I, Token: The untold story of the hole in Bitcoin's heart(brettscott.substack.com)
brettscott.substack.com
I, Token: The untold story of the hole in Bitcoin's heart
https://brettscott.substack.com/p/the-hole-in-bitcoins-heart
159 comments
This reminds me of the CPA & Advisory Services firm I had this year that didn't realize Bitcoin could be exchanged for dollars, and that there were active price charts for many exchanges out there.
Are you in the ideology game or are you in the money game?
This guy is trying to straddle both, and despite their early evangelism of Bitcoin last decade, they are lost in an irrelevant quandary. Am I one of the people in the article annoyed that a deeper question is being asked, no, I can acknowledge its irrelevance depending on what use case you aspire for. It's a deflationary asset.
Look, even the beanie baby bubble was actually rational at first, there was a seemingly permanent supply chain issue that made them "deflationary" as well, all while demand was increasing. Did you all know that? The issuer solved the supply chain issue at the surprise to all and that's what cratered the market. Same for Tulips, the bubonic plague killed all the derivatives traders, we don't actually know what would have happened, and all of our current "bubbles" last wayyyy longer than the 3 months that tulip derivatives (and not the spot market) had high values - the demand dried up only because a virus killed everyone. Our best commodities bubbles are the worst examples of irrational exuberance to lean on. Here we are, Bitcoin crashing to $3,000 and then crashing upwards to $30,000, what's going to happen next hmmm
Are you in the ideology game or are you in the money game?
This guy is trying to straddle both, and despite their early evangelism of Bitcoin last decade, they are lost in an irrelevant quandary. Am I one of the people in the article annoyed that a deeper question is being asked, no, I can acknowledge its irrelevance depending on what use case you aspire for. It's a deflationary asset.
Look, even the beanie baby bubble was actually rational at first, there was a seemingly permanent supply chain issue that made them "deflationary" as well, all while demand was increasing. Did you all know that? The issuer solved the supply chain issue at the surprise to all and that's what cratered the market. Same for Tulips, the bubonic plague killed all the derivatives traders, we don't actually know what would have happened, and all of our current "bubbles" last wayyyy longer than the 3 months that tulip derivatives (and not the spot market) had high values - the demand dried up only because a virus killed everyone. Our best commodities bubbles are the worst examples of irrational exuberance to lean on. Here we are, Bitcoin crashing to $3,000 and then crashing upwards to $30,000, what's going to happen next hmmm
Cryptocurrencies and NFTs are the monetization of Fear of Missing Out.
Oh my god it just drones on and on dude get to the fucking point, stop trying to explain everything 4 times
financial system collapse? It hasnt collapsed once, at least in the last 1000 years, so why are some people so afraid? There is no reason to be.
TLDR; Currencies and accounts are just ledgers. Bitcoin is a ledger with some unique advantages, despite some shortcomings. One of those advantages are self-fulfilling, if enough people use it for that: reserve value with a bias toward growth in value (deflation). More people are betting on that case, so it may fulfill that role. Or not.
LONG VERSION
I think the best way to explain Bitcoin is to point out that all currencies and accounts are ledgers.
The Bitcoin ledger has advantages over many pre-existing ledgers and accounts:
- No third party oversight or permission required to use it
- Users can create as many accounts as they want
- Users can manage their accounts directly
- Units can be sent by anyone to anyone, from anywhere, at any time
- Fast compared to some transaction types (wire or bank transfers, etc.)
- Inexpensive compared to some transaction types (wire transfer, etc.)
The current weaknesses of the Bitcoin ledger are:
- Still slow compared to some transaction types (cash, VISA, etc.)
- Expensive compared to some transaction types (cash, VISA, etc.)
- Has a leaky privacy model.
Other subsequent cryptocurrencies have mitigated those weaknesses, so Bitcoin is not the state of the art.
BUT two other advantages seems to have given Bitcoin a valuable role despite its inefficiencies:
- Rapidly diminishing unit production, with a hard maximum of units. So its total supply cannot be inflated.
This was an innovation, since other currencies and assets can have their supply inflated by their managers or producers.
It implies that as the ledger is used by more people, to store more value, the units will maintain and increase in value. I.e. deflate instead of inflate.
This makes it suitable as a reserve currency IF enough people accepted it as a standard way to do so.
- AND Bitcoin has first mover and the greatest recognition advantages over subsequent cryptocurrencies, giving it unique advantages as a standard
So far, the self-fulfilling trend appears to be happening.
There are a growing number of people using it as reserve value, or at least own it speculatively based on its future use as reserve value, or at least speculatively based on the idea that people will continue to speculate on its reserve value ....
So it has a clear use, that may be coming to pass.
LONG VERSION
I think the best way to explain Bitcoin is to point out that all currencies and accounts are ledgers.
The Bitcoin ledger has advantages over many pre-existing ledgers and accounts:
- No third party oversight or permission required to use it
- Users can create as many accounts as they want
- Users can manage their accounts directly
- Units can be sent by anyone to anyone, from anywhere, at any time
- Fast compared to some transaction types (wire or bank transfers, etc.)
- Inexpensive compared to some transaction types (wire transfer, etc.)
The current weaknesses of the Bitcoin ledger are:
- Still slow compared to some transaction types (cash, VISA, etc.)
- Expensive compared to some transaction types (cash, VISA, etc.)
- Has a leaky privacy model.
Other subsequent cryptocurrencies have mitigated those weaknesses, so Bitcoin is not the state of the art.
BUT two other advantages seems to have given Bitcoin a valuable role despite its inefficiencies:
- Rapidly diminishing unit production, with a hard maximum of units. So its total supply cannot be inflated.
This was an innovation, since other currencies and assets can have their supply inflated by their managers or producers.
It implies that as the ledger is used by more people, to store more value, the units will maintain and increase in value. I.e. deflate instead of inflate.
This makes it suitable as a reserve currency IF enough people accepted it as a standard way to do so.
- AND Bitcoin has first mover and the greatest recognition advantages over subsequent cryptocurrencies, giving it unique advantages as a standard
So far, the self-fulfilling trend appears to be happening.
There are a growing number of people using it as reserve value, or at least own it speculatively based on its future use as reserve value, or at least speculatively based on the idea that people will continue to speculate on its reserve value ....
So it has a clear use, that may be coming to pass.
This is an excellent summary of the properties of bitcoins' potential as a (new?) form of reserve currency.
One thing i'd like to add is that countries do not like to lose control of the reserve currency status of their currency, if they already have such a currency.
Given the advantages of a digital cryptocurrency, a central bank issued cryptocurrency might actually, by way of fiat, be set as the reserve currency instead of bitcoin.
One thing i'd like to add is that countries do not like to lose control of the reserve currency status of their currency, if they already have such a currency.
Given the advantages of a digital cryptocurrency, a central bank issued cryptocurrency might actually, by way of fiat, be set as the reserve currency instead of bitcoin.
A nation’s digital currency would still suffer from the threat of inflated supply, whenever politically expedient.
Also, most countries don’t want to use their own currency as reserve because they don’t have scale globally.
And they would prefer not to be beholden to giants like the US or Europe where they may have little sway and are vulnerable to financial system coercion - standard foreign policy for the US.
Bitcoin does not suffer (or suffers less) from those problems.
Also, most countries don’t want to use their own currency as reserve because they don’t have scale globally.
And they would prefer not to be beholden to giants like the US or Europe where they may have little sway and are vulnerable to financial system coercion - standard foreign policy for the US.
Bitcoin does not suffer (or suffers less) from those problems.
The opening paragraphs are very frustrating for a software developer to read, because it assumes a very technologically ignorant perspective that might beg similar questions like "What IS a website" and having the asker be annoyed by having you describe the features of a website. At the end of the day, it is a series of electrical on and off switches stored in one or several computers.
Is the value of websites indistinguishable from a bunch of batteries just because its form can't be meaningfully distinguished from a battery to a drunk 12th century techno illiterate in a tavern?
To explain what a bitcoin actually is to people utterly ignorant and skeptical of how information stored on hardware works sounds like an exercise that can be left to the writer, they may have to spend the rest or their lives explaining every bit of tech to every layman.
What is a book after all? Dead trees stained with ink? What intrinsic value does that hold? If someone were to ask stubbornly the value of any book, I'd be similarly disinclined to spend the time explaining that as well.
Like with TVs and cell phones and plumbing, lay people will stop asking or caring about "What is bitcoin" once you can give a functional answer of "You can buy a house with it". Explaining what it actually is to people that obtuse will not get one any closer to that point anyway, so I'm not sure what the value is.
The cycle for the next wave of technology whose final purpose and form baffles the general public will continue on and on, this is just a season we're in, like all the ones before.
Is the value of websites indistinguishable from a bunch of batteries just because its form can't be meaningfully distinguished from a battery to a drunk 12th century techno illiterate in a tavern?
To explain what a bitcoin actually is to people utterly ignorant and skeptical of how information stored on hardware works sounds like an exercise that can be left to the writer, they may have to spend the rest or their lives explaining every bit of tech to every layman.
What is a book after all? Dead trees stained with ink? What intrinsic value does that hold? If someone were to ask stubbornly the value of any book, I'd be similarly disinclined to spend the time explaining that as well.
Like with TVs and cell phones and plumbing, lay people will stop asking or caring about "What is bitcoin" once you can give a functional answer of "You can buy a house with it". Explaining what it actually is to people that obtuse will not get one any closer to that point anyway, so I'm not sure what the value is.
The cycle for the next wave of technology whose final purpose and form baffles the general public will continue on and on, this is just a season we're in, like all the ones before.
I don't think anyone else was confused by this, but I'll endeavour to clarify for you.
The allegory the writer of the article used is meant to reflect the same perspective of people in the modern day world and the rest of my comment pretty effortlessly transitions to discussing the limitations of those modern day peoples abilities to understand technical subjects.
The frustration refers to the task given of explaining tech to the willfully tech illiterate. The first few paragraphs I reference clearly move from the allegorical to the concrete modern day person whose perspective I refer to as frustrating. I also do offhandedly refer to the allegory to make a passing reference to the article and show that the allegorical character isn't that different from the modern day target audience of the author.
The rest of the article explores explaining crypto a frustratingly tech ignorant modern person. I think that context would be clear to anyone who even skimmed a good part of the article. You should consider reading the thing people are discussing before leaving a short derailing comment about it.
The allegory the writer of the article used is meant to reflect the same perspective of people in the modern day world and the rest of my comment pretty effortlessly transitions to discussing the limitations of those modern day peoples abilities to understand technical subjects.
The frustration refers to the task given of explaining tech to the willfully tech illiterate. The first few paragraphs I reference clearly move from the allegorical to the concrete modern day person whose perspective I refer to as frustrating. I also do offhandedly refer to the allegory to make a passing reference to the article and show that the allegorical character isn't that different from the modern day target audience of the author.
The rest of the article explores explaining crypto a frustratingly tech ignorant modern person. I think that context would be clear to anyone who even skimmed a good part of the article. You should consider reading the thing people are discussing before leaving a short derailing comment about it.
> The opening paragraphs are very frustrating for a software developer to read, because it assumes a very technologically ignorant perspective that might beg similar questions ...
It's an allegory. I see no problem here.
It's an allegory. I see no problem here.
This article fits perfectly with something Orwell wrote, about how the use of complex language gives bad ideas an heir of authority.
The example of the chair, where the author asserts that “functional definitions are wrong, only ‘structural’ definitions are correct” is a good test here. The author objects to the idea that “anything you sit on can be a chair” and then provides a definition of chair which does not include: - folding chairs - metal chairs - plastic chairs - any chair much bigger or smaller than a person (such as dollhouse furniture or some novelty item).
