Hacker News new | past | comments | ask | show | jobs | submit login
Ask HN: Why crypto is rising so fast when its not creating value?
57 points by tuyguntn on Nov 7, 2021 | hide | past | favorite | 147 comments
We all talk about how startups and companies create value, how monetary system backs value in the form of money to be able to exchange it.

Why cryptocoins are rising so quickly when they are actually not creating any value? Or do they create value?




- Excessive Liquidity: There's money sloshing around the global economy looking for a place to go.

- Crypto Marketability: It's become very easy for people to buy and sell cryptocurrency.

- Speculation: Regardless of what problems cryptocurrencies pretend to solve, their actual value so far has only been as a speculative investment. Like traditional equities, cryptocurrency is benefiting from the highly speculative market we live in right now and the FOMO of investors trying to make a quick return.

The situation that you're seeing with cryptocurrency has historical precedent with investment bubbles involving other technologies that were perceived to be "world changing". The bicycle mania [1] of the late 19th century and the dotcom bubble [2] of the late 20th century being notable examples.

1: https://www.nasdaq.com/articles/revisiting-the-great-british...

2: https://en.m.wikipedia.org/wiki/Dot-com_bubble


> - Excessive Liquidity: There's money sloshing around the global economy looking for a place to go.

Here is an intuitive explanation: China runs an trade surplus vs USA. China gets USD and USA gets products. Because of the trade surplus there is no reason to invest into USA because as long as China is sending products to the US there is no reason to produce those products in the USA. Yields for conventional domestic industries drop as they move to China. The problem is quite obvious. If China spends its money on American capital it is inherently engaging in speculative investment. A basic understanding of economics tells you money should go where the highest yields are, in other words, the money should stay in China until their wages rise and they have no competitive edge.

Well, but the trade surplus is born from foreign exchange policy. So the money comes rushing into American stocks and housing regardless of the risks. It's plausible that Bitcoin is just being used to evade capital controls. The speculative nature of Bitcoin isn't a downside, it's actually a nice bonus to them.


I think Crypto is a bunch of things to a bunch of people. Some see it as a fun way to make a quick buck, some see it as an alternative to gold in a time with unusual inflation of the dollar.

I see it as the future of the web. There's a lot of energy coming around the concept of Decentralized Apps. or Web 3.0, today we have web 2.0 with large centralized websites ran by huge tech monopolies. Regardless of your political affiliation, you probably dislike them. Though the exact reason you hate this is probably different.

Web 3.0 offers us a way out... and crypto is one of the critical underlying infrastrcuture components. A lot of people see things this way, and are trying to get in early on it. Chances are the markets will crash before the majority of people understand what web 3.0 is. But while the market is down, a lot of cool stuff is going to be built, and when more people start to discover it again, the market will shoot back up. This cycle happens every time we make progress. Of course, the markets are pretty amateurish right now so we also tend to overshoot it, leading to huge bull markets and big crashes.


Even if we assume cryptocurrencies have some role to play in the future dWeb, wouldn't that be the new currencies created by those dWeb services and not these ones being hyped right now?


Statistically all of new tokens are Ethereum tokens.

Could just buy & ride ETH to the end.


How does this work?

You mean to say dweb creators more often than not _choose_ to use eth instead of their own tokens?


They chose their own tokens but those tokens are valued in ETH at the end of the day.


Ethereum's ENS works pretty well as a dWeb name service.


This sounds like inventing a problem for a solution you already have.

IPFS content addressing, .onion sites all work without any need for cryptocurrencies.


The point of ENS is to map human-readable names to the addresses. It's a solution to Zooko's Triangle[1], and while it's not the only solution, the others use similar technology.

[1] https://en.wikipedia.org/wiki/Zooko%27s_triangle


Because we currently live in a world with: 1. A high-liquidity environment for VC firms 2. A high-liquidity environment for retail investors 3. Unprecedentedly easy, fun and addictive speculation tools

Once the crypto bubble took off thanks to this unprecedented bull market, it also attracts many smart engineers, businesspeople and entrepreneurs who jump into the gold rush hoping to sell picks & shovels.

There's one more aspect here. I've coined the term "Bloated MVP" [1] from years of watching startups that lack a coherent value prop, and don't know who their first user will be, and never get any traction whatsoever, but nevertheless manage to raise $millions and suck up smart people's time and energy. I've also spent years founding such companies myself. The reason people work on bloated MVPs is because they don't realize that an idealized abstract vision is very different from a value prop.

So to summarize: The crypto space is a massive ecosystem-level bloated MVP, intermingled with the biggest liquidity bubble of all time, and unprecedented speculation opportunities

[1] https://bloatedmvp.com


We’re in a hyperinflationary period. Loans are extremely inexpensive, cash is cheap. I suspect the majority of influx in crypto is due to an abundance of fiat.

With that said, there’s quite a lot going for Ethereum and defi as a sector. Major tech players like Google are funding many web3 startups. Facebook is fully embracing the “metaverse,” whatever the f** that is.

Tesla is trading at some ridiculous multiple of earnings for the same reasons. Yes, there’s likely much future value in Tesla and web3. But the rapid recent growth is mostly indicative of the fed money machine going brrr.


People frequently mistake "inflation" for "hyperinflation".

Zimbabwe had hyperinflation. Zimbabwe had a $100 trillion dollar bill:

https://www.dallasfed.org/assets/documents/institute/annual/...

If we had 20% inflation per year for the next decade in the US that would be high inflation but wouldn't be hyperinflation. We are nowhere near that.

I wonder if the crypto bubble creates a "wealth effect" that makes people feel richer, spend money, and drive inflation.


hyperinflation is hyperbole. Our inflation: 5% since last year. Hyper inflation: ~50% per month https://www.investopedia.com/terms/h/hyperinflation.asp


The S&P 500 returned > 30% over the last year. Inflation shows up in many places.


