you missed it. The real limitations of lightning/state channels relate to liquidity.
It doesn't require the Bitcoin network to make confirmation at all. Two users could do millions of txn/s between each other. The only limitation is their internet speed. The bitcoin network does not need to confirm or even know about anything other than the initial deposits. It could even happen entirely offline in a closed network, though that would be insecure. That is the whole idea behind lightning so I am not sure how you missed it. The real limitations of lightning/state channels relate to liquidity.
>... Lightning only scales with the number of transactions, not users.
Is the rest of the sentence that you quoted out of context. Did you not see the example?
Is the rest of the sentence that you quoted out of context. Did you not see the example?
>Lightning only scales with the number of transactions, not users.
You seem to be poking at the need to open a lightning channel to get started using lightning and using the onboarding time to suggest that lightning cannot scale. First of all I think the way you made that argument is entirely disingenuous. Let's look at your first example:
>* For 2 users to make 10,000,000 transactions between each other, it would take 10 minutes on the lightning network.
It would take 10 minute for any two users to get started with lightning in the traditional way because that's the block time used in Bitcoin. For the record, lightning in not just for Bitcoin. It would take 2.5 minutes if using Litecoin for instance.
What you are obscuring here is that once the channel is set up, the two users could transact with each other with no delay. That's what makes your example both incorrect and disingenuous.
Your next example is basically the same thing, but at scale. You are incorporating on boarding times to get a big scary number.
I encourage you to read about channel factories which should alleviate onboarding times.
You seem to be poking at the need to open a lightning channel to get started using lightning and using the onboarding time to suggest that lightning cannot scale. First of all I think the way you made that argument is entirely disingenuous. Let's look at your first example:
>* For 2 users to make 10,000,000 transactions between each other, it would take 10 minutes on the lightning network.
It would take 10 minute for any two users to get started with lightning in the traditional way because that's the block time used in Bitcoin. For the record, lightning in not just for Bitcoin. It would take 2.5 minutes if using Litecoin for instance.
What you are obscuring here is that once the channel is set up, the two users could transact with each other with no delay. That's what makes your example both incorrect and disingenuous.
Your next example is basically the same thing, but at scale. You are incorporating on boarding times to get a big scary number.
I encourage you to read about channel factories which should alleviate onboarding times.
This is why I precisely used the example of paying monthly rent, because:
1) Paying rent is an example of a repeat payment between two users where you theoretically could have an open Lightning channel, but...
2) Landlords are still going to settle transactions immediately to avoid liability anyways
The "just leave the channel open" is the disingenuous part being projected here. Your landlord isn't going to hold off on cashing your rent check because they want to turn around, endorse it, and use that slip of paper to pay for maintenance. No, the landlord cashes the check the same way that they would immediately settle a lightning transaction.
Now imagine single, non-repeated payments between millions of untrusted parties. You're not going to have millions of "open channels". All those millions of users are going to settle the transactions immediately, which requires Bitcoin's bottleneck.
1) Paying rent is an example of a repeat payment between two users where you theoretically could have an open Lightning channel, but...
2) Landlords are still going to settle transactions immediately to avoid liability anyways
The "just leave the channel open" is the disingenuous part being projected here. Your landlord isn't going to hold off on cashing your rent check because they want to turn around, endorse it, and use that slip of paper to pay for maintenance. No, the landlord cashes the check the same way that they would immediately settle a lightning transaction.
Now imagine single, non-repeated payments between millions of untrusted parties. You're not going to have millions of "open channels". All those millions of users are going to settle the transactions immediately, which requires Bitcoin's bottleneck.
The landlord does not need to settle the transaction on the Bitcoin network to spend the money I have payed him. He could spend it anywhere within lightning. This is the crux of your misunderstanding.
I really wish people would take more time to understand the things they criticize. There are real problems with lightning, this isn't one of them.
I really wish people would take more time to understand the things they criticize. There are real problems with lightning, this isn't one of them.
>The landlord does not need to cash the check to spend the money I have payed him. He could spend it anywhere as a third party check. This is the crux of your misunderstanding.
Ask your landlord why they won't spend third party checks and you have your answer as to why they won't spend unsettled IOUs on a lightning network.
You're free to pull the, "Lightning too complicated for you to understand" but I think you're projecting again. Lightning doesn't scale with millions of users despite your attempts of apologizing for it.
Ask your landlord why they won't spend third party checks and you have your answer as to why they won't spend unsettled IOUs on a lightning network.