Does that make any sense? The moment you try to fix the problem with the author’s definition , you should come to the conclusion that functional definitions correspond more reliably to what people mean.
For example, how would this author define “food”?
Look at the extremely convoluted definition of money the author proposes:
> what is money?”, I would begin like this:
A vast network structure, at the centre of which lies three sets of issuers issuing out three chained layers of legal IOUs – in physical and digital form – which will later return to the issuers to be destroyed, but which in the interim entrench themselves as economic network access tokens that circulate around an interdependent web of people who cannot mobilise each other’s labour without them. These tokens are activated in the context of legal systems set within political systems set within social systems set within ecological systems, and this mesh structure underpins modern capitalism and is etched into the very fabric of our being.
If this is the definition of money, then it suggests people never used money at all until computers existed. Absurd.
This is someone trying to sell an idea (MMT) and claiming that it’s the result of “more rigorous thinking”.
The example of the chair, where the author asserts that “functional definitions are wrong, only ‘structural’ definitions are correct” is a good test here. The author objects to the idea that “anything you sit on can be a chair” and then provides a definition of chair which does not include: - folding chairs - metal chairs - plastic chairs - any chair much bigger or smaller than a person (such as dollhouse furniture or some novelty item).
Does that make any sense? The moment you try to fix the problem with the author’s definition , you should come to the conclusion that functional definitions correspond more reliably to what people mean.
For example, how would this author define “food”?
Look at the extremely convoluted definition of money the author proposes:
> what is money?”, I would begin like this:
A vast network structure, at the centre of which lies three sets of issuers issuing out three chained layers of legal IOUs – in physical and digital form – which will later return to the issuers to be destroyed, but which in the interim entrench themselves as economic network access tokens that circulate around an interdependent web of people who cannot mobilise each other’s labour without them. These tokens are activated in the context of legal systems set within political systems set within social systems set within ecological systems, and this mesh structure underpins modern capitalism and is etched into the very fabric of our being.
If this is the definition of money, then it suggests people never used money at all until computers existed. Absurd.
This is someone trying to sell an idea (MMT) and claiming that it’s the result of “more rigorous thinking”.
And interestingly enough physical cash is not an IOU in some big economies. So a 100 Euro bill would not be money...
You’re complaining but not giving a better option.
That definition of money applies to a physical Sestertius in 50 BC just fine. The same physical coin may be worth more as a collectors item today, but it’s no longer money. That’s what makes the definition so convoluted, stuff can go from money to not money very easily.
That definition of money applies to a physical Sestertius in 50 BC just fine. The same physical coin may be worth more as a collectors item today, but it’s no longer money. That’s what makes the definition so convoluted, stuff can go from money to not money very easily.
This is a well structured comment and much of the reason I still spend time on this site. Thank you.
The article's premise seems to me to be that real money is valuable because there's more to it than its properties and its form...
> But a cash token is not mere paper, and the numbers we see in bank accounts are not mere numbers. They are accounting records of legally-enforceable promises...
That sentence strikes me as the crux. But we never find out what is being promised. The word IOU is also used a lot, but we don't find out what we are owed.
Is it access to a financial system? If so that's a flimsy argument, who's to say crypto couldn't create its own financial vortex (as the author describes it)?
> But a cash token is not mere paper, and the numbers we see in bank accounts are not mere numbers. They are accounting records of legally-enforceable promises...
That sentence strikes me as the crux. But we never find out what is being promised. The word IOU is also used a lot, but we don't find out what we are owed.
Is it access to a financial system? If so that's a flimsy argument, who's to say crypto couldn't create its own financial vortex (as the author describes it)?
The fundamental thing that is promised by fiat money is the ability to pay your taxes with it. The government issues money, and levies taxes, and the money is used to pay the taxes. It turns out to be really convenient for everyone else to use this same money, but it doesn't really matter what everyone else uses as long as it can be converted to the fiat money (so you can pay your taxes).
As I understand it, there are countries where people may set some of their national currency aside to pay taxes, but make an effort (often illegal) to move their wealth into the currency of some other country such as the US or EU, either by holding cash, or securities denominated in those currencies.
In my view, money is a technology, and people will choose to use money that "works" if they can. A technology can be designed to suit particular purposes, and without claiming to be an economist, I think the major government money systems as US and EU are designed to provide a medium of exchange, temporary store of value, and tool of economic policy.
What I see as the main promise of US money is that it will be roughly the same tomorrow as today, to the point where thinking about the value of things in dollars is useful.
In my view, money is a technology, and people will choose to use money that "works" if they can. A technology can be designed to suit particular purposes, and without claiming to be an economist, I think the major government money systems as US and EU are designed to provide a medium of exchange, temporary store of value, and tool of economic policy.
What I see as the main promise of US money is that it will be roughly the same tomorrow as today, to the point where thinking about the value of things in dollars is useful.
> What I see as the main promise of US money is that it will be roughly the same tomorrow as today, to the point where thinking about the value of things in dollars is useful.
I think it is safe to consider that promise has not been kept.
I think it is safe to consider that promise has not been kept.
Compared to Bitcoin the USD is an extremely stable store of value.
That’s only true if you price things in USD. If you price things in BTC, 1 bitcoin still equals 1 bitcoin.
If you price items in BTC, those items continue to get cheaper; if you price them in USD, they get more expensive.
If you price items in BTC, those items continue to get cheaper; if you price them in USD, they get more expensive.
> If you price things in BTC, 1 bitcoin still equals 1 bitcoin.
Do you realize that you are looking at only one side of the equation you are implying? 1 USD is also always 1 USD. A tautology is also a tautology.
> If you price items in BTC, those items continue to get cheaper
Which is not stability.
Now look at the absolute value of that change over time and you‘ll notice a difference between USD and BTC.
Do you realize that you are looking at only one side of the equation you are implying? 1 USD is also always 1 USD. A tautology is also a tautology.
> If you price items in BTC, those items continue to get cheaper
Which is not stability.
Now look at the absolute value of that change over time and you‘ll notice a difference between USD and BTC.
There's only one "thing" that's stable relative to BTC, and that's BTC. There are many "things" that are stable in the short term, relative to USD, such as bread, electricity (to make BTC's), wages, and so forth.
Huh? Purchasing power of BTC is obviously volatile.
Bitcoiners are often using a fringe definition of inflation not based on purchasing power.
In that framework, it really is just equal to issuance, disregarding even the velocity of money.
In that framework, it really is just equal to issuance, disregarding even the velocity of money.
> legally-enforceable
That seems to me like the real crux. The acceptance of fiat is enforced, ultimately with physical force; this ensures that it's used.
With crypto, it's a social contract: I accept your bitcoin, because I think others will accept it when I try to spend it myself.
That seems to me like the real crux. The acceptance of fiat is enforced, ultimately with physical force; this ensures that it's used.
With crypto, it's a social contract: I accept your bitcoin, because I think others will accept it when I try to spend it myself.
The acceptance of fiat in a transaction is not enforced. People selling an item can refuse dollars and require the use of pesos or Monopoly money if they wish.
Currencies in some countries are required to be accepted by creditors, but transactions are pretty much unregulated.
Currencies in some countries are required to be accepted by creditors, but transactions are pretty much unregulated.
> The acceptance of fiat in a transaction is not enforced.
I don't know what jurisdiction you're in, but if you happen to have any USD lying around, you'll see a note that says 'This note is legal tender for all debts, public and private'—this refers to legal tender laws which, in the US at least, means that if you refuse to accept USD for a transaction within the United States, then the debt is legally unenforceable. I don't see how that squares with what you've said above, but if I've misunderstood you (or there are different rules where you live), please correct me.
I don't know what jurisdiction you're in, but if you happen to have any USD lying around, you'll see a note that says 'This note is legal tender for all debts, public and private'—this refers to legal tender laws which, in the US at least, means that if you refuse to accept USD for a transaction within the United States, then the debt is legally unenforceable. I don't see how that squares with what you've said above, but if I've misunderstood you (or there are different rules where you live), please correct me.
I think you're talking past one another. The thing you're taking about is specific to debts, but merchants are well within their rights to reject transactions, as no debt has yet been incurred. This is why it is perfectly legal to, for example, not accept $100 bills.
You'd think that, but not even the local DMV actually accepts cash dollars. They lack the security tools necessary to store and transfer them to the bank, so they've gone to requiring checks, money orders, or credit card
The use of fiat currency is usually enforced for debts. This doesn't apply to a cash purchase in a shop, but credit card purchases and most B2B transactions (with invoicing or a credit card) involve creating a debt.
As long as a means of payment is accepted by some creditor, it has value to the extent that it can find its way through the economy to that creditor. That’s why people (and money launderers) value Big Co gift cards at something approaching face value.
I am fairly certain that some jurisdictions do.
The "ultimately with physical force" bit is an important one that I think does as much to strengthen the notion of crypto as to weaken it:
Namely, consider a huge exchange like Binance, which could technically run off with everyone's money.
I bet it won't though, precisely because it's SO BIG, and so many people have invested, such that if Joe Binance decided to run off with everything -- he might not be in trouble with law enforcement per se, but a LOT of others might come knocking at his door.
Broadly, I think this factor is what a lot of people miss, namely that it is at least possible that we're at the point where crypto is enforceable with "violence" or "threat of harm," even if said harm isn't from government per se.
Namely, consider a huge exchange like Binance, which could technically run off with everyone's money.
I bet it won't though, precisely because it's SO BIG, and so many people have invested, such that if Joe Binance decided to run off with everything -- he might not be in trouble with law enforcement per se, but a LOT of others might come knocking at his door.
Broadly, I think this factor is what a lot of people miss, namely that it is at least possible that we're at the point where crypto is enforceable with "violence" or "threat of harm," even if said harm isn't from government per se.
Specifically, if Joe Binance runs off with everyone's money, he collapses the web of trust that underpins the financial system itself, since there isn't some fiat entity to print more BTC quickly. He destroys faith in the currency ("why would I use a currency that easily stolen of I could just use dollars?") and his ill-gotten goods crash in value... Nobody wants to take them for other things of value because they can't spend them.
This creates an incentive for Joe Binance to play fair (or at least, fair enough that he doesn't wreck trust).
This creates an incentive for Joe Binance to play fair (or at least, fair enough that he doesn't wreck trust).
> "why would I use a currency that easily stolen of I could just use dollars?"
If you hand out your currency to a third party (Joe Binance or someone else), then it can "easily be stolen", regardless of what currency your are talking about: using dollars instead of BTC changes nothing here.
If you hand out your currency to a third party (Joe Binance or someone else), then it can "easily be stolen", regardless of what currency your are talking about: using dollars instead of BTC changes nothing here.
In the US at least, if a bank steals my dollars, the government in control of the fiat currency makes it their business to prosecute the thief and retrieve the currency, but while that is happening they make me whole by issuing me replacement money via the FDIC insurance system.
No such back-stop exists for a third party stealing your bitcoins.
No such back-stop exists for a third party stealing your bitcoins.
And if a bank steals any other assets you may have in their custody (e.g. stocks, forex, bitcoin, etc.) does it work any differently than if they steal USD currency? Isn't there some sort of insurance or legislation that protects you in such cases? Or, if your US bank decides to steal your EUR, you have no recourse and just have to take it?
In this case, we are not talking about a bank, but about an exchange which exists outside of US jurisdiction. In this case, it does not matter if you handed USD or BTC to this third-party (outside US jurisdiction): if they decide to take your stuff, there is little actual recourse you have and FDIC won't cover it.