Inflation refers to the price of goods/services. Stocks are neither.


Stocks represent the present value of future claims on consumption.


Nope. Stock represents the fractional ownership of a company, and its price represents the perceived value thereof.

By all means use it as whatever indicator you like, but lets stick to the facts.


I think they are referring to the "net present value of future cash flows" model for valuing stocks. Its one model that can be used to help determine the value of a company - the idea being that you aren't necessarily buying a company's stock for its earnings today, you are buying it for what it will earn over the time period you intend to hold it.

Of course, that's not the only thing that determines stock price.


Cool, tell that to Alan Greenspan. I wonder where that perceived value comes from?


> Cool, tell that to Alan Greenspan.

Your word salad is your own, not Greenspans.

> I wonder where that perceived value comes from?

I believe that is the holy grail of investment. There are many different models that try to approximate it.


No worries, if you have a question on something just ask. Greenspan popularized the view that excess capital flowing into stocks can be viewed as a form of inflation. There are limits (not strict) on short-term consumption so excess capital needs to go somewhere. Some of it goes into stocks until used for future consumption.


You are misrepresenting whatever it is you think he has said.

Greenspan has never said that "excess capital flowing into stocks can be viewed as a form of inflation".

Higher price of stock being a potential indicator of inflation (due to the wealth effect, etc) is very different to it "being a form of inflation".

Anyway, I don't care to continue this discussion as is. Please feel free to post references backing your redefinition of economic terms if you wish to proceed.


Please don't post shallow dismissals. A good critical comment teaches us something.


Ok, now actually read what you said.

If the price of stocks goes up without revenue going up that just means people value future consumption more and present consumption less. That has absolutely nothing to do with inflation. If anything, it's disinflationary.


It's true. Every time governments have given a cash bonus away, these "instruments" took a major lift for no fundamental reason.


Highly recommend episode #231 of Lex Fridman talking to Alex Gladstein - it's a long but interesting discussion on human rights, democracy, totalitarianism, and how money fits into the picture. Alex describes BTC as a trojan horse, a "number go up" technology that attracts buyers by being the best performing asset (certainly a tautology, it keeps performing well because it's been performing well) - once it becomes the currency du jour of dictators, those very dictators that instituted it as currency may find that they've lost control of their citizens, since they can more easily exfiltrate their wealth. (my answer to your question is, people value money that is not controlled by their government, and also serious Fear-Of-Missing-Out)

Don't come counter-arguing to me tho, I'm not the Chief Strategy Officer of the Human Rights Foundation, Alex Gladstein is, he makes the argument better than I.


> people value money that is not controlled by their government.

And that's how banknotes came into being

Reserve banks are banks, not their respective countries governments


That's not how a quick read of the wikipedia page on the history of bank notes reads. It reads like bank notes were the result of the shortcomings of coins, i.e. that you had to have actual precious metal to mint them. And the first bank notes as currency were used within the national governments' jurisdictions and juristically established as currency. [0]

[0] https://en.wikipedia.org/wiki/Banknote#History


The current currency system that we have doesn't go back to Yuan China. It goes to 17th century Europe.

The currency that we have today in major economies _not_ controlled by the government. If the government created money, there would be no need for them to tax people/issue bonds


I think crypto space has managed to create a class of unregulated financial instruments and markets - I feel like I'm watching what would happen if the stock market was not regulated at all. If I were Wall Street trader, I think this is really fascinating - sufficient amount to be interesting (billions of dollars at play) and regulators are yet to make sense of what's going on.

FYI, there are less than 5000 publicly traded companies in the US but more than 6000 cryptocurrencies.


Your comment maybe implies that maybe Wall Street is watching from a distance. I think Wall St and large banks are deep into crypto, they have to be the cause of large swings in price movement, individuals rarely have $billions that can be moved around.

A financial market with zero regulation and full anonymity? I bet it has brought all sorts of normally illegal money movements and transactions to it. Even coordinated pump and dumps are 100% possible without legal repercussions, as far as I understand it.


Actually, it's way more than 6000..

CoinMarketCap lists 13684, Coingecko lists 10394 - which probably includes a truckload of BSC "shitcoins", getting more by the minute...


Actually, its way more than 10394.

Uniswap v2 factory contract returns 55,319 trading pairs.

On the etherscan readContract page for the uniswap factory, the allPairsLength method returns index size.

https://etherscan.io/address/0x5c69bee701ef814a2b6a3edd4b165...


But that's pairs, not individual assets.




Cryptocurrency is backed by the same thing as any other currency: popularity and consumer confidence. Whether such sentiments are "warranted" or "deserved" is a subjective matter, but that is irrelevant to determining its economic influence - enough people have invested in it for network effects to all but guarantee its continued relevance.


> Cryptocurrency is backed by the same thing as any other currency: popularity and consumer confidence.

I don't think currency is just a confidence game. The most important thing is that the currency is actually used to make transactions that are meaningful to human life. A currency that isn't used to exchange goods is just a collectible. There is no such thing as an abstract "store of value" that has no actual utility other than as a store of value. Crypto will fail when people tire of owning the collectible and want to exchange it for something useful.


>The most important thing is that the currency is actually used to make transactions that are meaningful to human life.

Millions of people use cryptocurrency on a daily basis to make transactions that are not only meaningful, but absolutely critical to human life. Here in New York I personally know more than a dozen people who regularly send cryptocurrency to their families in other countries. It is cheaper, easier and faster than using banks and legacy money transfer vehicles like Moneygram or Western Union and it has the added bonus of not being saddled with the red tape or regulatory requirements that go along with these institutions.