You're free to pull the, "Lightning too complicated for you to understand" but I think you're projecting again. Lightning doesn't scale with millions of users despite your attempts of apologizing for it.
You fundamentally misunderstand how Lightning works.
In lightning you literally have a signed bitcoin transaction that allows you to receive the funds on-chain at any time. You don't submit it because you can continue to cooperatively sign new transactions that change respective balances between you and other channel participants.
This is nothing like an IOU, because you have the ability to settle any time you want (just broadcast a signed transactions you already have), there is just no reason to.
Based on your replies I am going to assume you are actually trying to misinform people.
In lightning you literally have a signed bitcoin transaction that allows you to receive the funds on-chain at any time. You don't submit it because you can continue to cooperatively sign new transactions that change respective balances between you and other channel participants.
This is nothing like an IOU, because you have the ability to settle any time you want (just broadcast a signed transactions you already have), there is just no reason to.
Based on your replies I am going to assume you are actually trying to misinform people.
That's precisely the same as an uncashed check - an IOU. Just because you can cash it at any time does not make it different from an IOU. Until settled, it's just a "hey I will pay you some Bitcoin in the future".
It's a commitment to a payment that untrusted parties are going to settle immediately for reasons discussed above.
It's a commitment to a payment that untrusted parties are going to settle immediately for reasons discussed above.
Based on your replies I am going to assume you are actually trying to misinform people.
When the landlord spends the funds, he is not spending equivalent to a third-party IOU.
Suppose you and your landlord share the A-B channel. When he wishes to spend the rent money he pays you back in the A-B channel in return for your paying the same amount in another channel to party C (who is likely a node).
For the record, this process is trustless in the sense of the word that no trust is required. Nobody can wander off with anyone's funds.
When party C (or party D, E, F, whoever receives it) actually gets the money he doesn't have to care about the state of things in in the original A-B channel. His money came from the other party is his channel and that's the only transaction he needs to watch. It's not like a third party IOU at all. And, of course because the Bitcoin network can enforce ownership, calling lightning an IOU does not really do it justice.
Suppose you and your landlord share the A-B channel. When he wishes to spend the rent money he pays you back in the A-B channel in return for your paying the same amount in another channel to party C (who is likely a node).
For the record, this process is trustless in the sense of the word that no trust is required. Nobody can wander off with anyone's funds.
When party C (or party D, E, F, whoever receives it) actually gets the money he doesn't have to care about the state of things in in the original A-B channel. His money came from the other party is his channel and that's the only transaction he needs to watch. It's not like a third party IOU at all. And, of course because the Bitcoin network can enforce ownership, calling lightning an IOU does not really do it justice.
I'd be interested in reading more about channel factories, got any useful links?
If anyone else is [curious](https://blockonomi.com/channel-factories-bitcoin-lightning-n...)
Where can I read more about how you came up with those numbers? I didn't knew that side of lightning.
It's napkin math based on the Bitcoin network's hard limitations of 4-7 transactions/second, so assuming 5 tx/s, then there's 432K transactions/day limit.
Since lightning requires Bitcoin to settle transactions between parties, it means that the more users there are making transactions, the more it needs bitcoin.
If it's just a handful of users making a million transactions, then there's no problem since lightning will do the math and then settle on Bitcoin with a handful of transactions. If there's a million users making a handful of transactions, well, then lightning needs to settle a few million transactions on Bitcoin (which takes weeks).
Since lightning requires Bitcoin to settle transactions between parties, it means that the more users there are making transactions, the more it needs bitcoin.
If it's just a handful of users making a million transactions, then there's no problem since lightning will do the math and then settle on Bitcoin with a handful of transactions. If there's a million users making a handful of transactions, well, then lightning needs to settle a few million transactions on Bitcoin (which takes weeks).
> If there's a million users making a handful of transactions, well, then lightning needs to settle a few million transactions on Bitcoin (which takes weeks).
Sorry, but you seem to be entirely ignorant of how lightning works. Lightning does not need to settle transactions on Bitcoin. If I pay someone using lightning then that payment is as good as good. The person who received the funds could go on and pay someone further. Notice there was no need to make an on-chain settlement transaction for this to work.
Sorry, but you seem to be entirely ignorant of how lightning works. Lightning does not need to settle transactions on Bitcoin. If I pay someone using lightning then that payment is as good as good. The person who received the funds could go on and pay someone further. Notice there was no need to make an on-chain settlement transaction for this to work.