On the other hand, if you are dealing with an exchange within US jurisdiction (e.g. Coinbase), I don't see how BTC theft would be treated any differently from USD theft: if they take your assets, they can be brought to a court to have that fixed and return your assets (be it USD or BTC or whatever).
TL;DR: What matters is if you keep your assets (USD or BTC) with an appropriately-regulated institution (e.g. a bank within a jurisdiction you trust) or not (e.g. in an unregulated exchange outside your jurisdiction), and not so much the type of assets you have (or that were stolen/taken from you).
In this case, we are not talking about a bank, but about an exchange which exists outside of US jurisdiction. In this case, it does not matter if you handed USD or BTC to this third-party (outside US jurisdiction): if they decide to take your stuff, there is little actual recourse you have and FDIC won't cover it.
On the other hand, if you are dealing with an exchange within US jurisdiction (e.g. Coinbase), I don't see how BTC theft would be treated any differently from USD theft: if they take your assets, they can be brought to a court to have that fixed and return your assets (be it USD or BTC or whatever).
TL;DR: What matters is if you keep your assets (USD or BTC) with an appropriately-regulated institution (e.g. a bank within a jurisdiction you trust) or not (e.g. in an unregulated exchange outside your jurisdiction), and not so much the type of assets you have (or that were stolen/taken from you).
I'm not sure how wide-sweeping FDIC insurance is. I believe it is scoped to cash holdings.
... but worth noting: I'm not talking about recovery (which is a matter of law that could take weeks or years). I mean replacement: making the victim whole with new cash while the law addresses the theft itself. I am unaware of any process or institution in the Bitcoin space that can do that.
... but worth noting: I'm not talking about recovery (which is a matter of law that could take weeks or years). I mean replacement: making the victim whole with new cash while the law addresses the theft itself. I am unaware of any process or institution in the Bitcoin space that can do that.
Yet, right?
That brings up a really interesting notion, no? Couldn't be done with bitcoin, but one might imagine one of these more centralized alt-currencies doing something like that. Somebody gets openly and obviously screwed on Binance and Joe Binance reviews/audits, and says, yep, and issues them some Binance coins*
*I know Binance does have it's own coin (coins?), I have no idea if it's technically possible with it/them, this is purely hypothetical.
That brings up a really interesting notion, no? Couldn't be done with bitcoin, but one might imagine one of these more centralized alt-currencies doing something like that. Somebody gets openly and obviously screwed on Binance and Joe Binance reviews/audits, and says, yep, and issues them some Binance coins*
*I know Binance does have it's own coin (coins?), I have no idea if it's technically possible with it/them, this is purely hypothetical.
We can take this further: we have "law" and "law" has mechanisms to protect against and recover from theft, no matter what. It's true that the FDIC et al makes "recovery in the case of shenanigans" much easier, but none of it means "if someone steals bitcoin, it's impossible to recover because there's no FDIC for it."
(and perhaps even further than that, my earlier point is, "Joe Binance" is in so deep at this point that there's now likely enough of an incentive for parties who aren't "legal" to threaten him with violence or harm if he does something wrong.)
(and perhaps even further than that, my earlier point is, "Joe Binance" is in so deep at this point that there's now likely enough of an incentive for parties who aren't "legal" to threaten him with violence or harm if he does something wrong.)
The key idea here is replacement is different from recovery.
Recovery can take weeks, months, years, or be impossible (if the cash was burned, or the BTC routed to an account with a lost private key). While all that is going on, FDIC insurance on USD means (in the case of a rifle US bank) the Fed steps in and issues new cash to make the victim whole.
There is neither a mechanism for printing "emergency Bitcoin" nor a "victim's reserve" operated by a trusted third-party to do something similar if a Binance (for hypothetical example) goes rogue.
Recovery can take weeks, months, years, or be impossible (if the cash was burned, or the BTC routed to an account with a lost private key). While all that is going on, FDIC insurance on USD means (in the case of a rifle US bank) the Fed steps in and issues new cash to make the victim whole.
There is neither a mechanism for printing "emergency Bitcoin" nor a "victim's reserve" operated by a trusted third-party to do something similar if a Binance (for hypothetical example) goes rogue.
There is, if you are talking about "centrally-controlled" tokens/coins (e.g. USDC, USDT, BUSD). They can simply "lock" the stolen coins and print you new ones (as they have done before).
If you are talking about decentralized tokens/coins (BTC), then... yes, you can't arbitrarily seize or print new ones (but that resistance to arbitrary manipulation is generally considered a feature, not a bug).
And, again, in this case (sending money/assets to Binance, or even to a US-based exchange like Coinbase), FDIC would be irrelevant and not be triggered, even if you use USD (I assume it only applies to money kept in banks and not necessarily to money kept in other type of non-bank brokers or exchanges).
If you are talking about decentralized tokens/coins (BTC), then... yes, you can't arbitrarily seize or print new ones (but that resistance to arbitrary manipulation is generally considered a feature, not a bug).
And, again, in this case (sending money/assets to Binance, or even to a US-based exchange like Coinbase), FDIC would be irrelevant and not be triggered, even if you use USD (I assume it only applies to money kept in banks and not necessarily to money kept in other type of non-bank brokers or exchanges).
> Namely, consider a huge exchange like Binance, which could technically run off with everyone's money.
> I bet it won't though, precisely because it's SO BIG
Quoth the Wikipedia:
Mt. Gox was a bitcoin exchange based in Shibuya, Tokyo, Japan.[1] Launched in July 2010, by 2013 and into 2014 it was handling over 70% of all bitcoin (BTC) transactions worldwide, as the largest bitcoin intermediary and the world's leading bitcoin exchange.[2][3][4][5]
> I bet it won't though, precisely because it's SO BIG
Quoth the Wikipedia:
Mt. Gox was a bitcoin exchange based in Shibuya, Tokyo, Japan.[1] Launched in July 2010, by 2013 and into 2014 it was handling over 70% of all bitcoin (BTC) transactions worldwide, as the largest bitcoin intermediary and the world's leading bitcoin exchange.[2][3][4][5]
To expand on the article’s initial argument, it seems like to understand what Bitcoin really is, you need to understand the Bitcoin financial system - that is, what spending Bitcoin gives you access to. Understanding the cryptography, the code, or how mining works is not enough, because that doesn’t tell you what you can do with Bitcoin.
I’m hardly an expert but it seems fair to say that Bitcoin’s financial system is considerably smaller and probably more fragile than, say, the US dollar’s financial system, though there’s still some activity.
I’m hardly an expert but it seems fair to say that Bitcoin’s financial system is considerably smaller and probably more fragile than, say, the US dollar’s financial system, though there’s still some activity.
the author strikes me as ignorant TBH.
Here is what people want when it comes to money: ability to exchange the money for goods. That’s it.
Money is valuable because it can be exchanged and everyone has 1) accepted that you can exchange it 2) is using it for this exchange.
What bitcoin is is captured in its name: bit coin == digital money. It’s not complicated. Also, breaking news: most money (like 90%+) today only exist in electronic form (in that sense the dollar is a digital currency with a paper form and so on)
People hate bitcoin because they don’t understand what it is and perceive it as being somewhat of a threat. It’s not. The ultimate success or failure of bitcoin will depend on how many people use it and what it’s used for.
Also, as a side note, the blockchain idea is revolutionary. Distributed consensus in a zero trust environment? yup. Has this been done before at this scale?
Money is valuable because it can be exchanged and everyone has 1) accepted that you can exchange it 2) is using it for this exchange.
What bitcoin is is captured in its name: bit coin == digital money. It’s not complicated. Also, breaking news: most money (like 90%+) today only exist in electronic form (in that sense the dollar is a digital currency with a paper form and so on)
People hate bitcoin because they don’t understand what it is and perceive it as being somewhat of a threat. It’s not. The ultimate success or failure of bitcoin will depend on how many people use it and what it’s used for.
Also, as a side note, the blockchain idea is revolutionary. Distributed consensus in a zero trust environment? yup. Has this been done before at this scale?
Too bad that bitcoin can't actually be used as money at the grocery store, to purchase a car, to buy fertilizer, or in any of a billion other ways that money can be used.
Not here to defend bitcoin, but that's not true. You can buy all three of those (to varying degrees in different countries).
The important thing is that I can't buy them where I live, and neither can anyone I know. No - people cannot use bitcoin as a real-world currency to perform daily tasks. Can you right now stop all transactions in dollars or other currency and do everything in bitcoin? My guess is that no you cannot.
i will bet you real bitcoin that given enough time you'll be able to make all those transactions. there is absolutely no reason for someone to not accept bitcoin when they can literally turn around and convert it in fiat if they don't like holding it immediately.
There are loads of reasons why people will not deal in bitcoins. One reason is what happened at Poly Network since you posted your comment.
Bitcoin and Crypto in general are filled with thieves and scam artists. Just because some ethical people can navigate that minefield at relatively low dollar transactions - that doesn't mean many people or businesses want to stake their livelihoods on it not failing.
Bitcoin and Crypto in general are filled with thieves and scam artists. Just because some ethical people can navigate that minefield at relatively low dollar transactions - that doesn't mean many people or businesses want to stake their livelihoods on it not failing.
Time is a problem. If you lose value in time it takes to convert its not good. Most businesses don't care if the value increases nearly as much as it decreasing. Bitcoin volatility does not help it's case. I guess we trust banks will always be available to get dollars out when needed.
You should rethink that phrasing. That's a heads I win tails you lose kind of proposal.
> People hate bitcoin because they don’t understand what it is and perceive it as being somewhat of a threat.
I dislike Bitcoin because (a) it's causing quite a bit of environmental damage and (b) it has revolutionized kidnapping and ransomware.
This is supposed to be a fair trade-off for letting people circumvent e.g. onerous drug laws. I'm not convinced it's worth it.
I dislike Bitcoin because (a) it's causing quite a bit of environmental damage and (b) it has revolutionized kidnapping and ransomware.
This is supposed to be a fair trade-off for letting people circumvent e.g. onerous drug laws. I'm not convinced it's worth it.
yes. bitcoin is the worst /s
you know what’s the preferred currency for crime? the USD.
If you look at how something, a tool, is used and declare it bad I’m not sure you’re seeing the big picture.
A hammer can be used in construction or to bash someone’s brains out. Nobody ever mentions banning hammers because someone used one in a f’ed up way.
for the environmental damage part: in a free market you cannot really control what people are doing with energy. You use the energy, you pay the bill. End of story. If the profit you’re making from the activity is greater that the money you are putting in people will do that activity.
you know what’s the preferred currency for crime? the USD.
If you look at how something, a tool, is used and declare it bad I’m not sure you’re seeing the big picture.
A hammer can be used in construction or to bash someone’s brains out. Nobody ever mentions banning hammers because someone used one in a f’ed up way.
for the environmental damage part: in a free market you cannot really control what people are doing with energy. You use the energy, you pay the bill. End of story. If the profit you’re making from the activity is greater that the money you are putting in people will do that activity.
> A hammer can be used in construction or to bash someone’s brains out. Nobody ever mentions banning hammers because someone used one in a f’ed up way.
A hammer is no better suited for killing people than thousands of other common household (or natural!) objects. Bitcoin is uniquely suited for ransoms of all types.
Guns are perhaps a better analogy than hammers here. Not a perfect analogy, but a better one.
> for the environmental damage part: in a free market you cannot really control what people are doing with energy. You use the energy, you pay the bill. End of story. If the profit you’re making from the activity is greater that the money you are putting in people will do that activity.