Here's one personal anecdote. Several years ago I attempted to send a small amount of money ($50) to a friend in Ecuador via Moneygram. When my friend went to pick up the money, it wasn't there, so I called Moneygram. They proceeded to ask me a series of questions about why I sent the money, who I was sending it to, and a variety of other intrusive questions that (in my opinion) they have absolutely no right to ask. If I had sent that money in crypto, I would have paid less of a fee and had confidence it would arrive without going through the third degree by a middle man.

I find that wealthy people, those with deep ties to traditional banking systems and those who don't value their privacy are the ones who have the biggest problem understanding the value in cryptocurrency. They don't see the need to operate outside of a system that works very well for them. For many, the system doesn't work well, or efficiently, and crypto offers a valuable alternative.


> It is cheaper, easier and faster than using banks and legacy money transfer vehicles like Moneygram or Western Union and it has the added bonus of not being saddled with the red tape or regulatory requirements that go along with these institutions.

This situation feels unsustainable. Traditional institutions don't ask questions because they love getting into your business, they ask because of AML and KYC regulations. If crypto eats the lunch of these traditional institutions because it doesn't have to follow the rules they do, things are going to come to a head sooner or later.


>If crypto eats the lunch of these traditional institutions because it doesn't have to follow the rules they do, things are going to come to a head sooner or later.

Yeah people have been saying this about bittorrent for about 15 years too: since it's illegal it'll have to a stop because the government will end it. And yet take a guess how I just watched HBO's Succession?

I could believe that having someone else hold your bitcoins and allow an easy webpage interface to break the law will end.


I suppose I should mention a data point that might go against my own thesis: the performance of gold. While gold has some legitimate uses in jewelry and technology, its price in recent years seems to be driven mostly by financial speculation, the same "store of value" theory that drives crypto.

I think this theory is nonsense but it's true that if enough people believe it, it can become sort-of-true for a while, until it's not anymore.


It's nonsense because if you sell your potatoes for gold, why would you be able to get those potatoes back 30 years later?

The sad answer is population growth. The optimistic answer is that the person ate the potatoes which gave him the strength to harvest potatoes in 30 years. The realistic answer is that you should have no expectation that you ever get any potatoes back as the potatoes have spoiled and nobody is exerting additional energy to counteract the loss.


Most fiat currencies are backed by the fact that people made themselves liable to accept that currency. It's a literal "I owe you". A restaurant owner promises to work to earn money, the bank gives the restaurant owner money via a loan. The money is spent on a bigger restaurant, the construction workers who built the restaurant get the money and they can then go to the restaurant and pay to eat there. They don't have to worry whether their shiny rock is currently worth something. The restaurant owner has a loan he wants to repay. He'll gladly take your money. At the end of the day it is just delayed barter.

Except, nothing forces people to spend their money so the barter transaction may never conclude which allows economic imbalances to build up over the short term which violentely resolve themselves through a crash. Inflation could be interpreted as a tiny crash every year that rebalances transactions made in the economy.


The one exception is when you go to pay your taxes.


I'm on the pro-crypto side, but the US dollar has more than consumer confidence, it has the largest armed forces the world has ever seen. So a better comparison is something like gold, I think, that has value because we say it has value (it's shiny! and rare...)... which is fine, just different.


I'm not "anti-crypto", but reason that I won't touch it is that it's not stable. With dollars, I know that the money will have a roughly constant value across time. Cryptocurrencies do the opposite of that. By the measure of stability, gold is also preferable to crytocurrency.

If I were a speculator, that instability would be attractive. But I'm not.


Then you also avoid the equities markets and you stick to bonds denominated in your home currency. T-bills are useful for some people.


The dollar hasn't had a roughly constant value across time, perhaps on short time periods.


> the same thing as any other currency: popularity and consumer confidence

Real money is backed by your obligation to pay taxes in that currency.. not popularity or confidence.


People manage to come up with mediums of exchange even in the absence of taxing governments.


True, all you need is to track debts. Gold is just a token that represents an implicit balance sheet. It's effectively security technology. The problem is that an implicit balance sheet is highly speculative. People owe each other products and services. The gold standard is still credit money.

However, no given individual has to accept the currency and has to owe anything to anyone. Because there aren't any explicit agreements or written contracts between parties anyone can back out at any instant. That is why gold is so highly speculative. Nobody really knows how much stuff you can get out of it if you were to trade it for products and services.


When has there been a government that doesn't tax?


My claim is that currencies don't depend on taxation in that currency.

Many areas today have local currencies, which are not accepted by any government for taxes. Prisoners use things like cigarettes as currency. On the island of Yap they used giant stones, which nobody attempted to tax.

According to David Graeber, money actually arose as an abstraction of debts. You can have debts between people without having taxes.


> Prisoners use things like cigarettes as currency

This didn't happen in a society that didn't have money. Prisoners have an approximate idea of how much a cigarate is worth in dollar terms and how much they're willing to pay for..a phone call (?)

> David Graeber, money actually arose as an abstraction of debts

Yes. I think you're drawing the wrong conclusions from that chapter of the book. The money that we have today is an IOU from the reserve bank which is backed by an iou by the government. And since taxes are essentially a form of debt on the citizen's part, you pay taxes and all this should cancel out.

Needless to say, none of these ponzi coins are of this design


> This didn't happen in a society that didn't have money.

That seems like a tautology.

> The money that we have today

Well yes, I didn't claim cryptocurrency works like the money we have today.


Bootstrapping!


You mean speculator confidence.


Because it's a pyramid scheme that is powered by hype. It just so happens that the exponential requirements for the number of participants has grown to the point where you'll start to see ppl talking about it more and more and in everyday conversations.


are you sure the word pyramid scheme is actually accurate?


Probably not, just like it isn't ponzi. Bubble and mania are entirely reasonable terms though. Considering how much value comes from utility and how much from speculation and wish to make easy money... Seeing some tokens popping up going up in value and then coming down. While seemingly not providing anything real yet.