> If I pay someone using lightning then that payment is as good as good.
Lightning is an I.O.U. that is not good until you settle on Bitcoin. If you are not using Bitcoin to settle transactions, then you there is zero guarantee of getting paid. Stop spreading these lies about the Lightning network.
Trading I.O.U.s on an obscure network is not a payment solution outside of sending money between your friends. For businesses and other untrusted parties, they will settle immediately on Bitcoin which is why Lightning is not being used seriously today. The same way businesses don't trade in third party checks today.
Lightning is an I.O.U. that is not good until you settle on Bitcoin. If you are not using Bitcoin to settle transactions, then you there is zero guarantee of getting paid. Stop spreading these lies about the Lightning network.
Trading I.O.U.s on an obscure network is not a payment solution outside of sending money between your friends. For businesses and other untrusted parties, they will settle immediately on Bitcoin which is why Lightning is not being used seriously today. The same way businesses don't trade in third party checks today.
Lightning isn't an IOU, its actual Bitcoin. What you are doing is trading payment states in channels, these payment channels contain real Bitcoin, locked in smart contracts. You can settle (and close) for your channel for Bitcoin any time you like, and there is a punishment mechanism if you try to cheat (steal) and replay an old channel state.
This style of network, or a higher order version of it will certainly be the way that we further decentralize our economy and scale to every human and system. It is nonsensical to store full transactions between everything in an immutable ever growing data structure for all time. You can condense what needs to be stored forever in channels, or go further smaller still and store commitments+proofs.
We need to move past the blockchain to store all the things model. It was cool when it was small, but we need to be thinking about how to implement higher order payment or economic concepts rather than raw txs.
Finally, to your point about businesses not trading in third-party checks... Kinda! When the store takes your payment over the PCI network, the card holders bank and the vendors bank trade some payment state between each other, and delivery of funds can take days to clear. Its all businesses trading slates, e-checks, e-balance sheets. In essence lightning isn't too dissimilar to how things work now with electronic $s.
This style of network, or a higher order version of it will certainly be the way that we further decentralize our economy and scale to every human and system. It is nonsensical to store full transactions between everything in an immutable ever growing data structure for all time. You can condense what needs to be stored forever in channels, or go further smaller still and store commitments+proofs.
We need to move past the blockchain to store all the things model. It was cool when it was small, but we need to be thinking about how to implement higher order payment or economic concepts rather than raw txs.
Finally, to your point about businesses not trading in third-party checks... Kinda! When the store takes your payment over the PCI network, the card holders bank and the vendors bank trade some payment state between each other, and delivery of funds can take days to clear. Its all businesses trading slates, e-checks, e-balance sheets. In essence lightning isn't too dissimilar to how things work now with electronic $s.
A commitment to pay Bitcoin, that is signed or unsigned, cashable at any time, is an IOU.
It's the same as a signed check, except lightning is passing itself as a network to spend the equivalent of third party checks. Businesses and untrusted parties do not do this, so they settle (cash checks immediately), which Lightning can't handle at scale with users.
If Lightning wasn't really an IOU, then it wouldn't need Bitcoin to settle transactions, now would it?
It's the same as a signed check, except lightning is passing itself as a network to spend the equivalent of third party checks. Businesses and untrusted parties do not do this, so they settle (cash checks immediately), which Lightning can't handle at scale with users.
If Lightning wasn't really an IOU, then it wouldn't need Bitcoin to settle transactions, now would it?
>the more users there are making transactions, the more it needs bitcoin.
whot? why?
whot? why?
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Are you including the time it takes to open a state channel in this? That's an infrequently incurred cost that can be amortized pretty easily. Not really a reasonable comparison here.
These numbers are nonsensical. There is no reason to make a LN payment if you are going to close the channel after 2 payments
Nice ! Its been a while ive been out of the game, handnt heard of lightning in a while ! I tried googling some stats, but its always hard to get grasp at them. I dont have the knowledge to understand how much shares each participant represents. Could you hand me some refs i you have to better understand How lightning is used currently please ? If you have any ? Cheers :)
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While I was working at a crypto fund I did an experiment with the ceo of one of the largest liquidity providers at the time in crypto, we analyzed how many trades were printing compared to the depth of market at this one particular exchange (I forget which now because it was a while ago). We noticed there was significant fake volume on the exchange, for example an order of 50 bitcoin would print at some level, and the depth of market and pricee would not change at all, even at the level of interest. This went on pretty much all day.