That's not a rebuttal, it's a description of the problem.
A hammer is no better suited for killing people than thousands of other common household (or natural!) objects. Bitcoin is uniquely suited for ransoms of all types.
Guns are perhaps a better analogy than hammers here. Not a perfect analogy, but a better one.
> for the environmental damage part: in a free market you cannot really control what people are doing with energy. You use the energy, you pay the bill. End of story. If the profit you’re making from the activity is greater that the money you are putting in people will do that activity.
That's not a rebuttal, it's a description of the problem.
> It’s not. The ultimate success or failure of bitcoin will depend on how many people use it and what it’s used for.
Bitcoin has already failed as money. Even most coiners admit that nowadays.
> Distributed consensus in a zero trust environment?
The whole cryptocurrency environment still relies on plenty of trust (exchanges, programmers, apis...). It's just less regulated, and this is why it is full of scams (https://www.rekt.news/).
Bitcoin has already failed as money. Even most coiners admit that nowadays.
> Distributed consensus in a zero trust environment?
The whole cryptocurrency environment still relies on plenty of trust (exchanges, programmers, apis...). It's just less regulated, and this is why it is full of scams (https://www.rekt.news/).
the environment does not rely on trust. When you make a transaction you make a transaction without needing to trust anyone.
Exchanges are needed only in the world where you need to transform bitcoins into other currencies.
Relying on programmers, api, etc: if you want to go down that rabbit hole, you can literally take the code and verify it yourself. It’s out in the open and it’s backed by cryptographically sound primitives.
Bitcoin has failed as money? Most coiners? Where is this coming from? Do you have anything to support these assertions?
Exchanges are needed only in the world where you need to transform bitcoins into other currencies.
Relying on programmers, api, etc: if you want to go down that rabbit hole, you can literally take the code and verify it yourself. It’s out in the open and it’s backed by cryptographically sound primitives.
Bitcoin has failed as money? Most coiners? Where is this coming from? Do you have anything to support these assertions?
> the environment does not rely on trust. When you make a transaction you make a transaction without needing to trust anyone.
Ah yes. Because I don't have to trust anyone that the order from BitcoinAmazon will arrive. Or that the house I bought on BitcoinZillo will actually be mine. Or...
Ah yes. Because I don't have to trust anyone that the order from BitcoinAmazon will arrive. Or that the house I bought on BitcoinZillo will actually be mine. Or...
> When you make a transaction you make a transaction without needing to trust anyone.
For the transaction to actually take place it means that it needs to be appended to the blockchain, and whether it is appended or not is not up to you. Instead you have to rely entirely on others for that to occur. This is the very definition of trust.
For the transaction to actually take place it means that it needs to be appended to the blockchain, and whether it is appended or not is not up to you. Instead you have to rely entirely on others for that to occur. This is the very definition of trust.
nah. no offense but you don’t understand how it works.
there is nothing preventing you from running your own node or miner.
also, you are overextending the meaning of trust. Do you trust air when you’re breathing? Do you trust traffic lights? Do you trust you’re going to eliminate excess water through pee?
The point is that if you have a series of established rules and a way to verify that they are actually applied as designed, it does not really matter who applies them.
One miner cannot become a bad actor and invent its own rules.
there is nothing preventing you from running your own node or miner.
also, you are overextending the meaning of trust. Do you trust air when you’re breathing? Do you trust traffic lights? Do you trust you’re going to eliminate excess water through pee?
The point is that if you have a series of established rules and a way to verify that they are actually applied as designed, it does not really matter who applies them.
One miner cannot become a bad actor and invent its own rules.
I wouldn't say running your own miner is necessarily the way to not "trust anyone (else)", because at the current global hashrate the chance that your individual miner will get to mint a block with your transaction in it is basically zero.
The more correct answer is that your transaction has fees, which is why other miners are motivated to include it in their next block. (And also why a majority of the hashrate being centralized into a single entity with a singular will is a doomsday scenario for bitcoin.)
The more correct answer is that your transaction has fees, which is why other miners are motivated to include it in their next block. (And also why a majority of the hashrate being centralized into a single entity with a singular will is a doomsday scenario for bitcoin.)
Exactly, and fees are only an incentive. There's nothing stopping miners from discarding your transaction. Therefore trust that miners won't discard your transaction is required.
Fees being an incentive == trust is a strange definition of trust. But if that's the definition you want to roll with, sure distributed currencies rely on trust.
the "only" part before "an incentive" was important. They weren't saying because the fees are an incentive there is therefore trust, but rather, that one is trusting that, essentially, that this incentive will be enough.
Of course, the concern that some particular miner might just have it out for you to a degree that outweighs this incentive, or who has some other incentive to not include your transaction, is more mitigated when there are more separate/independent miners/pools .
Of course, the concern that some particular miner might just have it out for you to a degree that outweighs this incentive, or who has some other incentive to not include your transaction, is more mitigated when there are more separate/independent miners/pools .
also, in case of asteroid impact you will lose all your money. what's your point?
why would the miners discard a transaction and not another one given that the value they extract is the same?
why would the miners discard a transaction and not another one given that the value they extract is the same?
I don't know why they would discard a transaction. The point is that they can discard transactions, which appears to invalidate the claim that bitcoin payments are "uncensorable" and "trustless".
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I understand what it is. I hate it because it's literally wasting more electricity than some countries for no reason and has also led to ridiculous demand for GPUs making them near impossible to source at MSRP.
you know what else is wasting electricity? the whole financial system. I'm gonna bet you real bitcoin that they waste way more. Also guess what? They close at 5PM and during weekends. So there is that.
The energy consumption and the high prices of GPU comes down to capitalism and freedom of choice. Who are you to decide on what we should spend energy on and what we should not spend energy on? If an activity yields more money that it consumes (even if it's in the form of an electrical bill) people are going to do that activity.
The energy consumption and the high prices of GPU comes down to capitalism and freedom of choice. Who are you to decide on what we should spend energy on and what we should not spend energy on? If an activity yields more money that it consumes (even if it's in the form of an electrical bill) people are going to do that activity.
> People hate bitcoin because they don’t understand what it is and perceive it as being somewhat of a threat. It’s not.
For those paying higher prices for electricity or GPUs it's rational to see Bitcoin as a threat.
For those paying higher prices for electricity or GPUs it's rational to see Bitcoin as a threat.
isn’t this “the dream”? a free market where the price is dictated by supply and demand?
You see it as a threat? Fine. But if you’re gonna be rational focus on all the things that impact you - don’t just listen to propaganda parroting the same things over and over again.
On a side note: at least for BTC GPUs have not been a viable option is quite a while. also, mining happens in areas with low electricity prices - so not sure either of these arguments have legs.
You see it as a threat? Fine. But if you’re gonna be rational focus on all the things that impact you - don’t just listen to propaganda parroting the same things over and over again.
On a side note: at least for BTC GPUs have not been a viable option is quite a while. also, mining happens in areas with low electricity prices - so not sure either of these arguments have legs.
The bitcoin price is correlated with the price of other cryptocurrencies. Greater bitcoin price -> greater other-cryptocurrencies-price -> greater motivation for people to mine these other cryptocurrencies -> greater demand for GPUs for mining.
Well, I suppose I'm conflating correlation with causation here. Are the two correlated because a higher bitcoin price produces a higher other-cryptocurrencies price, or the other way around, or another thing which causes both of them, or maybe some mix of some of these 3?
Well, I suppose I'm conflating correlation with causation here. Are the two correlated because a higher bitcoin price produces a higher other-cryptocurrencies price, or the other way around, or another thing which causes both of them, or maybe some mix of some of these 3?
The bitcoin consensus mechanism is literally a lottery in which the winner gets to decide what the "consensus" is. I don't know about "revolutionary"...
is it though?
the “lottery winner” in your case assembles a block with transactions from the transaction pool (ie you don’t just make shit up. you are taking useful transaction that people are making them and capturing them into the chain) So the winner does not decide much, except maybe what transactions to select (spoiler alert: the transactions with the highest fees are normally selected).
The consensus is in the sense that: you wanted to create a transaction and that transaction is captured and everyone in the network sees and agrees that the transact happened. The miner cannot alter your transaction. Other nodes in the network cannot arbitrarily reject it. You cannot simply claim you didn’t do it after the fact.
the “lottery winner” in your case assembles a block with transactions from the transaction pool (ie you don’t just make shit up. you are taking useful transaction that people are making them and capturing them into the chain) So the winner does not decide much, except maybe what transactions to select (spoiler alert: the transactions with the highest fees are normally selected).
The consensus is in the sense that: you wanted to create a transaction and that transaction is captured and everyone in the network sees and agrees that the transact happened. The miner cannot alter your transaction. Other nodes in the network cannot arbitrarily reject it. You cannot simply claim you didn’t do it after the fact.
> everyone in the network sees and agrees that the transact happened
Why would everyone agree that the transaction happened?
Why would everyone agree that the transaction happened?
everyone == bitcoin nodes that each keep a copy of blockchain locally.
once a block is mined it is propagated through the network and it’s verified by all the nodes that see it. In effect, when you get the block and you append it to your local blockchain after verification you agree that the transaction that happened in that block happened.
once a block is mined it is propagated through the network and it’s verified by all the nodes that see it. In effect, when you get the block and you append it to your local blockchain after verification you agree that the transaction that happened in that block happened.
Yes, but the question is why would all the nodes agree that the transaction has happened. What's stopping them from disagreeing?
They're welcome to disagree. I can write a node that creates a chain with blocks that only contain some transactions of my choice and then broadcasts it.
For nodes that only have access to my chain, they will also go with my chain. This is why being connected to multiple nodes is important.
For nodes that have access to both my chain and the rest of the world's chain, they will go with the chain that has the most work put into it, because that is the one that is clearly supported by the majority computation power. It's irrational to go with the chain that has less power, because the entities that created the chain with more power can easily overwrite the chain with less power by virtue of having more power.
Unless I happen to have more computation power than the rest of the world, the chain with more work put into it isn't going to be mine, which is why it's important that global computation power isn't consolidated into a single miner.
For nodes that only have access to my chain, they will also go with my chain. This is why being connected to multiple nodes is important.
For nodes that have access to both my chain and the rest of the world's chain, they will go with the chain that has the most work put into it, because that is the one that is clearly supported by the majority computation power. It's irrational to go with the chain that has less power, because the entities that created the chain with more power can easily overwrite the chain with less power by virtue of having more power.
Unless I happen to have more computation power than the rest of the world, the chain with more work put into it isn't going to be mine, which is why it's important that global computation power isn't consolidated into a single miner.
> It's irrational to go with the chain that has less power, because the entities that created the chain with more power can easily overwrite the chain with less power by virtue of having more power.
This basically means the entire bitcoin network depends on the entities that have the most computer power behaving correctly, am I wrong?
This basically means the entire bitcoin network depends on the entities that have the most computer power behaving correctly, am I wrong?
That is correct. As I wrote in [1], the situation where the majority power becomes irrational is a doomsday scenario for bitcoin.
[1]: https://news.ycombinator.com/item?id=28020592
[1]: https://news.ycombinator.com/item?id=28020592
Suppose the majority decides that they won't halve coinbase (the mining reward) after every 210,000 blocks anymore (thus removing the 21m cap). Maybe that's irrational, maybe that's rational. Who is to say?
