> However this pans out, there are going to be a lot of people on one side that were totally, completely wrong. I doubt there is much middle ground for this.
I am starting to have doubts on this one. I mean, I fully admit that if bitcoin ever becomes widely accepted as currency/money, something in my worldview has been horribly wrong and I need to learn from that. But the other side can keep on burning fossil fuels worth millions of dollars daily indefinitely [1] and keep on moving the goalposts and claiming that the still undefined actual use case that is worth billions of trillions may actually be just behind the corner. And we likely are beyond the point where anything could convince cryptocoiners otherwise.[2] I strongly doubt (and thus cast a challenge to prove me wrong...) cryptocoiners can come up with a clearly defined possible future event (or lack of event) that would irrefutably prove them wrong.
[1] Well, of course not indefinitely, there are things like the sun turning to a red giant and the Big Freeze of the universe that may cause some hiccups there, but indefinitely for the purpose of this analysis.
I think there are two groups, one that shapeshifts and moves goalposts for the purpose of selling coins at a profit (either offloading a huge stash or being on the right side of the bubble cycle), and another that treats it like a portfolio piece next to their gold coins.
The first is truly impossible to reason with. For the second, the event is simple: breaking the crypto or the crypto-economics in a way that prevents it from being scarce and “decentralized” (what’s it called when something is “actually, very centralized” but I can use it to move $50m across the rio grande?). How do you convince a goldbug that gold isn’t valuable because their lifetimes are not going to be thousands of years?
Oh, and of course perhaps the most obvious one. Even if for whatever weird reason we as a society decided to start using cryptocurrency as widely used payment method, why on earth we would be willing to make that huge transfer of wealth to a few cryptonerds instead of forking our own and sharing the coins somehow more equally? It's not like creating your own cryptocurrency is that hard...
Creating one may not be hard, but having it be used/accepted will be. If you look down CoinMarketCap you’ll see hundreds of “currencies” that are either illiquid or nearly worthless.
There will never be a solution to "the 51% attack" for any kind of decentralized system. No blockchain will solve that particular issue. The conjecture Bitcoin has formulated is that there is no monetary incentive to perform the attack, and if the threat model involves state level adversaries nothing is particular safe. So far, it has been demonstrated that it holds true.
There are quite a few challenges. The obvious ones are the technical ones regarding the transaction costs and capacity of the network (that may or may not be solved with Lightning.) But those are small ones. The real issue is that bitcoin people seem to have not given that much thought what modern money actually is and what is the role financial industry actual plays in the modern economy. So, some not so organized thoughts on that:
First, what is money? What most people nowadays consider as money is debt, or credit which equals trust. Basically money is the tool to keep the society to figure out who owes whom and how much. Thinking that it would be somehow good that we have a limited amount of debt we can have in the society is, well, mindbogglingly stupid idea in my head. Also removing the trust from the money makes no sense to me, and I really do not know how that could be accomplished (even in bitcoin, you need to trust some third party to assign some value to your bitcoins tomorrow).
And bitcoiners have not given that much thought on the credit side of the money. How is lending supposed to work with bicoin/smart contracts/whatever? One of the more important functions of financial sector is to convert your overnight deposit to my 20 year mortgage. There is literally nothing in bitcoin that would disrupt that functionality.
But let's assume bitcoin comes as a generally accepted currency. Now there are going to be institutions that are going to offer custodian services to hold your bitcoins because it is quite risky for a normal person to hold the actual bitcoins. These are insured against hacking and whatnot. Now, there is a need for lending and borrowing, so one day someone will figure out that if this institution is allowed to lend these bitcoins in custody forward (note, very prudently), the institution is able to offer much lower custody fees. Actually they are able to pay for you to give your bitcoins to their custody. As this institution is very prudent and everyone trusts this institution very much, someone is going to figure out that actually you do not need to get your bitcoins out of the institution to pay for your coffee, but the coffee shop is happy to take as a payment a promise that instead of paying me, the institution is going to pay the bitcoins to coffee shop owner. And almost magically, we have full fractional reserve banking and unlimited monetary supply. Without any regulatory oversight, of course.