Not that there isn't small cases for remittance and illegal things.


Yes because the only way anyone makes money is buy getting more people to buy bitcoin.


Crypto at its best is a use case and driver of investment in decentralized databases.

However, that leads to the question of whether we need decentralized databases. Networked computing tends to lead to centralization of services, if not at a single node then in a collection of nodes each of which is the best at what they do. Google is for search, Amazon is for e-commerce, etc.

Given the tendency towards natural monopolies, do decentralized databases make sense? They are slower and more duplicative than centralized databases.

Decentralized databases shine when a multiplicity of providers reduces the power of each node. In the parlance of monopoly, the node operators of a decentralized database are price-takers not price-setters.

Decentralized databases make economic sense when the operational costs associated with them are offset by the lower prices on offer compared to a monopolistic price-setter.

However, the tech monopolies currently offer their services free or at cost, with all the efficiencies that come with scale. I don't think we need decentralized databases now.

Still I think it's something good to have in your back pocket if the state of monopolistic software gets worse. I see the crypto market as crowd-funding R&D for something that may be needed in the future.


Speculation of meme coins has dominated the news recently but there are some amazing coins with real utility. Ethereum tends to get viewed negatively because it can become so insanely expensive to do anything on the chain but in reality that means that the market is willing to pay for those transactions to occur which suggests that there is some real utility to the ecosystem that has real world value.


But those people are speculators looking to make a quick buck.


Trading and finance are the main uses right now because scaling is very limited, so only high-value transactions are affordable.

When rollups plus sharding get it to tens of thousands of tx/sec in a couple years, we might see other applications take hold.


> in reality that means that the market is willing to pay for those transactions to occur which suggests that there is some real utility

It means that it is useful for those who can afford the absurd gas prices for just about any operation on Ethereum than those who are sending small amounts to perhaps test before permanently sending their money to a dead wallet and paying the gas fee too.

So it makes sense for someone to pay >= $1,000 in fees to approve and move / swap $1 - $100 worth of tokens? That is not 'real utility'. It makes it really useless.


> So it makes sense for someone to pay >= $1,000 in fees to approve and move / swap $1 - $100 worth of tokens?

That's like arguing that all container ships are useless because I only order a few dozen small packages a year.

The gas prices are set by supply and demand so the value created by the gas prices must be an acceptable cost for the amount of value the transaction is creating.

Just because something is cost prohibitive at your scale doesn't mean it is for everyone.


> Just because something is cost prohibitive at your scale doesn't mean it is for everyone.

So I can use Ethereum to pay for my groceries then? Everyone needs to eat. It's creator painfully admitted that gas fees should not be at those prices in the first place.

Good to know that you can't even send a test transaction these days.


That's being fixed. The main chain can only do a few dozen transactions per second, but fees are a lot lower on rollups which can do a couple thousand, and sharding will multiply that by a factor of twenty initially and a lot more later.


If those coins have real utility then the amount of utility you can get out of it goes down as the coin goes up in value.

Expensive Ethereum leads to expensive gas prices. If you want to play an NFT game then the speculators are just middleman that want to insert themselves between you and the game.


It’s a fallacy to think that just because people want to do something it is valuable. People have wanted to do some insanely wasteful or horrible things in the past.


"Want" has nothing to do with it. If people are willing to pay money for a service, that service is by definition valuable. Many thousands of people are willing to pay money in the form of gas fees to transact on the Ethereum network, so the network must be providing value. Whether you think the endpoints (assets/coins/whatever) themselves have value is irrelevant.

I have a feeling that whatever definition you're using for crypto to say it isn't valuable could also be applied to an awful lot of startups and more generally to current stock market prices...


> If people are willing to pay money for a service, that service is by definition valuable.

This is only true if you define "value" to mean "people are willing to pay money for it."

But that's a useless and circular definition. It's only tolerated because assuming that money is a proxy for value was useful for making crude models in economics.


You're welcome to provide a better definition.


"Value" is providing a benefit that is greater than the cost.


Benefit and cost to whom? If I use your definition and apply it to individuals, that's exactly how money works. If I'm willing to pay for something then it must have more value to me than the money I am paying, otherwise I wouldn't pay for it. So if people are paying for crypto or crypto services then those things must be providing enough benefit to be valuable.


To the parties involved. I think the question is -- what is the value to the party buying cryptocurrency? Outside of gambling, that's not clear to me. Which is not to say there is no value!

> If I'm willing to pay for something then it must have more value to me than the money I am paying, otherwise I wouldn't pay for it.

I disagree. People pay for stuff of no value to them all the time, for various reasons. That someone is willing to pay doesn't automatically mean it has value to them, although it does heavily imply it.


If 1000 people participate in lynchings and pay money to enact them do lynchings have value?

Very comfortable saying that my definition of value is opposed to many companies and startups


To those people? Yes, by definition. You seem to be conflating value to individuals with value to society, which is a massively different thing.


And what utility are they extracting, exactly? It's incorrect to assume that a willingness to pay is always indicative of durable underlying value. See every bubble ever, for example.

The real problem in the world of crypto is that it's gone through many boom and bust cycles without real innovation to match. The future of what crypto could deliver is as speculative now as it was five years ago.


You've redefined general value to "durable underlying value". I'm not even sure what you would consider that to be outside of physical assets. Does GitHub have durable underlying value? I would strongly argue it does not, but it's still valuable because it provides something people find enough use for to pay money.


The question was why the price of crypto is rising so fast. The answer, at least for Ethereum, is that it provides a service that some people value enough to pay for. The fact that philosopher1234 doesn't value those services just means it's very slightly less valuable than it otherwise would be.