Right. Though the problem is not so much behaving irrationally as dishonestly. At any rate it's hard to argue that the bitcoin network is more "trustless" than a bank, since we have coercive mechanisms to ensure that a bank will behave honestly, while we don't have the same mechanisms to ensure bitcoin miners will do the same. Bitcoin users have to trust that they will be honest.
No, you still don't understand. It's not dishonesty, it's irrationality.
First you assume that the majority computation power is already colluding. This is not the case.
Let's assume it's the case. As soon as they stop adding all transactions to a block that they would've been expected to, the entire world will notice. In response, the currency will become valueless. That is, it's a public act to abuse your position as a majority power, and the very act of your abuse destroys the thing that you're trying to abuse to your profit.
First you assume that the majority computation power is already colluding. This is not the case.
Let's assume it's the case. As soon as they stop adding all transactions to a block that they would've been expected to, the entire world will notice. In response, the currency will become valueless. That is, it's a public act to abuse your position as a majority power, and the very act of your abuse destroys the thing that you're trying to abuse to your profit.
hmm. it’s not necessary more power. Sometimes it’s luck if you are talking about chains that are the same except the tip where they differ by 1-2 blocks.
> The bitcoin consensus mechanism is literally a lottery
It is, but with the probability of winning proportional to the "work" you put in. That is crucial.
It is, but with the probability of winning proportional to the "work" you put in. That is crucial.
Just like any lottery. The more tickets you buy the higher the probability of winning a lottery. In the bitcoin lottery the tickets are cpu power.
not a lottery. in case of a lottery, when you have the winning numbers you go to a central authority that manages the whole thing and you claim the winnings. Also, in case of a lottery the winnings are a share of what has been put into buying the tickets. also, lotteries can go a long time without having a winner for the jackpot. Also for lotteries, usually there is a tiered winning structure and what you win on is fixed (ie the numbers)
for bitcoin there is no central authority. the reward for winning is “fixed” and claiming the said reward is dependent on a network that validates that you indeed have the work that incorporates pending transactions into the blockchain. also, “winning” happens at regular intervals of time (average 10 minutes based on difficulty), and what you’re winning is somewhat fixed (the block reward is fixed + some TX fees var).
so it’s not a lottery.
for bitcoin there is no central authority. the reward for winning is “fixed” and claiming the said reward is dependent on a network that validates that you indeed have the work that incorporates pending transactions into the blockchain. also, “winning” happens at regular intervals of time (average 10 minutes based on difficulty), and what you’re winning is somewhat fixed (the block reward is fixed + some TX fees var).
so it’s not a lottery.
Right. It's a thing where you have to guess a secret number, and the winner gets a prize, but it's definitely NOT a lottery.
It also fails to take into account e.g. Somalia, where there's been no bank for some time and banknotes are printed by whoever can put together a convincing-looking printing operation ... and yet they continue to function as tender just fine.
Is there somewhere I can read more about this? I wasn't aware of the situation with Somalia but it seems to be counter to the narrative of hyperinflation I found on Wikipedia https://en.wikipedia.org/wiki/Somali_shilling#Modern_history
The hyperinflation happened, yes, but the point is that once it stabilised "pre-1991 notes and subsequent forgeries were treated as the same currency."
I'm not attempting to say this was a good situation, only that it has interesting implications for "what is a currency" as a question.
I'm not attempting to say this was a good situation, only that it has interesting implications for "what is a currency" as a question.
One thing that is enforced legally is the IOU. It used to be that a note meant that the bank/government owes you gold for it. Since USD is now fiat, the IOU is in the form of ensuring that your debtors actually pay you (simplest form is loans or bonds). Within a jurisdiction that would be done in different ways with the court. Between countries it would be done with the military.
On ethereum, the IOU is that you’re granted a vote to shape the code of the network, and also you can are owed some structured computation cycles.
On ethereum, the IOU is that you’re granted a vote to shape the code of the network, and also you can are owed some structured computation cycles.
If you subscribe to MMT, the IOU here is that the government promises not to throw you in jail for failure to pay taxes if you give them some tokens every year. If you own land within the boundaries of a state, and you decide not to answer the door when the tax man shows up, you'll quickly find out how much ownership you really have.
If you decide to go full nomad and never "own" anything, the tokens still work as IOUs in the eyes of the state. Try paying bus fares (public infrastructure fees) or parking tickets (fines/taxes) in bitcoin or gold.
Money is an IOU to be free from state violence in return for economic productivity and corvee labor.
If you decide to go full nomad and never "own" anything, the tokens still work as IOUs in the eyes of the state. Try paying bus fares (public infrastructure fees) or parking tickets (fines/taxes) in bitcoin or gold.
Money is an IOU to be free from state violence in return for economic productivity and corvee labor.
"There are three classes of people: those who see, those who see when they are shown, those who do not see." -Leonardo da Vinci
That quote is actually from Machiavelli's "The Prince" and is often misattributed to Leonardo.
https://suebrewton.com/2016/07/31/no-leonardo-da-vinci-did-n...
https://suebrewton.com/2016/07/31/no-leonardo-da-vinci-did-n...
Ok, cool, nice to know.
A very mysterious story: both seem to have knowledge about the bubonic plague two centuries before the event.
12th century person talking about Syphilis in a tavern? Very hard to picture that scene indeed...
Impossible since it came from the new world.
According to Wikipedia, the first known use of the term "syphilis" is from 1530. In this respect the story is off by four centuries. The origin of the disease, however, is still debated. See https://en.wikipedia.org/wiki/History_of_syphilis
Bitcoin, and other blockchain like devices, are simply a means of locking human consensus into a virtual object that can be manipulated under certain conditions, which are agreed upon by the same consensus. It is a type of stored human causality, similar to fiat.
Bitcoin is a special type of Ponzi scheme that uses energy input from miners to create the illusion there is a return in value over time. Like Rai stones, immutability comes from the work and risk, but the value of the object is itself held in the population's mind. This only "works" if everyone agrees it works. If everyone agrees it doesn't work then it doesn't work and isn't worth anything and the risk taken to "make" it is lost. This is why an allegory can be told that indicates it is the faith in such an object that brings it value.
Without enough people using said blockchain, it is both worthless and empty of meaning - no different than a scrape in the mud. A killer use case for crypto will make its utility valuable and inventible. A road is formed from wear of people agreeing the road goes somewhere.
The danger is the requirement for increases in power to the network, which both drives and is affected by the current value to fiat. We may yet wrap our planet with solar to drive our economic desire of "wealth".
Bitcoin is a special type of Ponzi scheme that uses energy input from miners to create the illusion there is a return in value over time. Like Rai stones, immutability comes from the work and risk, but the value of the object is itself held in the population's mind. This only "works" if everyone agrees it works. If everyone agrees it doesn't work then it doesn't work and isn't worth anything and the risk taken to "make" it is lost. This is why an allegory can be told that indicates it is the faith in such an object that brings it value.
Without enough people using said blockchain, it is both worthless and empty of meaning - no different than a scrape in the mud. A killer use case for crypto will make its utility valuable and inventible. A road is formed from wear of people agreeing the road goes somewhere.
The danger is the requirement for increases in power to the network, which both drives and is affected by the current value to fiat. We may yet wrap our planet with solar to drive our economic desire of "wealth".
> Like Rai stones, immutability comes from the work and risk, but the value of the object is itself held in the population's mind. This only "works" if everyone agrees it works. If everyone agrees it doesn't work then it doesn't work and isn't worth anything and the risk taken to "make" it is lost.
Deep. Very deep. The exact same thing can be said about money. It only works only if people agree it works. When you exchange your work for money, you are taking a risk. When you keep your money in the bank you are taking a risk. What if all of a sudden everyone stops accepting money?
I really wish we would stop with the Ponzi scheme non-sense. Nobody believes that there is some sort of economic activity that is sustaining the growth. It’s really no different that buying stocks on an exchange. Risky? yes. Speculative? yes. Ponzi? Nope.
This Bitcoin - Ponzi scheme association is used to fear-monger and to stop people from ever learning about it (you don’t want to be the sucker that falls for the scheme, do you?)
Deep. Very deep. The exact same thing can be said about money. It only works only if people agree it works. When you exchange your work for money, you are taking a risk. When you keep your money in the bank you are taking a risk. What if all of a sudden everyone stops accepting money?
I really wish we would stop with the Ponzi scheme non-sense. Nobody believes that there is some sort of economic activity that is sustaining the growth. It’s really no different that buying stocks on an exchange. Risky? yes. Speculative? yes. Ponzi? Nope.
This Bitcoin - Ponzi scheme association is used to fear-monger and to stop people from ever learning about it (you don’t want to be the sucker that falls for the scheme, do you?)
> It’s really no different that buying stocks on an exchange.
Actually, the difference is quite substantial. Stocks are fractional ownership of businesses and businesses create value by transforming inputs into an output that is worth more than the inputs combined. In comparison, bitcoin is a virtual commodity, and commodities (virtual or otherwise) don't produce anything, this is why they're sometimes called non-productive assets. This means bitcoin cannot create wealth. If somebody get rich by investing in bitcoin it must be always at the expense of other bitcoin investors.
Actually, the difference is quite substantial. Stocks are fractional ownership of businesses and businesses create value by transforming inputs into an output that is worth more than the inputs combined. In comparison, bitcoin is a virtual commodity, and commodities (virtual or otherwise) don't produce anything, this is why they're sometimes called non-productive assets. This means bitcoin cannot create wealth. If somebody get rich by investing in bitcoin it must be always at the expense of other bitcoin investors.
Commodities have value in and of themselves though.
Bitcoin is a security for an electronic trading game that takes inputs and gives back less than that input.
Then on top of that there is this technological/economic quasi religion that is a random bundle of economic half truths but the followers beliefs are reinforced by the price going up.
Bitcoin is a security for an electronic trading game that takes inputs and gives back less than that input.
Then on top of that there is this technological/economic quasi religion that is a random bundle of economic half truths but the followers beliefs are reinforced by the price going up.
Cryptocurrencies create value by creating a financial system that solves some problems that traditional finance can't. For instance, a person in some underdeveloped country can accept a payment from US, however, if there was no Bitcoin then the person would have to rely on SWIFT network (which the country might not be a part of, or under sanctions like Iran). Or just a fact that you can't be randomly locked out from your account due to cancelling or any other reason. Buying a portion of Bitcoin is like buying shares of a bank which provides a service of accepting, sending and storing your money.
Ethereum creates value by providing an infra for dApps that provide financial instruments (like deposits, lending, etc) which also create value.
Ethereum creates value by providing an infra for dApps that provide financial instruments (like deposits, lending, etc) which also create value.
> Buying a portion of Bitcoin is like buying shares of a bank
Bitcoin payments are settled by "miners". It's therefore the miners who provide the service of settling bitcoins transactions, not the bitcoins themselves (which are the things being transacted from one wallet to another). Yes, miners create value by providing this service, and they get paid for it with transaction fees. However owning bitcoin doesn't confer you ownership rights of the bitcoin mining business, therefore owning bitcoin is completely not like owning shares of a bank which does confer such rights.
Bitcoin payments are settled by "miners". It's therefore the miners who provide the service of settling bitcoins transactions, not the bitcoins themselves (which are the things being transacted from one wallet to another). Yes, miners create value by providing this service, and they get paid for it with transaction fees. However owning bitcoin doesn't confer you ownership rights of the bitcoin mining business, therefore owning bitcoin is completely not like owning shares of a bank which does confer such rights.
there is a loophole here that I think is worth mentioning.
What does getting rich mean? If you compare bitcoin to the USD, its value “increases”. But if you compare bitcoin with bitcoin you have the same amount of bitcoin today you had yesterday. So what really happens is you can buy more goods with the same amount of btc, in time, because of its scarcity.