Finally, there is no mechanism (either before or after this rebirth of fractional reserve banking) that would anyhow stabilize the value of one bitcoin. I do sometimes read very handvawy opinions that when bitcoin gains traction it somehow naturally stabilizes in value. But that is only wishful thinking, nothing more. If there is no mechanism to stabilize the value, then the value is defined by the ones that are willing to pay the most at any given time and that is for sure not stable. Which brings me to my last point. How delusional you need to be to think that bitcoin is anyhow good "store of value"? I mean, to me, if I want to put my wealth for whatever reason to something that is called "store of value" the one single most important criteria to judge the stores of value would be how well the thing actually stores value. And a highly volatile gambling token is a really bad store of value. (Applies partially to gold as well, but gold at least has some intrinsic value). And that is not going to change until there is a mechanism to keep the token value stable. Currently those mechanisms are called Central Banks.
All valid points. I think there's a more fundamental hurdle though: money as the instrument of coercion, with the state monopoly over defining its legitimacy, distribution channels, taxation. I can't fathom how the incumbents could let go of the monopoly.
Money is essentially an IOU from society, and you can collect your owed debt from anyone who accepts that money for goods and services. Bitcoin fits into that world very successfully, there are plenty of people who will accept Bitcoin for payment, whether directly into goods and services, or into another asset (like dollars) that can be widely used for goods and services.
Bitcoin is not good for lending, that's true. But it is good at plenty of other things, and Bitcoin will find a strong place in our economy despite its inability to facilitate lending and credit. In a similar token, cars cannot drive everywhere that horses can walk. And yet they have replaced the horse for most of the original mainstream uses of horses.
There are plenty of solutions to the custodial problem, and most of them reduce to situations that are much better than the bank. For example, you can have multi-sig ownership of your wallet shared by your bank. But, your bank's key is only valid after 4 weeks. If you lose your key, that money is locked up for a few weeks, but after that the bank can help you out. In the meantime, the bank doesn't control your money at all. That's just one example of one approach to custodianship that can't exist outside of cryptocurrency. There are many, many are very creative, and almost certainly most of them are better than what you can get with fiat money.
There's also the fact that bitcoin has no central monetary policy. Even if it does reduce to just people putting their money in banks and earning interest, they still end up in a situation where there's no central power controlling the monetary supply, the interest rate, or any other sort of policy related to the currency, and that is an upgrade (or at the very least, it's novel) over what traditional banking can do.
> Finally, there is no mechanism (either before or after this rebirth of fractional reserve banking) that would anyhow stabilize the value of one bitcoin. I do sometimes read very handvawy opinions that when bitcoin gains traction it somehow naturally stabilizes in value. But that is only wishful thinking, nothing more.
I don't think you've offered any constructive support for your argument. Bitcoin flails around because people suspect it can become the next reserve currency of the world, and because little bumps here and there have huge impacts on whether or not that may actually happen. At some point we'll know where exactly Bitcoin fits into the economy, and much of the speculation will melt away. That will substantially improve Bitcoin's velocity-to-price ratio, which should smooth out most of the volatility.
> How delusional you need to be to think that bitcoin is anyhow good "store of value"? I mean, to me, if I want to put my wealth for whatever reason to something that is called "store of value" the one single most important criteria to judge the stores of value would be how well the thing actually stores value. And a highly volatile gambling token is a really bad store of value.
No, bitcoin is a store of value that isn't dependent on any central body. No change in president, no declaration of war, no collapse of a country can disrupt bitcoin's function. While it's short term volatility is very high relative to traditional stores of value, it's resistance to chaotic global events makes it a very good hedge against global disaster. The amount of infrastructure required to run a successful bitcoin is incredibly minimal compared to something like the US banking system. A lot of people don't appreciate how carefully Bitcoin has been designed to resist major disasters, and how effectively it'd be able to pull that off.
> There's also the fact that bitcoin has no central monetary policy.
Once the fractional reserve bitcoin banks have popped up, there is no monetary policy, including no way to control money supply. That there are institutions that can create economically bitcoinlike payment units at will, obviously causes the value of bitcoin to fluctuate (chaotically, would be my guess). And traditional banking can easily replicate that, only thing we need to do is remove all regulation of financial institutions. Yes, there are reasons why the regulations are in place.
> it's resistance to chaotic global events makes it a very good hedge against global disaster
Not much of a disaster in my books if you have continuous access to internet and electricity.