“People will pay money for it” is not a useful definition of value. People pay money for assassination or vengeance and many extremely destructive things. What use is there in labeling these things as valuable?


In economics, value is purely subjective. If someone is willing to pay for it, then it has value to that person. To answer OP's simple question of why crypto has a high price, the economic definition is what you need.

You're looking at a more absolute definition of value that has little to do with the price of things. That's a worthwhile discussion as well but has little to do with OP's question.


> If someone is willing to pay for it, then it has value to that person.

My problem with that definition is that it's a tautology, and therefore holds little actual meaning and provides no insight.

"Why is that valuable?" is not a question meaningfully answered by "because people want it". That answer only begs the question. Everything that has value to people only has value because people want it.


Ok then skip the word "value" entirely. People are willing to pay a lot for ETH, because they're willing to pay to issue transactions on the network and that increases the price of the network's currency.

That's not a tautology because it's two different things. If they were only paying for the currency, that could be just a speculative bubble. If the price is based on people paying to issue transactions, that's a price built on actual use.


Economics is not a philosophically-laden exercise.

Economics defines value as that which a rational agent is willing to make a sacrifice for, and the degree to which something is valued by that actor is exactly measured by what they're willing to sacrifice.

Why is this not valuable? Or, rather, what might a better definition entail? A precise formulation isn't required, I'd be happy to see a rough sketch of necessary and/or sufficient conditions.


The problem is that everyone is somewhat irrational. You cannot both exclude irrational behavior from your definition of value and at the same time claim nfts are worth money and thus rational. Im claiming they are irrational and not useful.


Irrational in what sense? I can, indeed, claim that NFTs have value to even a purely rational actor, if I'm allowed to ascribe self-determination to that actor.

Particularly, I think it's important to delineate whether 'rationality' allows for arbitrary actions, decisions, and desires. I do include these qualities in my notion of rationality, so long as the actor can rationalize the phenomena to themselves (even if this rationalization is based on nothing more than their ability to do so).

Given this notion of value and rationality, yes: I can very easily allow for NFTs ('useless' though they are) having value.

Do you mean 'rational' in terms of 'every action or desire is reducible to some unknown deductive logic'? In which case, I agree that everyone is somewhat irrational and furthermore that nobody could ever be rational. 'Rational' in the game theory sense? In which case, I see no reason to say that everyone is irrational instead of allowing for the mathematical notion imperfectly capturing reality.


If everyone is buying NFTs because they believe the price is going to go up, and they tell themselves that the reason the price is going up is because NFTs are useful, but in reality NFTs are not, that is irrational. So it allows them to have monetary value while contributing nothing useful to the economy, and in fact causing people harm.

It is possible NFTs do have value in the sense of being good, but them being priced highly does not give us useful signal there.


That's not irrational in the sense of there lacking inherent reasoning or rationalization, it's just a poor deduction. If you mean that rational agents are incapable of flawed reasoning, then I agree that humans are somewhat irrational (and further that no human could ever be rational).

I suppose my biggest gripe is this: how do you construct a notion of rationality which allows for some people to be perfectly rational sometimes, imperfectly rational at other times, and others to be rational never, while allowing for real flaws in reasoning and the absence of perfect information? (this is, to me, a rough sketch of some necessary/sufficient conditions)


I think irrational is something like retaining a false belief despite it being clear that it is false. It’s got something to do with holding on to a point of view despite its inadequacy.


Then much of science is irrational; what about those times where it's understood that a belief is false, but it also holds the most explanative power of all other considered beliefs?

And, again, the notion that something is 'clearly false' at some point presupposes perfect information about the context within which the belief is held.


We have a whole economic system where price is a response to demand and scarcity. Most of economic output has no fundamental relation to the basics of survival, as to purely exist to satisfy whimsical desires.


Yes, and that is not ideal, nor evidence of value.


If someone was willing to pay for it, it had value to them. That's value.


If I want to murder people does murdering people have value?


The net value to society is likely negative since the impact on the target is large, and a society that allowed such things may see time horizons constrict.

You raise some good points, though. I personally am probably coming with an unspoken understanding that 'given that something fits into a legal and moral structure, and we accept a certain definition of using something by choice as value' then paying more for that thing implies more value. Facebook is probably a good example of something in the grey area, connecting people has value, but generating demand is questionable, spreading misinformation is likely a large net negative.


Monetary value reflects demand, but demand does not always reflect utility or goodness. There is a demand for atrocity.

The construction “NFTs are highly priced, thus they are desired, thus they are good” is full of holes. If I have a phobia of spiders, and a corresponding desire to eradicate them, does it follow that eradicating spiders is good? If I got my wish, I and the rest of the world would be worse off for it, but my desire exists none the less.


It can definitely have value. That's why bounties exist (or imagine a market for someone to assassinate Hitler).

I think there's a conflation of value and value in a particular moral dimension here.


If the original comment was saying “crypto has value because people are willing to pay for it” that is tautological. There is a conflation, but it’s a motte and Bailey.


Fair point. Not everything happening on smart contract platforms is good and some of it may even be bad.

The post was asking if value is created and I think that my argument that the market price of doing things in the ecosystem having a real world cost translates to it having value is correct. There are plenty of insanely wasteful and horrible companies that create real value in the world.


It may have real value, but people paying money for it doesn’t prove that. Genocide requires a lot of money, so is it valuable?


A quarter of a million Afghan civilians died at war in the last 20 years due to a sham war predicated on phony evidence. This alone should tell you that all sorts of horrible atrocities are valuable.

Crypto still looks and smells like a huge sham, tho, so I’m inclined to agree with your other points.


Such as?


A distributed namespace system is pretty cool (https://ens.domains/)


Good idea, however it's a shame that this is sitting on a very inefficient blockchain, its TLD already collides with Ethiopia and to renew requires paying for the highly expensive gas fees which isn't great if you own multiple subdomains.