So bitcoin can create wealth in the sense that the quantity of goods you exchange for it increases over time (if people buy into using it that is).
What does getting rich mean? If you compare bitcoin to the USD, its value “increases”. But if you compare bitcoin with bitcoin you have the same amount of bitcoin today you had yesterday. So what really happens is you can buy more goods with the same amount of btc, in time, because of its scarcity.
So bitcoin can create wealth in the sense that the quantity of goods you exchange for it increases over time (if people buy into using it that is).
No, you don't get it. Prices are set by the supply and demand, which means the fact that something is scarce doesn't mean absolutely anything in terms of what its price will be in the future. Second, the fact that some asset price has increased doesn't mean wealth has been created. For example, if your house increases in value, this only means that your personal wealth has increased. In fact you personal wealth has increased at the expense of the people who are buying houses at over-inflated prices, while the stock of wealth in the economy remains unchanged. The only way to create wealth is to produce stuff, and bitcoin produces nothing.
No no no. You don’t get it.
You cannot make up your own definition of wealth and go meta (personal wealth vs WEALTH) as soon as the point you’re trying to make no longer works.
Something scarce that has any demand at all will see a rocketing price for it. That’s what scarce means. Of course it’s supply and demand and all that jazz but usually scarcity + any kind of demand leads to a high price.
Something scarce that has any demand at all will see a rocketing price for it. That’s what scarce means. Of course it’s supply and demand and all that jazz but usually scarcity + any kind of demand leads to a high price.
No, you fail at elementary economics in a typical bitcoin-fan fashion. Your personal wealth is your share of overall wealth in the economy. Your share will increase or decrease whenever you become wealthier or poorer relative to others. This is what happens when there are changes in the relative prices of assets, wealth is redistributed. And, again, scarcity isn't a predictor of price. Scarce means in short supply. It doesn't imply, by any stretch of the imagination, high price. No school of economic thought claims such nonsense.
sure thing buddy. only you can understand what wealth means.
> you fail at elementary economics in a typical bitcoin-fan fashion
Instead of being condescending here is a tip for you: learn about bitcoin before writing it off. Who know, one day you might even change your mind.
> No school of economic thought claims such nonsense.
Can you google things? Do me and youself a favor and google "the scarcity principle"
Here I'll do it for you: https://www.investopedia.com/terms/s/scarcity-principle.asp
I guess some schools of economic thought do claim such nonsense. Maybe you should have a word with them.
But wait there is more: https://www.merriam-webster.com/dictionary/scarce
scarce: deficient in quantity or number compared with the demand : not plentiful or abundant
Wow, who would have guessed it's in the actual definition of the word?
> you fail at elementary economics in a typical bitcoin-fan fashion
Instead of being condescending here is a tip for you: learn about bitcoin before writing it off. Who know, one day you might even change your mind.
> No school of economic thought claims such nonsense.
Can you google things? Do me and youself a favor and google "the scarcity principle"
Here I'll do it for you: https://www.investopedia.com/terms/s/scarcity-principle.asp
I guess some schools of economic thought do claim such nonsense. Maybe you should have a word with them.
But wait there is more: https://www.merriam-webster.com/dictionary/scarce
scarce: deficient in quantity or number compared with the demand : not plentiful or abundant
Wow, who would have guessed it's in the actual definition of the word?
> I guess some schools of economic thought do claim such nonsense.
And what would that school of economic thought be exactly?
> Wow, who would have guessed it's in the actual definition of the word?
The definition of the word 'scarce' implies the notion of high price?
And what would that school of economic thought be exactly?
> Wow, who would have guessed it's in the actual definition of the word?
The definition of the word 'scarce' implies the notion of high price?
[deleted]
yes: deficient in quantity or number compared with the demand
if you believe in all the economic bs we are being fed, something scarce is going to increase in value until it's no longer scarce. that's literally the definition: deficient in quantity or number compared with the demand
if you believe in all the economic bs we are being fed, something scarce is going to increase in value until it's no longer scarce. that's literally the definition: deficient in quantity or number compared with the demand
> yes: deficient in quantity or number compared with the demand
If you want to go with that definition, then bitcoin isn't scarce by definition. Something can have a fixed supply and be abundant compared with the demand.
If you want to go with that definition, then bitcoin isn't scarce by definition. Something can have a fixed supply and be abundant compared with the demand.
> But if you compare bitcoin with bitcoin you have the same amount of bitcoin today you had yesterday.
Yup. So the people who were in on it early will have significantly more bitcoin than anyone who gets it by the time its hard to get it.
Yup. So the people who were in on it early will have significantly more bitcoin than anyone who gets it by the time its hard to get it.
Not sure what you're saying there. Stocks have "some sort of economic activity" sustaining their value. If you buy them, you will most likely recover your investment and more (via dividends, or equivalently share buy backs), even if there is no "greater fool" that buys them from you. That does not apply to Ponzi schemes or BTC.
nope. you will certainly not most likely recover your investment. it's a casino in which the informed make money and the suckers lose money. buying a stock does not bring any sort of guarantees you're going to make the money back.
The difference is you buy a stock/security with the expectation of some future cash flow. The value of the stock is an attempt at pricing the future cash flow at a discount rate.
BTC has no future cash flow and no expectation of future cash flow, of course everyone knows this.
It is an open ponzi scheme that you even kind of understand but you just don't use the language quite right. "Nobody believes that there is some sort of economic activity that is sustaining the growth"
You really mean to say that everyone knows it is a security with no payoff.
It really has nothing to do with fear mongering. An open ponzi is the best description.
BTC has no future cash flow and no expectation of future cash flow, of course everyone knows this.
It is an open ponzi scheme that you even kind of understand but you just don't use the language quite right. "Nobody believes that there is some sort of economic activity that is sustaining the growth"
You really mean to say that everyone knows it is a security with no payoff.
It really has nothing to do with fear mongering. An open ponzi is the best description.
> It’s really no different that buying stocks on an exchange.
I think it’s a little bit different depending on the style of investing. For Buffett-style value investing he’s making a bet on the profitability of the company itself and not the future price of the stock (obviously meme stocks work differently).
Bitcoins don’t generate profits (by themselves) so their utility depends more on the future market price (which of course isn’t driven by profits either).
The traditional investment it seems most similar to is gold, which has value because the supply is limited, it’s relatively easy to store/transport compared to bulkier materials, and there’s lots of liquidity due to others using it for the same purpose. Bitcoin seems to have the same sort of advantages (minus the industrial / jewelry applications, but it’s even easier to store and transact).
I think it’s a little bit different depending on the style of investing. For Buffett-style value investing he’s making a bet on the profitability of the company itself and not the future price of the stock (obviously meme stocks work differently).
Bitcoins don’t generate profits (by themselves) so their utility depends more on the future market price (which of course isn’t driven by profits either).
The traditional investment it seems most similar to is gold, which has value because the supply is limited, it’s relatively easy to store/transport compared to bulkier materials, and there’s lots of liquidity due to others using it for the same purpose. Bitcoin seems to have the same sort of advantages (minus the industrial / jewelry applications, but it’s even easier to store and transact).
sure. there are nuances. stocks, options, futures, gold, etc all have different trade-offs and risks associated with them.
my point was that a case can be made that it’s an investment and the ponzi people need to take a deep breath.
my point was that a case can be made that it’s an investment and the ponzi people need to take a deep breath.
Money is not as complex idea as he suggests. It's just the most agreed upon way of measuring prices and committing trade between individuals in a society. It allows people to sell, buy and measure prices. Whichever way does this the best, spontaneously becomes "money" through network effects from individual decisions of market participants. It's beneficial for each individual and for the society to use the same way as everyone else, and that's why something becomes "money".
Something needs to have certain properties in order to become money, such as scarcity, divisibility, durability, verifiability and transportability. This ensures that the money can be used for trade in different scales, in different places, and in different times. Whichever money does this best, will eventually replace the old money, given a free market.
Something needs to have certain properties in order to become money, such as scarcity, divisibility, durability, verifiability and transportability. This ensures that the money can be used for trade in different scales, in different places, and in different times. Whichever money does this best, will eventually replace the old money, given a free market.
I think stability is important too. Currencies do fluctuate but not very much, and volatility usually leads to bad consequences. That's the main problem with Bitcoin - it is too unstable. Using it as a currency is much like using shares of some random company as currency. Imagine getting paid in, say, TSLA stock and using it to buy everyday needs!
Value and stability have more to do with adoption phase, i.e. how many people accept it as good money and want to use it. Today, Bitcoin is mostly traded against USD or other currencies, and these traders make up most of the total trading volume. The volatility is the result of this very one-sided activity. If it was used as money, it would be traded against goods and services, real estate, stocks, etc. which would give it lots of uncorrelated trading volume and create stability.
Inherently, Bitcoin is very predictable, because we know with certainty how many bitcoins have been issued and how many will be issued in the future. Fiat currencies have an opposite problem. Central banks and governments influence the issuance and value of the currency too much, and this makes the currency inherently unpredictable. It has an effect of destroying confidence in free markets, because everything becomes a bet on monetary policy rather than markets itself. Same problem with TSLA; it is inherently unpredictable (both in issuance and dependency on their business success). In other words, some assets carry an inherent risk in them, and they're not good as money.
Inherently, Bitcoin is very predictable, because we know with certainty how many bitcoins have been issued and how many will be issued in the future. Fiat currencies have an opposite problem. Central banks and governments influence the issuance and value of the currency too much, and this makes the currency inherently unpredictable. It has an effect of destroying confidence in free markets, because everything becomes a bet on monetary policy rather than markets itself. Same problem with TSLA; it is inherently unpredictable (both in issuance and dependency on their business success). In other words, some assets carry an inherent risk in them, and they're not good as money.
it's kinda like demanding to be backed by a gold standard, but on a conceptual level. the author is not satisfied by the extensionality (metaphorically, the exchange-value), he need Bitcoin to be conceptually "backed" by some kind essence
I'm guessing the title is modeled after https://en.wikipedia.org/wiki/I,_Pencil
TL;DR seems just another random anti-cryptocurrency article. Long story short bitcoin has the same value people give to a nicely printed image of Benjamin Franklin on a piece of paper or a sparkling rock from Sierra Leone. Things have the value the trading partners agree upon.
I’m not a fan of Graeber’s debt model for currency (i.e. the IOU). I prefer Aristotle’s nomisma and Szabo’s work on top of it [1].
[1] https://nakamotoinstitute.org/shelling-out/
[1] https://nakamotoinstitute.org/shelling-out/
This was a really enjoyable read and actually helped plugged a few gaps I got from Graeber's work. I personally think his model for where money originated is very solid. Early human tribes work on emotional kinship ties and obligations within the family without a need to precisely account for debts. Money first appeared with city-states as standardized clay tokens used to account for grain taxes owed to the state. Give grain to the city or provide labor and services, get token, give token to tax collector on tax day to keep your city-assigned plot of farmland. But after this point in his book he jumps straight to how gold currency appeared with the rise in warfare in ancient Mesopotamia, but doesn't really give a good explanation why.
Based on what I got from this post, humans are evolutionarily wired to like shiny things, and this gives us a competitive advantage. Instead of lazying around to enjoy the sunset after a good harvest, our ancestors would have used the time to make elaborate collectables for its artistic qualities. Despite collectables not being something you can eat or live in, they happen to be a good insurance mechanism during hard times. Other tribes, though untrusting and hostile, also like shiny things and will share their food with you for collectables during emergencies where you need to depend on the kindness of strangers, turning them into a way to store the value of the leisure time used to create them. I wouldn't call this currency because collectables have no standardized value, its value being entirely subjective based on artistic preferences. One hunter might really like the color of your beads and give you two pheasants. Another might only give you half, but will give you three for your ivory comb instead. But this system is enough to sustain basic barter circles between foreign tribes and account for social obligations over time.