Solely an issue with bitcoins algorithm? Given that you obviously can technically change the algorithm, but instead bitcoin folks choose to continue the environmental disaster and literally collectively burn millions of dollars into air every single day, to me it indicates that there are some other underlying issues very much there as well. But that may be just me.
How old are you? The young are embracing crypto-currencies. The only guys that I see holding this back are 35+ and particularly 45+. Who, obviously, do have the wealth to move crypto to higher valuation.
There is nothing wrong with your worldview. You don't have the correct worldview, you'll never will and no one will. The world is complex and chaotic.
Speaking as a young person (22), I'm certainly not embracing cryptocurrencies and neither is anyone I know. Bitcoin is virtually useless as a currency[1] and, having no other compelling use-case whatsoever, cannot really be a store of value either. (Lightning network may change that, but that also amounts to totally replacing almost all of Bitcoin by building a hopefully less shitty system on top of it. Lightning being necessary means that Bitcoin as Satoshi envisioned it has failed utterly.)
Ethereum strikes me as basically a gimmick, and the constant calls for forks as some completely immutable smart contract gets irrevocably fucked up and the only option is to roll back the whole damn blockchain does not strike me as a problem that is even fixable; smart contracts just don't seem to be a good idea. It also seems terribly inefficient as a computing platform and unlikely to scale well.
I don't deny that the dream of decentralized, fast, low-transaction-cost, disruptive payment infrastructure would be groundbreaking if it could be achieved without instantly breaking due to scaling problems and wild speculation. But I'm not convinced that blockchain is even remotely the right tool to deliver it.
[1] Admittedly, not as useless as it was a couple months ago, when average transaction time would randomly spike through the roof and transaction fees were insane. But it seems like the reason that happened is not because problems were fixed, but because people moved away from Bitcoin and eased pressure on the creaking system. Bitcoin works only when people aren't trying to use it.
> Speaking as a young person (22), I'm certainly not embracing cryptocurrencies and neither is anyone I know. Bitcoin is virtually useless as a currency[1] and, having no other compelling use-case whatsoever, cannot really be a store of value either. (Lightning network may change that, but that also amounts to totally replacing almost all of Bitcoin by building a hopefully less shitty system on top of it. Lightning being necessary means that Bitcoin as Satoshi envisioned it has failed utterly.)
Speaking as a merchant selling high value hardware in a world where chargebacks and check fraud make it very hard to run a profitable online sales program... we've accepted more than $10 million in bitcoin for our products and the irreversibly means we don't need any markup for our customers to account for fraud.
It also makes international payments (US to Africa, US to China, US to Europe) almost completely seamless for any counterparty accepting crypto.
For things like cloud storage, you can set up contracts that automatically enforce penalties. No courts, no lawsuits, no backing out of a deal.
The tech is real, the use cases are real, and people are using it today to do things they couldn't do without it. It's super early, but it's going to be bigger than the internet.
>we've accepted more than $10 million in bitcoin for our products and the irreversibly means we don't need any markup for our customers to account for fraud.
I hope you realize the other side of the coin, from the consumer side, is not so great, right? What if you don't deliver the products? Maybe you're a super reputable vendor and people trust you but if you're a little guy selling stuff on ebay good luck convincing me to send you ETH. So much for the distributed currency empowering the little folks to fight against the giants.
There's a reason chargeback exists and that the balance is tipped towards the consumer instead of the vendor in general. It means that the consumer is more likely to consume. That's why even though stone-and-mortar shops could only accept cash and cheques they still use credit card that costs them more, because it's more convenient and makes it more likely for the user to consume. Reduced friction, consumer-guarantees and convenience more than justifies the Visa tax and constraints in many businesses.
In particular it's not something inherent to "fiat", Visa could unilaterally decide to never issue chargebacks for instance. They could also decide to charge the card holder for the transaction cost instead of the vendor. Do you really think that they don't do that because they never thought about it or maybe because there's a more practical reason for not doing things that way?
Why does a store of value need a compelling use-case? If you hold millions in gold it's most likely in a vault doing nothing except taking up space and storage costs alongside it's primary use case of being a store of value.
It needs to be useful for something other than just "being a store of value". Gold 'works' as well as it does because there's at least something tying it down to market fundamentals. You can make jewelry out of it, you can coat electrical contacts with it. There's reasons besides collective psychology that gold is worth something particular which isn't $0.