The subdomains on ENS (which are all sitting on the .eth TLD) are also going to be in good hands; surely. /s


zxkrollup


You still need to pay gas fess to approve and move it there.

Just look at the disaster that the ENS domain holders are experiencing by wasting thousands on gas fees just to claim ENS tokens. [0]

[0] https://twitter.com/ensdomains/status/1457862602239926274


Smart contracts enable all sorts of utility that we are still just barely scraping the surface of.


Like?


Valuations going up even when value is not being generated by a company is happening across the board; not just crypto.


Theoretically, if you're going to sell something the most profit would fundamentally be made from products which had the least cost or value at the source.

When the floor represented by underlying value is not very significant compared to retail price, then the sales bonanza should be expected to propagate further along a chain of middlemen, so more fun for more enthusiasts the more valueless you can get.


Speculation.

It’s the new form of gambling.


Just because you don't see it, doesn't mean others don't.


As a non-techie and a member of a minority class, I am going to say that the reason crypto is rising so fast is: ACCESS.

We can finally gain access to banking services desperately needed <on our terms> rather than some arbitrary check box designed to keep us from making progress and improving our communities and the lives of those around us.

Let's say as an example, that I need $1M to fix some buildings I own. But my personal credit is crappy, I'm BROWN and a Woman. In the regular financial markets, I would either get turned down flat or my rates would be so high that there wouldn't be any point to my borrowing the money. But in the DeFi World, I might find an investor willing to negotiate better terms with me. That back and forth and the possibility of that back and forth is important. Before, there was just a closed door. Now, there might be a window open or a huge truck bay left wide.

If I decide to create a product, now I can guarantee that my audience is not filled with trolls or dangerous people who are hiding in my email list under false pretenses. I can sell them access to my way of thinking and be assured that I am delivering the value where I intended. That is VALUABLE.

I could list tons of reason why CRYPTO Is valuable, but in looking at all the answers already here I can tell that none of you really seem all that interested in the 80/20 problem. Currently, 80% of financial services goes to 20% of the marketplace (in general terms). That 20% don't actually need more services. The bulk of us who might can't get reasonable help on any terms. Projects like this that make it possible only have one trajectory: UP.


before getting into your points themselves, the validity of your arguments are based on the merits of your arguments themselves. they aren't any more or less valid because of your status as a minority.

but onto your arguments, I don't think you've listed anything that didn't already exist. again, not to invalidate, but I don't think anything you've mentioned is a result of crypto itself.

regarding alternative liquidity, there has always been alternative investment and liquidity available outside the structured financial industry. private investors or money lenders, often times related to the mob or sketchy individuals, have been available long before crypto, and will continue to be available. often times, alternative investors using crypto to move funds are not much safer or more credible than the mobsters of old.

your second point refers to KYC, or Know Your Customer. this has been a legal requirement in the financial industry for decades, and certainly aren't a result of any innovation or achievement in the crypto space.

again, not to invalidate any of your arguments, but I'm not sure any of them answer OP's question.


Unfortunately we are seeing a lot of hype and dubious projects, we're in an asset bubble with intense FOMO. I try to ignore that and think about the promise of crypto.

As compared to equities. Remember, equities took decades before the academic frameworks were established. _Gentlemen own bonds_ was the wisdom, all the Wall Street traders were the Brooklyn street kids, not he Ivy bankers. Present value sums up all future cash flows and gives it a price today - this is very misunderstood, you find reporters saying 'and they're not even making any money!' but we're valuing the total funds made in the total lifetime, discounted to today (I sometimes think if they'd called it financial relativity or finance-time it would have been cooler). I find it useful to try to think about where the comparison object was at this point in its development.

Early stage investments are not available to most. You must be an accredited investor - i.e. already have a certain amount of wealth, you must be connected - this favors certain schools or ethnographic groups. With tokens, you now have access. You can actually participate early along with everyone else. You can join the Discord, participate, and see it through all its stages. This is tremendously powerful, scary, and transformational.

Cryptocurrencies have the dollar figure, but the real value I'm seeing is in the organization and management structures. You are seeing transparency and participation that just isn't how business is usually done, or maybe ever was. If you join the KLIMA Discord, pop into their #policy channel, they are literally having open C-level board strategy discussions you can participate in.[0]

Tokens now are being used for governance and ownership. This is the DAO concept again, which functions something like stockholders getting a vote on certain things, but in crypto it is being pushed further to have 'only' that group run everything. The other strange thing is, to get these tokens, often you have to be a member or customer. There is employee ownership, and customer ownership. Which is unusual and valuable.

[0] https://docs.klimadao.finance/klima.fi-manifesto


The average uninformed retail investor is obviously going to be drawn to investments which are seemingly obvious, making their friends rich and which have low barriers to entry.

What will eventually happen is that the market will run out of greater fools and the obviousness of Crypto as an investment in the future of finance will be brought into question.

At this point the userbase of Crypto will shift from speculators to genuine users and its real value will be better understood as individuals and companies focus on useful products and services rather than pumping meme coins to uninformed investors.

This imo is a classic bubble. I've been saying this for years though and will likely continue saying it for a few more years yet. But I have little doubt that in the long-term that what we're seeing in the Crypto space is unsustainable.


The comment in this thread are powered by ignorance. Study the history of monetary systems going back around 690 years to present. Fiat currencies eventually fail due to government hubris. Bitcoin's algorithmic cap on units addresses that. Alt-coins are more transactional and many are more like businesses. BTC is going to continue to grow. Some tiny fraction of the alt-coin market will thrive and potentially have even larger market caps than BTC. These coins are getting traction for different reasons but BTC is an asset with staying power that provides a means for hedging against devaluing fiat currencies. Altcoins are going to take margin away from financial services entities by empowering transactions that won't require intermediaries. I think that crypto currencies are an innovation with many positive attributes.