This evolutionary tendency to like shiny collectables combined with standardized states is what I think creates our first metallic coins. King Croesus of Lydia is facing a major war crisis as the ancient near east enters an age of chaos and decides to hire foreign mercenaries. He can't pay them with standardized tax tokens since they aren't his citizens to tax. He can't negotiate a tribute with their leader in luxury goods and jewelry because they're ragtags gathered from all over the land with no single leader. What he can do is melt down his golden collectable statues, divide them into standard units reminiscent of existing tax tokens, stamp them with his symbol, give each individual soldier a coin for every battle they fight, and appeal to our inherent love for shiny things. And so the first gold coin based on the existing idea of clay tax tokens is born.
Based on what I got from this post, humans are evolutionarily wired to like shiny things, and this gives us a competitive advantage. Instead of lazying around to enjoy the sunset after a good harvest, our ancestors would have used the time to make elaborate collectables for its artistic qualities. Despite collectables not being something you can eat or live in, they happen to be a good insurance mechanism during hard times. Other tribes, though untrusting and hostile, also like shiny things and will share their food with you for collectables during emergencies where you need to depend on the kindness of strangers, turning them into a way to store the value of the leisure time used to create them. I wouldn't call this currency because collectables have no standardized value, its value being entirely subjective based on artistic preferences. One hunter might really like the color of your beads and give you two pheasants. Another might only give you half, but will give you three for your ivory comb instead. But this system is enough to sustain basic barter circles between foreign tribes and account for social obligations over time.
This evolutionary tendency to like shiny collectables combined with standardized states is what I think creates our first metallic coins. King Croesus of Lydia is facing a major war crisis as the ancient near east enters an age of chaos and decides to hire foreign mercenaries. He can't pay them with standardized tax tokens since they aren't his citizens to tax. He can't negotiate a tribute with their leader in luxury goods and jewelry because they're ragtags gathered from all over the land with no single leader. What he can do is melt down his golden collectable statues, divide them into standard units reminiscent of existing tax tokens, stamp them with his symbol, give each individual soldier a coin for every battle they fight, and appeal to our inherent love for shiny things. And so the first gold coin based on the existing idea of clay tax tokens is born.
Graeber clearly explained the process of how gold currency appeared in his book (I recommend you to reread Chapter 8: The Axial Age for this). It’s because states needed some convenient medium to provide resources for the military to continue its conquests, and that was precisely what the military was already pillaging from its conquered territory: luxury items made of gold. So the state had to find a way to enforce people to sell other important commodities (such as food and equipment) in exchange for gold, and that made the state to enforce gold coins as a currency in areas near conquests.
You’re right that the social/cultural value associated with those luxury gold collectibles is an important part of the story. But I don’t think you need any other weird evolutionary argument in addition to Graeber’s view to complete the full picture.
You’re right that the social/cultural value associated with those luxury gold collectibles is an important part of the story. But I don’t think you need any other weird evolutionary argument in addition to Graeber’s view to complete the full picture.
The state could already force people under their control to sell commodities to their soldiers for clay tokens. Why switch to gold, a much more difficult resource to obtain and produce coinage with? Was clay suddenly no longer convenient for some handwavey reason because we're now in the Axial Age, despite being used for centuries before? That's the gap in Graebers book that I don't think he covered adequately.
The reason was because now the various city states needed a way to convince people outside their jurisdiction to also provide goods and services for their wars, and those people could not be cowed into using clay. Clay only works within a states jurisdiction because they could punish counterfeits and ensure it's value among subjects as a tax credit to the state. Outside a state's jurisdiction, foreign soldiers have no guarantee that those clay tokens will continue to be a secure store of value. What if the state you were fighting for collapsed tomorrow? Now their tax credits are worthless. Gold, on the other hand, holds it's value because people like shiny things regardless of which king is stamped on it. But because the gold is issued by a state with their tendency for standardization, now your gold trinkets come in nice standardized units instead of a random assortment of jewelry, what gold would have been used for previously.
The reason was because now the various city states needed a way to convince people outside their jurisdiction to also provide goods and services for their wars, and those people could not be cowed into using clay. Clay only works within a states jurisdiction because they could punish counterfeits and ensure it's value among subjects as a tax credit to the state. Outside a state's jurisdiction, foreign soldiers have no guarantee that those clay tokens will continue to be a secure store of value. What if the state you were fighting for collapsed tomorrow? Now their tax credits are worthless. Gold, on the other hand, holds it's value because people like shiny things regardless of which king is stamped on it. But because the gold is issued by a state with their tendency for standardization, now your gold trinkets come in nice standardized units instead of a random assortment of jewelry, what gold would have been used for previously.
I thought these were also already explained in Graeber's book...
A paragraph from Chapter 8:
> Why? The single most important factor would appear to be war. Bullion predominates, above all, in periods of generalized violence. There's a very simple reason for that. Gold and silver coins are distin guished from credit arrangements by one spectacular feature: they can be stolen. A debt is, by definition, a record, as well as a relation of trust. Someone accepting gold or silver in exchange for merchandise, on the other hand, need trust nothing more than the accuracy of the scales, the quality of the metal, and the likelihood that someone else will be willing to accept it. In a world where war and the threat of violence are everywhere-and this appears to have been an equally ac curate description of Warring States China, Iron Age Greece, and pre Mauryan India-there are obvious advantages to making one's trans actions simple. This is all the more true when dealing with soldiers. On the one hand, soldiers tend to have access to a great deal of loot, much of which consists of gold and silver, and will always seek a way to trade it for the better things in life. On the other, a heavily armed itinerant soldier is the very definition of a poor credit risk. The econo mists' barter scenario might be absurd when applied to transactions between neighbors in the same small rural community, but when deal ing with a transaction between the resident of such a community and a passing mercenary, it suddenly begins to make a great deal of sense.
A paragraph from Chapter 8:
> Why? The single most important factor would appear to be war. Bullion predominates, above all, in periods of generalized violence. There's a very simple reason for that. Gold and silver coins are distin guished from credit arrangements by one spectacular feature: they can be stolen. A debt is, by definition, a record, as well as a relation of trust. Someone accepting gold or silver in exchange for merchandise, on the other hand, need trust nothing more than the accuracy of the scales, the quality of the metal, and the likelihood that someone else will be willing to accept it. In a world where war and the threat of violence are everywhere-and this appears to have been an equally ac curate description of Warring States China, Iron Age Greece, and pre Mauryan India-there are obvious advantages to making one's trans actions simple. This is all the more true when dealing with soldiers. On the one hand, soldiers tend to have access to a great deal of loot, much of which consists of gold and silver, and will always seek a way to trade it for the better things in life. On the other, a heavily armed itinerant soldier is the very definition of a poor credit risk. The econo mists' barter scenario might be absurd when applied to transactions between neighbors in the same small rural community, but when deal ing with a transaction between the resident of such a community and a passing mercenary, it suddenly begins to make a great deal of sense.
Graeber’s model is refuted by the existence of pre-fiat currencies, the Wampum, the Chinese copper cowrie, and Bitcoin. Where Bitcoin is a currency but just deflationary like gold. Optimal currencies of course are inflationary or stable [1].
[1] This is a simplification, the real optimal rate of inflation is really -0.8% as shown in the seminal paper The Optimum Quantity of Money.
[1] This is a simplification, the real optimal rate of inflation is really -0.8% as shown in the seminal paper The Optimum Quantity of Money.
>4.4. The digital tavern
>Recall the story we began with. The man in the 12th century tavern sought to give you an ambiguous ‘token’ whilst taking your ducats. If you gave him your ducats, the net effect would not be an attack on the ducat system. It would be an attack on the tavern owner, who might otherwise have got those ducats from you for board and beer. To use a more recent example, it is the promoters of Gamestop shares that lose out when people start using their disposable income to buy Bitcoin tokens from crypto promoters instead. The decision to buy either of those might be a response to an uncertain environment affected by monetary policy, but neither action is a direct ‘attack’ on the dollar, because the dollar system is the pricing hub for both objects, rather than the thing being traded.
I love this paragraph. You have to consider that fiat currencies are "artificially" kept stable i.e. price stability is a political goal. This means that the savings risk has been externalized to government institutions that will take over debts from the failing banking system. If the government is doing this to maintain price stability then where is all the instability coming from? As dollars are created through debt and we want those debts to be repaid (again this is what we want because of our human nature) they must fulfill their function of medium of exchange. Those dollars must keep flowing. They aren't allowed to stagnate in a bank account for all eternity where they actually interrupt the repayment of debts and that interruption is what is causing instability.
The ability to save in USD is at odds with the ability to use it as a medium of exchange. This is because savings represent a certain amount of value in the real world that has not been consumed. Because the real world keeps changing that real value is extremely volatile but the dollar isn't. It's extremely stable. How does saving in USD impact real world value? Saved money is money that is not being spent, meaning you delayed someone's paycheck and they were unemployed for the time being. Unemployment doesn't increase real value, therefore saving in USD has a negative impact. If the value of the dollar must stay stable (0%) inflation then the obvious answer is that the number of dollars must decrease to represent the loss in real value. You know, the thing that should have happened in 2008. People who had deposits at those banks should have lost their money. Of course telling people without warning that they lost all their deposits is terrible news. It would make more sense to fix the problem in the short term and clean things up over the long term and give people time to make the right decision. Of course that doesn't change the fact that their money must disappear through negative interest rates. Of course we can also loosen price stability and erode the value of each individual USD via inflation.
This introduction got much longer than I intended. Now back to the article.
When people buy Bitcoin and start saving in Bitcoin they stop saving in USD. The moral hazard is gone. When you save in BTC there is no entity protecting your investment, you shoulder the savings risk yourself. The volatility of BTC (and gold) isn't actually a bug. No government will ever bail out BTC. If people are unemployed because of you (assuming there was a BTC economy in El Salvador), you take the hit yourself. Thus saving in BTC is not an attack on the USD. You are actually making the USD more stable, you are reducing the need for government interventions to keep the system going. Of course it would be more sensible to invest into bonds and the stock market but simply taking on the savings risk while saving into nothing is better than saving into something with a moral hazard.
Edit: I failed to mention that holding onto savings beyond the duration of the debt is what is harmful about saving. Given enough debt saving is ok but as mentioned governments have to create artificial debt when there isn't enough "natural" debt.
>Recall the story we began with. The man in the 12th century tavern sought to give you an ambiguous ‘token’ whilst taking your ducats. If you gave him your ducats, the net effect would not be an attack on the ducat system. It would be an attack on the tavern owner, who might otherwise have got those ducats from you for board and beer. To use a more recent example, it is the promoters of Gamestop shares that lose out when people start using their disposable income to buy Bitcoin tokens from crypto promoters instead. The decision to buy either of those might be a response to an uncertain environment affected by monetary policy, but neither action is a direct ‘attack’ on the dollar, because the dollar system is the pricing hub for both objects, rather than the thing being traded.