A digital asset like Bitcoin has nothing tying it down to market fundamentals at all unless there's something else to do with it. It's a disconnected number flapping about in the wind. And as we've observed, since the value people ascribe to a Bitcoin is entirely psychological, the price can do anything. I'm not storing my value in anything I can't be fairly certain will have similar or greater value in the future. A Bitcoin that could be used as a currency would have some inherent value, because being able to use something as currency is valuable.
Something has to be at least a little useful for its value to be reliable. (Having a trusted organization, which you expect to be around for a long time, that promises to exchange it for something useful counts as being useful itself.)
> Gold 'works' as well as it does because there's at least something tying it down to market fundamentals. You can make jewelry out of it, you can coat electrical contacts with it.
In the earlier phases of Gold as a store of value I'd agree that it having additional uses were a bonus but now when an institution be it private or governmental purchases millions of gold as assets for a SoV then this usage is inconsequential.
Gold used to be volatile but now is a stable store of value, it retains this because the market decides a fair price, gold can theoretically go to zero, it's just had hundreds of years to achieve a more stable price/value.
> since the value people ascribe to a Bitcoin is entirely psychological
This is totally true of gold too, it's just embedded more into society as an element that has value.
> A Bitcoin that could be used as a currency would have some inherent value, because being able to use something as currency is valuable
It's cheaper and faster for me to send BTC between US/EU, volatility is an issue of course.
> Something has to be at least a little useful (or else backed up by a trusted organization) for its value to be reliable.
I'm not sure many of the 'trusted' organizations are that trustworthy, look at the 2007 crash, massively over leveraged assets with complex rules/instruments and collusion (that resulted in the UK with no one being prosecuted).
There a few ways where I see BTC having an advantage as a SoV over gold.
* Portability (transferring any amount of BTC is limited only by transaction cost).
* Scarcity (The number of BTC is capped at 21 million ever on the network, gold will still be found and mined).
* Divisible (BTC can be divided to small amounts that would make it more useful for smaller purchases where gold is not practicable).
>In the earlier phases of Gold as a store of value I'd agree that it having additional uses were a bonus but now when an institution be it private or governmental purchases millions of gold as assets for a SoV then this usage is inconsequential.
Nearly 70% of the demand for gold is for jewelry, electronics, and other non-financial/SoV applications. The market value of gold is dominated by its practical and aesthetic uses.
Well, 30% of the market value of gold is from financial/SoV-type use cases! That's not insignificant. Because of the psychological consensus that gold is a decent place to store value - it's been one for several thousand years, you can reasonably assume that someone's still going to take it a few decades from now - that portion of its value fluctuates substantially depending on how interested people are in a literally solid and relatively-stable physical asset. So when people are uncertain about other investment prospects, they go to gold, because it's basically one step up from stuffing cash under your mattress insofar as gold is less subject to inflation.
Crypto is ... currently, at least, not where you go if you want something with a reliable, stable value.
And yeah, I think aesthetic value counts! It's also very much a psychological thing, and it's undeniably tied into a similar "I think this is valuable because other people will see it and think it looks valuable" loop; if gold were much cheaper, we wouldn't see as much gold jewelry. But it's also genuinely one of the better metals to make jewelry out of (doesn't corrode, ductile, nobody's allergic to it) and it's quite a pretty color. It's more fickle than industrial use, sure, but it's also much less fickle than investor speculation.
Not looking to argue with you as it seems like you have an idea stuck to your mind. But bitcoin/crypto is very useful to tax evasion, capital flight, criminal organizations, scams, speculative trading, wealth transfer, and other stuff.
There are plenty of people who use fiat currencies that are almost useless outside of their own nations borders, with extremely bad exchange rates. This basically binds a person to one country and hinders movement and prosperity.
Look at what the OP was saying, he was only listing negative things and attributing them all to something BTC excels at. I was saying that fiat is hardly a paragon of virtue :)
Only 10% of the price of gold is "tied down" to it's real world usage. The other 90% is psychological.
So gold - 90% psychological
Bitcoin - 100% psychological
If you don't believe in psychological value, both are about as bad. I'm pretty sure no investment gold holder will be happy if gold price drops down to "tied down" value.