Crypto has a bunch of narratives around it that are compelling to different groups of people - it should be digital gold, or it will replace centralized applications, or it is a way to bring about a libertarian future, or it'll make transactions cheaper/more accessible, or it'll get you rich quick. They contradict each other, but that's okay because no single person believes all of them. People can hold whichever narrative they want to. Some of them might be true! I don't know.

The other side of this is that certain crypto markets are highly liquid, and liquidity is sticky. Sure, they're subject to high volatility and intense drawdowns, but being a focus of trading is something that lingers a long time. Most traders don't care about fundamentals. This is just another place to speculate to them (that's not a value judgement on my part), and the best places to speculate are places with lots of other participants.

I know that basically boils down to "it's popular because it's popular," but I do think it's self-reinforcing or self-sustaining. Narratives drove money into crypto and to this high point, but I think these reflexive dynamics are also keeping it elevated


Some of the value cryptocurrencies create may be that they have become an opportunity for working class people to get exposure to risk, leverage, arbitrage, volatility, and privacy that only very wealthy people had access to previously. Would be an explanation consistent with the Varian Rule. It's the poor(er) persons FX trading, which provides liquidity and price discovery.

What does cryptocurrency move from one place to another? Risk, arguably, and it does it faster, cheaper, farther, and more verifiably than cash. That's probably the most amazing service since the Medici's brought modern banking to the world.


Personally, I think it's just speculative group-think. Makes me think of tulips.

https://en.m.wikipedia.org/wiki/Tulip_mania


Because shares can be diluted and it’s not easy to filter for companies with shareholder-friendly undilutable shares. Most cryptocurrencies are not dilutable.


Good read on greater money printing: https://blog.ftx.com/blog/the-everything-bubble/

"In the US alone the Fed has bought $4 trillion of bonds in the past 18 months, while the US government is spending $875M per hour in 2021.

This is driving people further out the risk curve, and as we’ve said in the past, “QE Infinity turned your savings account into your checking account, the bond market into your savings account, the equity market into the bond market, the venture market into the equity market, while given rise to the crypto market as the new venture market.”"


Just because it's a value you don't recognize doesn't mean there is no value. Speculation is useful and valuable to a lot of people.


I like crypto a lot to transfer money on my own terms

edit: in reply to rhizome below: yeah, I bought drugs, money, goods, etc... But I also lost money when the US Gov messed with BTC-e [1]... I hope that Biden doesn't get too stupid with his regulations.

(Hacker News didn't allow me to reply to a reply to my own comment: https://i.imgur.com/rd8qH08.png)

1. https://en.wikipedia.org/wiki/BTC-e


Have you gone through the process of buying real money with it?


I wonder how fast the financial system rose compared to the general economy.


There IS value — not being the currency that people are transferring out of due to ]reasons[


Crypto is capitalist's wet dream come true.

Capitalist 1.0: Money --> idea --> build org --> employ people --> make products (shiny new plastic toy, ends in landfill after 3 months) --> deal with marketing, fake reviews, selling, shipping, returns, logistics, customer service, cash flow, loans, HR department, compliance, legal and liabilities, rules and regulations, competitors --> profit

Enlightened Capitalist: Money (spent on electricity) --> profit

Crypto short-circuits all of this. Soon, everyone will switch to making crypto. We'll all be billionaires, but nobody makes stuff anymore. Why waste electricity on making stuff (and dealing with the 100 dimensions of a real business) when you can just make profit!


Recently I saw it observed that the average Fiat currency last 27 years.


Hacker News (HN) is actively hostile to the idea of cryptocurrency. I doubt you'll get a measured opinion, one way or the other.

Stacker News (SN) is a place that is at least attempting to have these conversations, though they swing the other way and are actively pro-cryptocurrency, even if the main focus is on Bitcoin and Lightning [0].

---

Let me try to actually answer your question.

* Cryptocurrency is creating value

Cryptocurrency offers the possibility of digital money outside of government control. This allows for a variety of transactions that are difficult otherwise.

For countries that have locked out other currencies or whose banking system is crumbling, remittances through Bitcoin or other cryptocurrencies offer the possibility of sending cash, even considering the high barrier to entry, the high friction etc. etc. (take it with a grain of salt, but here's an article [1]).

There was been at least one instance where a news organization drew the ire of a government, had their funds frozen and were able to function through the use of Bitcoin [2].

Sex workers now have an option to accept currency with less fear of backlash.

Substances criminalized by local governments are available for purchase with Bitcoin.

To all those that will respond "cryptocurrency is only good for illegal activity", my response is that's precisely why cryptocurrency is needed. For countries with a developed banking system, the need is not so pressing. For places where it's effectively criminal to be poor, then by definition, offering independent financial instruments is illegal.

* Cryptocurrency is being more widely adopted and legitimized

El Salvador has adopted Bitcoin as legal tender [3].

Other countries are expressing interest in adopting Bitcoin [4].

* Bitcoin is working out technical difficulties that will allow it to meet demand

This is the "Lightning Network" [5].

On-chain bitcoin transactions will only allow 3 transactions per second. For comparison, Visa provides around 1700.

The "Lightning Network" and associated protocol is "off-chain", settling back and forth transactions and only commiting a final transaction on-chain.

The analogy is like a bar tab. You go to the bar, give them your credit card and maybe the bar reserves $100 on your card. You buy some beer, you buy your friends some wine, you order some food, maybe your buddy orders you a beer. At the end, you settle up with the bar, with the only reported number being the sum total of all the smaller transactions.

---

So, to me, this answers your fundamental question. Bitcoin creates value by meeting a demand, is being adopted and legitimized in its adoption and is working out scaling details. If Bitcoin were a startup, this would be where "the market pulls product out of the startup" phase.