I love this paragraph. You have to consider that fiat currencies are "artificially" kept stable i.e. price stability is a political goal. This means that the savings risk has been externalized to government institutions that will take over debts from the failing banking system. If the government is doing this to maintain price stability then where is all the instability coming from? As dollars are created through debt and we want those debts to be repaid (again this is what we want because of our human nature) they must fulfill their function of medium of exchange. Those dollars must keep flowing. They aren't allowed to stagnate in a bank account for all eternity where they actually interrupt the repayment of debts and that interruption is what is causing instability.
The ability to save in USD is at odds with the ability to use it as a medium of exchange. This is because savings represent a certain amount of value in the real world that has not been consumed. Because the real world keeps changing that real value is extremely volatile but the dollar isn't. It's extremely stable. How does saving in USD impact real world value? Saved money is money that is not being spent, meaning you delayed someone's paycheck and they were unemployed for the time being. Unemployment doesn't increase real value, therefore saving in USD has a negative impact. If the value of the dollar must stay stable (0%) inflation then the obvious answer is that the number of dollars must decrease to represent the loss in real value. You know, the thing that should have happened in 2008. People who had deposits at those banks should have lost their money. Of course telling people without warning that they lost all their deposits is terrible news. It would make more sense to fix the problem in the short term and clean things up over the long term and give people time to make the right decision. Of course that doesn't change the fact that their money must disappear through negative interest rates. Of course we can also loosen price stability and erode the value of each individual USD via inflation.
This introduction got much longer than I intended. Now back to the article.
When people buy Bitcoin and start saving in Bitcoin they stop saving in USD. The moral hazard is gone. When you save in BTC there is no entity protecting your investment, you shoulder the savings risk yourself. The volatility of BTC (and gold) isn't actually a bug. No government will ever bail out BTC. If people are unemployed because of you (assuming there was a BTC economy in El Salvador), you take the hit yourself. Thus saving in BTC is not an attack on the USD. You are actually making the USD more stable, you are reducing the need for government interventions to keep the system going. Of course it would be more sensible to invest into bonds and the stock market but simply taking on the savings risk while saving into nothing is better than saving into something with a moral hazard.
Edit: I failed to mention that holding onto savings beyond the duration of the debt is what is harmful about saving. Given enough debt saving is ok but as mentioned governments have to create artificial debt when there isn't enough "natural" debt.
Money is a token than can be readily exchanged for goods and services.
The value of money created by governments is based on the ability of then government to tax the population.
But there are many counties where USD is more useful form of money than the local government backed currency.
Legally enforcable numbers in a bank account means nothing when your account is frozen, the government changes, you have no funds to pursue legal remedies, or be bogged down for years in court. Probably wishing you'd kept it all under the mattress or in Bitcoin at this point
The value of money created by governments is based on the ability of then government to tax the population.
But there are many counties where USD is more useful form of money than the local government backed currency.
Legally enforcable numbers in a bank account means nothing when your account is frozen, the government changes, you have no funds to pursue legal remedies, or be bogged down for years in court. Probably wishing you'd kept it all under the mattress or in Bitcoin at this point
If you're in a situation where a state is after you, cash or bitcoin isn't going to help. If they decide you owe them hundreds of millions, they'll claw it from you when you try to spend that cash on oil and find out your tanker was intercepted in the Indian ocean and its contents sold off to pay the state.
The article's description of global momentary systems being colliding whirlpools is very apt. The international arena is a game played by giants, where individuals travel and do business with their permission, and we very quickly find ourselves unpersoned if we piss off our home whirlpool and can't find another to jump into. Most of us that stay comfortably in the center of a whirlpool don't even notice it. But criminal groups, political dissidents, international corporations, and even someone dealing with cross border taxes and payments will know how bad the waves on the edges can get.
The article's description of global momentary systems being colliding whirlpools is very apt. The international arena is a game played by giants, where individuals travel and do business with their permission, and we very quickly find ourselves unpersoned if we piss off our home whirlpool and can't find another to jump into. Most of us that stay comfortably in the center of a whirlpool don't even notice it. But criminal groups, political dissidents, international corporations, and even someone dealing with cross border taxes and payments will know how bad the waves on the edges can get.
If the financial system collapses I'm pretty sure I'll have bigger problems than money, which Bitcoin will not solve. If traditional money becomes overly manipulated then I'm pretty sure Bitcoin will have the same problem. I prefer to live my life as if the financial system is not going to collapse or become worthlessly corrupt. I stock up a few things for barter. That's about it.
Being skilled in certain trades is also an investment that can fair well in certain financial / societal collapse scenarios. And not just farming or construction, programming may be useful depending on your favorite doomsday scenario.
I was an electrician in the Navy and I have rebuilt car engines. My brothers are pretty good carpenters and my sister has a green thumb, plus lots of nieces and nephews to perform labor and teach skills to. I'm not worried. We didn't have much money growing up, so it's not like we haven't had to learn to fend for ourselves.
Bitcoin's brand and its technology are two completely separate things. The technology isn't as great as people claim but that doesn't really matter.
You could substitute the Bitcoin network with an entirely different PoS blockchain and the price would not be negatively affected. In fact, it might go up since PoS would be cheaper to operate.
The hard part would be convincing everyone to switch to the technology.
The price of Bitcoin is almost entirely in its brand and its social structure. Tech doesn't matter.
You could substitute the Bitcoin network with an entirely different PoS blockchain and the price would not be negatively affected. In fact, it might go up since PoS would be cheaper to operate.
The hard part would be convincing everyone to switch to the technology.
The price of Bitcoin is almost entirely in its brand and its social structure. Tech doesn't matter.
Decentralization and censorship resistance matter very much to the people who want bitcoin to succeed and become the native currency of the internet and the world, as does a nearly impossible to change monetary policy. Bitcoin has made very deliberate tradeoffs to ensure these properties.
PoS is just the same system we currently have, where the central banks and exchanges are the ones who profit off holding all the coins. If you're analyzing the technology by what can most efficiently keep track of 1s and 0s, obviously a blockchain isn't the answer, PoS included.
For creating a new money to remove the purse strings from the control of central bankers, of course the Tech matters.
I'm a blockchain developer who spent years analyzing PoW and then went on to work on DPoS for years. What you're saying about PoS being the same as our current banks is incorrect.
When you look at the fundamentals, PoS is superior to PoW. The reason why people don't realize this is because Bitcoin proponents are constantly distorting the facts and they have a lot of people and money behind this agenda.
Bitcoin mining is extremely centralized; just a few large pools control the entire network.
If a government wanted to start mining Bitcoin, they could print unlimited fiat money to buy as much ASIC hardware as required. The cost of acquiring hardware grows linearly so it's easier to do a 51% attack. With PoS, the cost of acquiring stake grows exponentially as you approach 51% due to supply contraints in the underlying token.
There is the electricity argument. PoS uses orders of magnitude less electricity.
Also, users of PoS cannot tamper data or make fake transactions even if by some miracle they managed to acquire 51% of tokens.
I've had long arguments with PoW developers about DPoS which go into every detail and argument exhaustively - I have not yet once encountered an edge case that was not accounted for.
When you look at the fundamentals, PoS is superior to PoW. The reason why people don't realize this is because Bitcoin proponents are constantly distorting the facts and they have a lot of people and money behind this agenda.
Bitcoin mining is extremely centralized; just a few large pools control the entire network.
If a government wanted to start mining Bitcoin, they could print unlimited fiat money to buy as much ASIC hardware as required. The cost of acquiring hardware grows linearly so it's easier to do a 51% attack. With PoS, the cost of acquiring stake grows exponentially as you approach 51% due to supply contraints in the underlying token.
There is the electricity argument. PoS uses orders of magnitude less electricity.
Also, users of PoS cannot tamper data or make fake transactions even if by some miracle they managed to acquire 51% of tokens.
I've had long arguments with PoW developers about DPoS which go into every detail and argument exhaustively - I have not yet once encountered an edge case that was not accounted for.
This is a great exploration of what's going on here without being too "pro" or "con." I see a lot of people here trying to quickly summarize "what side he's on" and I don't think that was the point here.
I think he's correctly pointing out a very human barrier to adoption. There's, for example, a reasonable argument that bitcoin might be like gold -- really valuable, but perhaps not as moveable as a currency. What the author is pointing out is that gold is different because it's shiny and pretty and you can shape into things -- and like it or not, that MEANS something, even if that something isn't easily captured in a rigorous (nerdy?) economic analysis.
I think the author would agree that it's too early to tell if the above "something" is a deal-killer or not, but it is certainly significant.
I think he's correctly pointing out a very human barrier to adoption. There's, for example, a reasonable argument that bitcoin might be like gold -- really valuable, but perhaps not as moveable as a currency. What the author is pointing out is that gold is different because it's shiny and pretty and you can shape into things -- and like it or not, that MEANS something, even if that something isn't easily captured in a rigorous (nerdy?) economic analysis.
I think the author would agree that it's too early to tell if the above "something" is a deal-killer or not, but it is certainly significant.
The intrinsic value of gold is its usefulness in electronics and jewelry. The same for silver and other natural resources: the cost to dig them out of the ground or grow them, process them and bring them to where you want them to be is exceeded by their economic usefulness.
The intrinsic value of a bitcoin is zero, and the cost of production is about 1.7 megawatt-hours.
The intrinsic value of a bitcoin is zero, and the cost of production is about 1.7 megawatt-hours.
Not electronics, historically, obviously. But this is important.
Gold became "gold" not because it was "useful" -- but almost precisely because it "wasn't." It was shiny, pretty, and scarce, and also NOT GOOD for tools. Its rise as a symbolic store of value is likely directly attributable to its lack of intrinsic value.
Gold became "gold" not because it was "useful" -- but almost precisely because it "wasn't." It was shiny, pretty, and scarce, and also NOT GOOD for tools. Its rise as a symbolic store of value is likely directly attributable to its lack of intrinsic value.
Iron pyrite is also shiny and pretty, and if it's not as rare as gold, it's still very pretty.
But nobody used iron pyrite for jewelry, much, because it's neither malleable nor ductile -- properties which make gold useful for wire and leaf, and later turn out to be important for electronics, too.
But nobody used iron pyrite for jewelry, much, because it's neither malleable nor ductile -- properties which make gold useful for wire and leaf, and later turn out to be important for electronics, too.
Apparently the fair value of gold when considering the manufacturing value is less than a hundred dollars an ounce. Other demand (store of value) drives the price up.
I think he needs to checkout Lightning Network. Adoption is going parabolic.
I think the legal issues with Tether could be a bigger risk to Bitcoin's heart going by the volume of trade it supports supposedly fraudulently (https://bitfinexed.medium.com/tether-is-setting-a-new-standa...)
What a great article.
I'd love to see this author adapt his work to ethereum and ETH.
In my view, ethereum does not share the "hole in Bitcoin's heart". It's because ETH has real utility, as well as the foundations of being money "which reigns supreme as the primary pricing vortex in one geographic area", ie. on the ethereum blockchain and its web of Layer-2 scaling solutions.
I'd love to see this author adapt his work to ethereum and ETH.
In my view, ethereum does not share the "hole in Bitcoin's heart". It's because ETH has real utility, as well as the foundations of being money "which reigns supreme as the primary pricing vortex in one geographic area", ie. on the ethereum blockchain and its web of Layer-2 scaling solutions.
You give him one final chance, replying with, “This tulip like object you have, granted does sound unique. Maybe it's because Im an engineer. Alright, I'm interested in a couple of ducats worth. I guess it would be oddly ignorant for me not to. ... it's really quite beautiful isn't it?” His final response is, “Ah, it is... and it has a beautiful emblem! I’ll sell it to you for two ducats”.
And thats what separated the Bitcoin Barons from the rest of hackernews, 10 years ago.