Actually, 70% of the price of gold is tied down to its real world usage. I was surprised too - I actually thought it was only around 10% when I made that comment.
But what I was referring to was that simply having some significant non-psychological value was key for giving people the stability and confidence to invest more value in it. In which case, the difference between 10% non-psychological value and 0% non-psychological value is something on the order of an infinity percent relative difference.
Because a store of value is better without random price fluctuations. If I am saving up for a Europe trip I want to add some value to a pot every month not gamble so i might make the trip in 2 or 20 years based on luck.
This is even more critical with companies, a farmer that sells his crop needs to insure he can buy fuel in 11 months for next harvest. Having a little more is nice, but having a little less is really bad. That risk profile is fairly common where a modest upside is not worth risking even a small dip.
> If I am saving up for a Europe trip I want to add some value to a pot every month not gamble so i might make the trip in 2 or 20 years based on luck.
You'd most likely not save for this trip in gold.
> a farmer that sells his crop needs to insure he can buy fuel in 11 months for next harvest. Having a little more is nice, but having a little less is really bad.
Also I don't know any farmers using gold as a store while waiting for harvests.
Look at some the gold fluctuations here, mainly large double digit swings:
Gold is less volatile due to multiple financial instruments allowing trading/hedging on top of it, millennia of usage as store of value and that governmental institutions also back it as a store of value. Even with all that said it still took dips and swings of:
Gold is used as a hedge because it often moves opposite of other value stores. Crypto currency's move independent of any specific store of value making them effectively nearly useless as hedges.
PS: Adjusted for inflation in 1915 gold was worth $483.23 in 2015 prices, in 2018 it was actually worth $1,060. That's extreme long term price stability as in +/- 1% per year over 100 years go back say 500 or 2,000 years and it stays very stable. That long term stability relates to it's intrinsic value as an actual good, which bounds price movements.
Because a store of value is a theoretical construct that is never actually realized.
There is no such thing as a perfect store of value. Luxury goods and status objects can go out of vogue. Foods spoil. Houses need constant maintenance. Land's value can shift based on regional demand or even be destroyed by changes in climate - too much water, too little water. Currencies can fail and even personal favors fade over time.
>The only guys that I see holding this back are 35+ and particularly 45+. Who, obviously, do have the wealth to move crypto to higher valuation.
So a bunch of young people have bought into a new currency and/or store of value and you're complaining that the older crowd isn't further propping up that market? Why would I move my investments in productive assets like stocks, real estate and other things into Bitcoin? I don't have it in gold, I don't have it in established currencies, why would I want Bitcoin as an asset?
I still haven't seen a good argument for why Bitcoin's features should warrant what is, in the growth scenarios of its proponents, probably the biggest wealth transfer in the history of our civilization. Or any argument for that matter really.
As an anecdote, of the three first friends/acquaintances of mine that came to my mind that seem to have strong interest in cryptocurrencies, two are past 45 years old.
> You don't have the correct worldview, you'll never will and no one will.
There are differences, however, how wrong a world view is. I personally are a quite strong believer of Popperian philosophy of falsifiability, and currently cryptocurrency embracers do not pass that smell test but are there somewhere around religious zealots on the credibilty scale. You know, also creationism may be right, and being wrong in that discussion as an opponent to creationist has much higher price than being wrong about bitcoin future.
> As an anecdote, of the three first friends/acquaintances of mine that came to my mind that seem to have strong interest in cryptocurrencies, two are past 45 years old.
I am starting to have doubts on this one. I mean, I fully admit that if bitcoin ever becomes widely accepted as currency/money, something in my worldview has been horribly wrong and I need to learn from that. But the other side can keep on burning fossil fuels worth millions of dollars daily indefinitely [1] and keep on moving the goalposts and claiming that the still undefined actual use case that is worth billions of trillions may actually be just behind the corner. And we likely are beyond the point where anything could convince cryptocoiners otherwise.[2] I strongly doubt (and thus cast a challenge to prove me wrong...) cryptocoiners can come up with a clearly defined possible future event (or lack of event) that would irrefutably prove them wrong.
[1] Well, of course not indefinitely, there are things like the sun turning to a red giant and the Big Freeze of the universe that may cause some hiccups there, but indefinitely for the purpose of this analysis.
[2] https://en.wikipedia.org/wiki/When_Prophecy_Fails