That being said I don’t think bitcoin’s trading volume is a majorly faked. I think there are a few bad actors in the exchange industry, especially during the bubble, who were trying to give the illusion of volume and popularity to drive more clients so they could extract their fees + raise money.
If people are truly worried about this issue then just trade on a regulated exchange like CME.
That being said I don’t think bitcoin’s trading volume is a majorly faked. I think there are a few bad actors in the exchange industry, especially during the bubble, who were trying to give the illusion of volume and popularity to drive more clients so they could extract their fees + raise money.
If people are truly worried about this issue then just trade on a regulated exchange like CME.
How many AAPL shares have not been traded for the past 2 years? And how many BRK.A?
Bitcoin gives the opportunity to answer those questions contrarily to the complex and somewhat opaque equities ownership rules.
Bitcoin gives the opportunity to answer those questions contrarily to the complex and somewhat opaque equities ownership rules.
Where is the lightning network, so people can buy common, small dollar amounts of goods and services with BTC? IMO that's going to be the next catalyst, it's slowly fading out until it's at least technologically possible to go mainstream.
LN has some fundamental issues with regards to security that I don't have time to go into there. However any L2 protocol based on BTC is going to have a hard time getting bootstrapped for the simple reason that there isn't enough throughout in the mainnet to transfer a sufficient amount of balance to a second layer. With the UTXO pool fragmented as is I don't think there is much hope of improvement.
What is the alternative, wait until 500MB blocks are feasible for both blockchain storage and PoS bandwidth?
They pretty much are.
Its awesome, I have been using Bluewallet app to send and receive Bitcoin/Lightning between friends for about a year now. There was a "lightning torch relay" where hundreds of people added some lightning and sent it on as a proof of how the network performs. The money was then donated.
https://cointelegraph.com/news/lightning-torch-reaches-final...
https://cointelegraph.com/news/lightning-torch-reaches-final...
Ln a solid technology that is gaining in adoption
This article is severely misguided if it uses actual transactions on the blockchain to measure Bitcoin trading volumes.
So most bitcoin isn't moving. That's not new.
Tried to buy some on Coinbase the other day, said it would take 5 days to show up in my account. Doesn't inspire confidence in me.
That has nothing to do with the Bitcoin protocol, rather it's a "security" measure by Coinbase.
A typical Bitcoin transaction, even with minimum fees, confirms in under an hour.
A typical Bitcoin transaction, even with minimum fees, confirms in under an hour.
I know a Dutch bitcoin payment provider [0] whose transactions typically confirm within less than a second. In short: That's because the risk of a 51% attack on the network to steal my restaurant payment is in all practicality zero. So you don't even have to wait for a confirmation from the network, just the transaction showing up on the network is enough, given the transaction fee is reasonable.
[0] https://www.bitkassa.nl/
[0] https://www.bitkassa.nl/
That's a Coinbase problem, not Bitcoin.
Any time WSJ or Forbes writes about the bitcoin I get the feeling that their actual frustration is that they (the Wall Stree speculators) cannot control it the way they are used to.
Always feels like sour grapes to me - for some reason that pleases me. Bitcoin is an equalizer in that respect.
Always feels like sour grapes to me - for some reason that pleases me. Bitcoin is an equalizer in that respect.
This is the way bitcoin ends, not with a bang but with a whimper.
Bitcoin is clearly Art. Not gold, not money, not cash, art.
A lot of illegal business is done with bitcoin. It wouldn't be a huge surprise if some lost their capacity to trade, in one way or another.
trading escalates when it is volatile, bitcoin has been relatively well less volatile in past days
why do you post a paywalled article?
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Bitcoin is a scam inflated by cryptography and currency illiteracy. Same category as flat earthers and Anti vaxxers.
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NYSE symbols with the twice (2X) this marketcaps according to Yahoo Finance:
UNH (UnitedHealth Group) mcap: $262 bil, trading volume: $1.2 bil
KO (COCA-COLA) mcap: $231 bil, trading volume: $0.6 bil
MRK (MERCK) mcap: $225 bil trading volume: $0.7 bil
Therefore, for Bitcoin to be tradeable as similar stocks it has to show $0.25-0.5 bil for $133 bil mcap or $0.5-1.0 bil for $250 bil mcap.
Binance alone showed $0.3 bil today but the volume is usually $0.5-1 bil. I don't think that Binance is wash-trading, so all this FUD is mostly due to a lack of understanding.