How many articles have you read where people incredulously dismiss Twitter for being frivolous and not making money? How about Facebook? If Bitcoin were a startup, I imagine the narrative would take a much different tenor.

---

There is a possibility that Bitcoin and/or other cryptocurrencies could fizzle and die or that what the naysayers are espousing is correct in that they're ponzi schemes/MLMs or some other scam [6] [7] [8] [9] [10].

My opinion is very much no. I'm old enough to remember email, the beginning of the world wide web, the subsequent dot-com crash, Napster, cell phone adoption, etc. etc. Bitcoin provides a novel technology that solves a fundamental problem in multiple different ways.

Bitcoin has the possibility of providing banking to the unbanked. It also provides a way for a global financial system to bootstrap itself without centralized control. From a consumer level, Bitcoin and its associated Lightning network, open a real possibility of micro transactions that wasn't possible before.

I'm a little incredulous as the amount of vitriol directed at Bitcoin from this community and others in the technology sphere. The only conclusion I can come up with is that to people with a stable banking system, the value proposition of Bitcoin in its nascent form isn't really understood. A more cynical conclusion is that the sentiment is a result of an astroturf campaign from actors invested in Bitcoin's demise.

---

As a final remark, Bitcoin is growing at 10x about every 4 years (around 20% APR). This means that, if the growth remains at this level, we'll see a $1M per Bitcoin valuation by 2025-2026.

At $1M per Bitcoin, this would put the amount of Bitcoin at 10%+ of the worlds current wealth the world [11].

This provides a falsifiable test of whether Bitcoin has actual utility, with a concrete time bound.

If Bitcoin represents 10% of the worlds wealth and if a substantial portion of Bitcoin isn't being used in day-to-day transactions, this would point, to me, that Bitcoin is a bubble or being propped up in some way.

On the other hand, if Bitcoin represents 10% of the worlds wealth and is being used in everyday transactions, either being adopted by a few large countries or many small ones, then this would point to Bitcoin being used for its intended purpose, as a currency.

---

[0] https://stacker.news

[1] https://techcrunch.com/2021/10/09/crypto-remittances-are-a-l...

[2] https://www.forbes.com/sites/rogerhuang/2019/04/26/how-bitco...

[3] https://www.nytimes.com/2021/10/07/world/americas/bitcoin-el...

[4] https://www.thestreet.com/crypto/bitcoin/politicians-from-th...

[5] https://lightning.network/

[6] https://ic.unicamp.br/~stolfi/bitcoin/2020-12-31-bitcoin-pon...

[7] https://twitter.com/smdiehl/status/1395684302201966592

[8] https://twitter.com/smdiehl/status/1394938539989741573

[9] https://twitter.com/zachcoelius/status/1393646959517261826

[10] https://www.nytimes.com/2021/05/20/opinion/cryptocurrency-bi...

[11] https://www.credit-suisse.com/about-us/en/reports-research/g...


Another set of reasons that it is rising is because governments, central banks, banks, and Mastercard are taking it seriously and are developing plans and rules for cryptocurrencies. They see a benefit in lowered costs for big transactions (think clearing houses), tracking where money goes (whether you think that is good or bad, China sees it as good), automation of money and contracts, and more. I suspect some of the banks are interested in anonymous derivatives, shadow banking, and off the books transactions. These are all very clear motivations for using crypto on a large scale. The news of this is driving crypto up since once these big players get involved the value of some cryptocurrencies will likely skyrocket, though some will also tank as new regulations take effect.


> 10x about every 4 years (around 20% APR)

1.2^4 is ~2x. 10x in 4 years is ~80% APR.


> when it's not creating value

It's a SWAAS (store of wealth as a service).


because it has "risk" and "real" return possibility. Unlike stock market where boombers finance and exits their IPO to consumers. VCs get 1000x consumers maybe few times or less. Does that make sense?

No gambling gives you possiblity to do 1000x but crypto does and for so many times over the years. To anyone that says ponzi, what do you think Financial system with fiat money is? Does anyone even here mention how boombers and very rich families get 100m or many times bigger loans with stocks for very very low interes rates? why are they allowed to and what are they risking, exactly? is there even a risk?


I must be a bit out of the loop: what is a "boomber?" "Boomer" doesn't make even a little sense in context so it must mean something else?


They're not rising, the dollar is falling.


Are toasters and sandwiches falling too?


Because it's clear from anybody who knows the details about it that crypto is the basis for the next-generation of the financial system.


As someone who spent some time working on Etherium data analysis, having to learn the details of how it all works, I don't see it ever becoming a large part of finance.


I've worked in the Ethereum space. What specifically is your objection?


Not if people who know the details are cryptic and vague about the validity of that basis.


Here's a specific example about the value crypto can create. 20x higher savings rate on a US dollar deposit.

My CapitalOne savings account pays 0.4%; you can open an account with ZeFi today and get 7% - 20 times more - with the same ACH in/out you're used to.[0] If you go full crypto and stay on-chain, you can find the USDC coin - a 1:1 stable coin - paying interest above 12% at many DEXes[1]. The USDC coin is like a mutual fund, it has extremely liquid high quality holdings, is audited, and is exchangeable 1:1 for actual US Dollars at any time [2].

Even better, some of these options let you keep control of your assets (non-custodial).

Because of this, it's inherently obvious to me that the US banks will be completely disrupted by crypto; in a good way for us consumers.

[0] 7% return with ACH https://www.zefi.io/invite/abzqg (Note, this is a referral link) [1] 12% return on USDC https://solend.fi/dashboard [2] about USDC https://www.circle.com/en/usdc




Guidelines | FAQ | Lists | API | Security | Legal | Apply to YC | Contact

Search: