LUNA is trading at below $0.00001, that is below 1/1000th of a cent right now. For many, getting rid of it may be much harder than just ignoring it. A few weeks ago the price people were willing to pay for it hovered around $100.
I say "the price people were willing to pay" instead of "value", because now that nobody wants to speculate with LUNA, it did fall down to its intrinsic value: Practically zero. Nobody needs it for anything besides buying and selling it from and to other people, which is not happening anymore.
Cryptocurrency is gambling, plain and simple. The difficulty that fiat currency faces is inflation, which roughly means diluting the economy that backs it too much. The difficulty with cryptocurrency is that there is nothing of worth backing it. Factor in the horrifying externalities, and its worth is negative.
For Bitcoin, the most popular one, on the order of 100.000.000.000.000.000.000 of hashes get calculated to mine a single block, multiple trillion per second. Within ten minutes, only a single one of those 100.000.000.000.000.000.000 hashes is actually used, depending entirely on luck. The rest are thrown away entirely. They do not form part of the final hash or anything else, the energy spent on them is lost.
Actually, the fact that Bitcoin can't inflate is the biggest tell it will never work as a currency. There are a set number of bitcoins that can be mined and no more after that. It's fundamentally incapable of inflating. And that's f**ing dumb for a currency. Inflation at certain levels is good and necessary. A deflationary currency makes certain low margin economic activity extremely unattractive versus just sticking your money under the mattress ('hodl' in other words). Inflation encourages spending, your money is worth more now then it is later, so if you're going to build that new building or design that new product, better to do it now. You want inflation low enough that it doesn't punish people for saving but still provides an incentive to spend now. Economists put that number at around 2 percent. Perfectly possible to save for a house or retirement but still enough to give a push. Deflationary currencies punish economic activity- if you have to take out a loan to accomplish something every day that goes by afterward the money you owe represents more and more real value without the numbers changing, representing a significant deterrent. Some of the worst economic crises in history, including the great depression, were marked by significant deflation.
I'm no bitcoin defender, but that's not really how inflation works. Inflation is not just an increase in the base money supply. For example, a supply chain crisis can cause inflation without the money supply changing at all. And central banks can control inflation by controlling lending without printing or destroying money. Lending creates "virtual money" that contributes to inflation, so one of the ways central banks control inflation is by increasing or decreasing interest rates.
Bitcoin makes these things much more difficult, of course, and would never be a good currency compared to what we have now. But the gold standard has almost exactly the same properties as bitcoin, and gold-backed currency worked okay in the US for a long time.
The gold-backed currency did not, in fact, work okay in the US for a long time. Between 1836 and the Great Depression, the economy went 3 or more years between recessions only 4 times. By comparison, the last three gaps between recessions were 7, 10, and 6 years; and it's now been 13 years since the last one.
Come on. The 1800s „recessions“ were minuscule at worst compared to today‘s global meltdowns happening every decade. Think about the Asian crisis of the 1990s, the New Economy bubble burst at the beginning of the 2000s, the sub prime crisis 12 years ago and now a post Covid recession.
Also you‘re taking one feature „they had a gold standard back then“ and take it as the single point failure. In reality having a „Gold Standard“ does not guarantee a non-inflating currency. In the 1920s the FED was printing more dollars than were backed by gold to pay back the government’s war time debts. The same happened in the losing nations like e.g. Germany, too, in a much greater force causing a death spiral completely destroying the German Reichsmark. In the US you were lucky to just experience a stock market boom that spectacularly burst in 1929. This would have caused a recession for sure. However, the decade long depression that actually followed was a result of unprecedented economic meddling by the federal government under Hoover and then Roosevelt.
The Gold Standard was removed after the „Bretton-Woods“ system broke down in 1971. That was an attempt at establishing an international currency system with fixed exchange rates. It worked in a pyramidal fashion: The US promised to have their Dollars backed by gold and the middle power nations‘ central banks backed their currencies with US dollars. Of course, the US printed more dollars than they actually could back by their gold reserves. At some point France demanded to redeem their dollar reserves in Gold. The US did not comply and in 1971 Nixon declared the Dollar not being redeemable into Gold any more because the FED didn’t have enough gold left. Since then the US dollar as well as all international currencies are backed only by the people’s trust in them and by the fact you have to pay your taxes in those currencies.
So you see the monetary history is primarily a history of failure induced by bad economic policies. How currencies were implemented is just of secondary interest.
Bitcoin could easily serve as an international currency compared to the US dollar. Its value is based on trust like the US dollar. Governments could collect their taxes in the form of bitcoin if their wanted to without a major systemic change. And unlike the Dollar or Euro, Bitcoin couldn’t be inflated. Whether that will happen and change economy for the better is still left to be seen.
>Come on. The 1800s „recessions“ were minuscule at worst compared to today‘s global meltdowns happening every decade. Think about the Asian crisis of the 1990s, the New Economy bubble burst at the beginning of the 2000s, the sub prime crisis 12 years ago and now a post Covid recession.
This is completely wrong. The crash of 1873 began what historians call a 20-year depression. The Panic of 1893 was so serious that when Grover Cleveland needed oral surgery for cancer it was done in secret to avoid further panicking the country. J. P. Morgan basically bailed out the entire US economy in the Panic of 1907.
In all of these cases, labor unrest from the unemployed far exceeded anything seen in any post-WW2 economic crisis in the US. At multiple times the US treasury faced the prospect of being unable to fully redeem demands for gold in exchange for paper money. For the entirety of the Gilded Age, the two main political issues in the US were protectionism and free silver, both fundamentally tied into how the US economy functioned and how the US government paid for itself.
> J. P. Morgan basically bailed out the entire US economy in the Panic of 1907.
That says more about the size of the US economy at that time than about the size of the economic crisis…
Are you honestly comparing the Asian crisis with what happened in the US 120 years ago?
> This is completely wrong. The crash of 1873 began what historians call a 20-year depression.
Well, just a couple of years earlier the US was in the middle of a bloody civil war that was financed with monetary inflation. That is to blame the post war depression. Not the Gold Standard per se.
You are also conviently evading my main argument that the „Gold Standard“ is irrelevant to the discussion about Bitcoins inherent design. Bitcoin does not implement a Gold Standard even if it is called „digital gold“. It is a machinery designed to prevent human meddling with a monetary base. Something that the Gold Standard was better than today‘s fiat money. But of course it was still far from perfect and depended on the honesty of politicians and bankers.
So — forget about the Gold Standard. It will never come back. The promise of Bitcoin is to bring a monetary system politicians and bankers cannot manipulate. Whether that’s a good thing or even realistic is a separate discussion.
> The promise of Bitcoin is to bring a monetary system politicians and bankers cannot manipulate. Whether that’s a good thing or even realistic is a separate discussion.
Never heard of any politician giving up power voluntarely.
And money is the power: no more printing - need to work hard for money.
Actually not true. A lot of the 19th century recessions were "global" in that there was contagion across the Atlantic to Europe (or vice versa). Asia didn't get linked into the network until the end of the 19th century.
And the US money supply in the 1920´s was pretty stable as it happens, the 1929 bubble was a lending phenomena.
> The 1800s „recessions“ were minuscule at worst compared to today‘s global meltdowns happening every decade.
One of those recessions (the panic of 1857) was one of the main contributing factors to the American Civil War breaking out, which hardly seems ‘minuscule’.
Are you thinking that the South would have willingly given up slavery or that the North wouldn't have pushed the issue if this recession hadn't happened? Would we still have slavery in the South today, or would the war just happen some years later?
The North was willing to leave slavery in the hands of the States. Maybe without the pressure of a reccession the South would have accepted that compromise, and we had seen a quite different story of the USA until today.
Wasn't slavery already outlawed in the Northern states? I thought one of the main points of tension was the refusal of Northern states to recognize slaves that fled to the North as "property" and "return them to their owners".
> The North was willing to leave slavery in the hands of the States.
The South was unwilling to accept that the North didn't recognise slavery in its territory.
Southerners wanted slavery to be recognised and enforced throughout the US.
> I thought one of the main points of tension was the refusal of Northern states to recognize slaves that fled to the North as "property" and "return them to their owners".
That was the official line — and rather obviously against the concept of states' rights.
But for my money the main issue for the "gentlefolks" was that they couldn't bear not being waited on hand and foot by their slave retinues while enjoying the trapping of the north: they had to pick between those trappings and having an enslaved retinue, as any slave they brought up north was a jump and skip away from freedom.
And they really couldn't handle the "inconvenience" and "degradation".
I don't know that part of history, but I know it would be much more fun to read this discussion and learn from you guys if there wasn't a moving of goal posts. Also, I'd like to actually see your counter argument, and not just a statement that OP is wrong without anything else. Preferably against the point OP actually made.
> By the end of the Panic, in 1859, tensions between the North and South regarding the issue of slavery in the United States were increasing.
But it does not say that this was a direct result of the panic.
> The Panic of 1857 encouraged those in the South who believed the North needed the South to keep a stabilized economy, and southern threats of secession were temporarily quelled. Southerners believed that the Panic of 1857 made the North "more amenable to southern demands" and would help to keep slavery alive in the United States.
Sounds inconclusive to me, in the context of evaluating OPs argument. So I still don't know who is more or less right...
this kind of assumes that the only goal of an economy is to avoid recessions. growth is also very important to the average person, and the gold standard does not optimize for that
Optimizing for ever higher economic prosperity has so far had the side-effect of ever higher economic inequality, in no small part because only a small number of people are able to succesfully get rich off of moments of instablity.
Optimising for stability means less homless people on the streets (which is an appaling situation in US which still despite that wants to call itself a first world country) because a larger part of society can plan their futures and actually have those plans come true. This also necessary includes socialised healthcare and schooling, for the same reasons (which again probably won't happen in the US for the forseeable future).
That’s because the banks issued more gold certificates than they had reserves. Those bank shenanigans were the origin story of fractional reserve banking.
To clarify, the word "recession" has a strongly defined meaning. It does not mean "things are bad" although bad times are strongly associated with recessions. Things can seem bad even without a recession.
Historically speaking, each time we climb out of a recession over the last 50 years it's been a bit slower of a climb than the previous climb out. That is a worrisome trend in its own right. I believe that's the kind of bad you feel people are experiencing -- a barely perceptible improvement starting from a bad situation.
> Inflation is not just an increase in the base money supply.
Actually it can. During WWII, Germany was trying to make enough counterfeits and launder it to destabilize the allied powers' currencies. Many third world countries ended up remaining poor because their political leaders printed as much money as they wanted.
> But the gold standard has almost exactly the same properties as bitcoin, and gold-backed currency worked okay in the US for a long time.
God only filed some of the gold under the ground in the USA. He filed the rest of it elsewhere. The currency would then be based upon how much gold was mined and third parties could potentially be in control of the US currency.
As one freshwater economists argued: "Why gold? Why not french bordeaux?"
> And central banks can control inflation by controlling lending without printing or destroying money.
Lending is printing and destroying money. Central banks cannot control lending by changing interest rates as we have seen since the GFC. They couldn't get inflation up for ten years, and now they can't keep it down.
The belief in central banks and gold (why are gold miners so special?) is just as much of a cult as cryptocurrency.
All prices are relative, that's why they move all over the place.
> Lending is printing and destroying money. Central banks cannot control lending by changing interest rates as we have seen since the GFC. They couldn't get inflation up for ten years, and now they can't keep it down.
I beg to differ, asset prices experienced massive inflation during that period. Obviously, nobody was borrowing money to buy loads of hamburgers or other things that greatly influence the CPI. That demand is mostly inelastic and asset prices have little influence on it. That said, government spending accounts for almost half of spending in total. If this is increasingly financed by (the equivalent of) debt monetization, you will see debt chasing the hamburgers as well, causing runaway inflation like in Turkey. The central banks are very much in control of that not happening.
"I beg to differ, asset prices experienced massive inflation during that period."
Massive inflation, or just a return to their free market value.
Setting interest rates is an artificial market intervention. In a free market the base cost of money is zero, since it can be produced on demand at the push of a button.
The private price of money is then determined correctly by market action based upon credit risk and/or exchange risk.
Lending is often talked about as "printing money" but isn't investing in anything other than money also able to do the same thing?
Some seed investor puts a million pieces of money into a company, that company starts getting a lot of customers, new people are willing to pay much more for pieces of that company. But now this company has gone from zero to lots of value, and so that first investor can behave like they now have a billion pieces of money instead of the million they had originally (whether that's cashing out a small amount, or borrowing against it). So if the economy grows in a non-zero-sum way, how do you avoid inflation? The total value in the system (due to the circulation of money and the productive activity) goes up, and lots of it isn't in the form of "pieces of currency."
Is there so much difference between "lending money" - giving money on the belief that the counterparty will pay you back more over time - and "investing" - giving money on the belief that the share of the thing will be worth more over time? In the absence of regulations, even someone like a bank who's holding other people's deposits could do either sort of investment (and so is VC just a special sort of "bank")?
The way I think of it is that when you make a purchase, the money just basically switches bank accounts. The money is still in the banks, and currency is not created or destroyed, just exchanged between players.
When a bank makes a loan using it's customer's money, the balance in the account doesn't disappear -- and the money is still available to the customers. But now a loan for a car financed by a bank goes into the car dealer's bank account which then gets loaned out by that bank. This happens over and over again in a recursive manner. This is the Monetary Multiplier Effect as part of Fractional Reserve Banking.
It's basically kind of a regulated shell game. The bank has to have so much in cash to pay out in case of a bank run, and the FDIC protects customers from bad bank management. But your money is literally replaced with a number in an account balance. And your $10k in the bank might generate $40k of loans in the economy based upon your deposit.
An investment however removes cash from your account and replaces it with shares and that money is given to someone else. So it's an exchange of money and an exchange of shares. And thereby doesn't have the same multiplication effect. In this case value is created or lost which makes your shares worth more or less on the market.
Again, value doesn't create money. Money is exchanged between parties for different amounts. A 1981 bordeaux doesn't create currency over time, just increases it's value.
Fractional reserve banking directly inflates the economy via loans. If I deposit $1000 into my bank account, the bank will lend it to someone else instead of just holding it for me. That loan is new money created out of literally nowhere. It only becomes real money when the borrower actually extracts value from this world and earns real dollars in the process. The loan's repayment makes it real. Until that happens, the money doesn't actually exist, it's completely made up.
So borrower goes out and buys the stuff they need to make it happen. That money eventually ends up right back in the bank as a deposit. Once at the bank, it is once again loaned, spent, deposited, loaned, spent, deposited... Quickly inflating $1000 into a whole economic system worth huge figures like $100,000, not one cent of it real until all of the aforementioned economic activity actually succeeds in generating some real value. Always at risk of the whole stack unwinding due to business failures leading to defaults on loans which could cause even more defaults and liquidations and foreclosures and losses and all sorts of problems.
Multiplying that by an entire country's polulation results in truly mind-boggling amounts of money generation and therefore inflation. The actual money supply doesn't actually matter since it's a small fraction of the amount of money that's actually circulating.
The funniest part is cryptocurrency exchanges have turned into banks. They offer bitcoin lending services, savings accounts. Finite bitcoin supply? It doesn't matter. Value can always be inflated away through loans.
I’m not really following this. Let’s say I secretly tag my dollars with a red mark. Deposit $1000 cash, and then my account shows a $1000 balance. My red $1000 is probably going to wind up being withdrawn in an ATM by someone else, or used in a mortgage, or something else, but my red tagged $1000 bills don’t suddenly become a multiplied amount of money!
That is what the average person thinks what happens but in reality the bank does not even care about your deposit. What actually happens is that the bank just creates a new money from thin air by just adding another zero their account and then transferring some of that new money to the person who wants a loan.
The US fed does this too, they add a zero at the end of the existing account and create more money. Its all in a database no cash is being printed.
Then I go to the bank and request a $900 loan. It knows it has $1000 lying around doing nothing useful so it just gives a fraction of it to me as a loan. The bank does the following:
So the bank received a $1000 deposit, kept a $100 reserve and loaned out $900.
That $900 is completely made up money. They just credited my account with that amount out of nowhere. I'm supposed to go out there and earn money to pay it back. If I do, all is well. If I default? The bank has its books showing they owe you $1000 but they only have $100 in reserve. The illusion is shattered the second you attempt to withdraw that money.
In the real world, it's not just you and me. It's banks leveraging their massive reserves on risky loans and investments that fail, thousands of customers noticing and attempting to withdraw everything they have all at the same time, getting nothing, leading them to default on their debts and so on and so on until the government literally manufactures even more money to bail out the banks by "injecting liquidity" into them and restoring their reserves, putting an end to the bank run at the cost of even more inflation.
So I decide to spend that $900 on a computer for software development in order to work remotely. I go to the store and buy one.
The bank just received a $900 deposit, so its original reserves are restored. This means another loan is possible! This cycle repeats itself many times as money circulates until millions have been created out of thin air. Notice that the only way those accounts balance is if I pay back my $900 loan. If I lose my job before that happens? They won't balance and the bank will have to pick and choose who can withdraw and how much.
Not too long ago, Binance had restrictions on bitcoin withdrawals. Unverified accounts could only withdraw a small amount per day, verified accounts could withdraw a larger but still limited sum. Hmm...
I still don’t see the problem. At no point is cash conservation broken. They may say that my account has $900 in it when that cash doesn’t exist, it’s been used for some other end, but that’s not weird or unusual, or even interesting. I know that the bank has plenty of other peoples’ $900 that if I wanted that cash I could take it.
The problem is banks operate in a state of perpetual insolvency. Their ability to pay off their debts to customers depends on the state of the larger economy. Too many defaults and the whole thing comes crashing down.
> At no point is cash conservation broken.
It never existed to begin with. All that's required for the illusion to disappear is for enough people to attempt to withdraw funds at the same time.
> I know that the bank has plenty of other peoples’ $900 that if I wanted that cash I could take it.
> The International Monetary Fund estimated that large U.S. and European banks lost more than $1 trillion on toxic assets and from bad loans
> Lack of investor confidence in bank solvency and declines in credit availability led to plummeting stock and commodity prices
> The crisis rapidly spread into a global economic shock, resulting in several bank failures
> The de-leveraging of financial institutions, as assets were sold to pay back obligations that could not be refinanced in frozen credit markets, further accelerated the solvency crisis
> governments and central banks provided then-unprecedented trillions of dollars in bailouts and stimulus, including expansive fiscal policy and monetary policy to offset the decline in consumption and lending capacity, avoid a further collapse, encourage lending, restore faith in the integral commercial paper markets, avoid the risk of a deflationary spiral, and provide banks with enough funds to allow customers to make withdrawals
People complain about Tether but the whole banking system is just Tether on steroids.
> People complain about Tether but the whole banking system is just Tether on steroids.
With regulation, and audits, and insurance, and government guarantees that if something goes really wrong you will be made whole (as long as you don't deposit more than 7 years the median US income).
I also wouldn't deposit my money in an 1890's US bank.
You’re just repeating the same thing over and over. I still don’t think at any point the bank is multiplying money in any kind of real or concerning way.
You should really read up on this. He explains it fairly well, and yes, money are multiplied with fractional reserve banking. Since the bank only needs to keep a fraction of the money they owe to account holders, they can loan the rest out. But the point is that this loaned money ends up on some other customers bank account, possibly with the same bank, and can thus be loaned out again. So in a 20% reserve requirement situation, _the same money_ can be used to finance the building of five houses, not just one which it would be if the reserve requirement was 100%.
Banks duplicate your money endlessly. After money that existed only in your possession is deposited at a bank, it will exist in many places simultaneously: in your account, in other people's accounts, as loans to third parties. If you don't see how that inflates the money supply, then I'm not sure what else I can say.
This is what fuels exponential growth of nations. Banks keep conjuring up money out of thin air and loaning out to people so they can work and extract value out of this planet at unsustainable exponential rates. Humanity is addicted to it. The second these loans become unavailable for any reason, everything comes crashing down. The economy literally grinds to a halt.
Worst of all is these banks essentially dictate the direction future society will take. They choose who receives loans and who's left out in the cold. People like Larry Fink, CEO of BlackRock and manager of 10 trillion dollars. They decide things and then say "will you lead, or will you be led?"
Perhaps you're getting hung up over physical bank notes. If most people and companies hold most of their money as numbers in bank accounts and do most of their buying and selling by moving numbers between bank accounts, why is it only cash that matters?
The money is the numbers the banks report to you. Multiplying those numbers is inflating the money supply. Yes they might be required to hold some other assets than simply numbers in their databases to start the whole process, but they can still multiply money to some degree.
> It knows it has $1000 lying around doing nothing useful so it just gives a fraction of it to me as a loan. The bank does the following:
The bank does not have to do this everytime, Most of times it just creates a loan account and adds a number in the database and creates money out of thin air.
> Fractional-reserve banking is the system of banking operating in almost all countries worldwide
> under which banks that take deposits from the public are required to hold a proportion of their deposit liabilities in liquid assets as a reserve, and are at liberty to lend the remainder to borrowers
> Lending creates "virtual money" that contributes to inflation, so one of the ways central banks control inflation is by increasing or decreasing interest rates.
One way to understand how this works is by visualizing the circulation of the monetary base, aka physical coins and central bank reserves, or bitcoins/lunas in the crypto case.
Without lending, you have people and companies entering transactions, accumulating money and saving them for a later investment, for example putting a penny in the mattress or a bitcoin in cold storage. The penny might physically change hands once or twice a year. So in agregate you have:
V = PQ/M
with V, velocity of money ( = 1 transaction per year), PQ is the gross product (price level * quantity of goods), and M is the money supply (say, 21 milion bitcoins).
So one way to generate inflation is to increase M (print more money), since the ability of the economy to produce goods changes slowly, so P will need to increase to maintain equilibrium.
But another way to do that is to promote lending: instead of placing the penny in the mattress, is is deposited to a bank who immediately places it in the hands of a lender who buys a house or a TV, giving it to another entity that deposits into a bank etc. So you have a physical penny on steroids that can travel with a much higher velocity in the economic system, say 8 transactions per year as it was typical for the dollar last time I estimated this.
Banks can effectively print unlimited money substitutes (deposits denominated in bitcoins, luna, pennies etc) and as long as depositors trust them to be solvent this entire virtual monetary base will participate in the MV=PQ equation.
This is true in a fiat world as well as in a Bitcoin world, unregulated banks can greatly amplify the velocity of bitcoins without any technical support from the currency itself, in effect putting significantly more bitcoins on the market available for transactions, so overall reducing their market value, or "creating inflation" without printing a single bitcoin.
Indeed, the book Money by Jacob Goldstein, co-host of NPR podcast Planet Money, talks precisely about this in regards to the gold standard. One reason that it was taken off the gold standard was because monetary policy could not be fully leveraged well when every dollar was worth some amount of gold. One couldn't print new money during recessions to restart the economy, and one couldn't remove dollars from the money supply in a boom period.
Economic models, Keynesian or otherwise, are attacked and misapplied because individual players are better off with a larger slice of a smaller pie. Which doesn’t inherently invalidate these models, but few care about accuracy when billions of dollars are involved. When people talk about say ‘cap and trade’ what they really mean is give us a giant subsidy.
Is that a joke website or are they actually trying to tie the end of Breton woods to the quadrupling of lawyers per capita since 1971?
The number of people who drown in a pool strongly correlates with how many films Nicolas Cage has appeared in [0] but that doesn't make it a causation.
The era between 1945 and 1971 was not based on gold standard, but it was Bretton Woods system, that worked in a significantly different way from both era before (traditional gold standard) and era after (floating currencies).
Economic inequality has massively increased since abandoning the gold standard. Of course academic economists carry water for the people at the top benefitting from the inequality.
So has economic productivity, total activity, and overall quality of life.
So how do you decide which correlations to believe in more than other?
I believe economic inequality is a problem, but the gold standard would be throwing the baby out with the bathwater, based on weak "look, these things happened at the same time" reasoning.
Economic inequality has been MASSIVE at many times in the past prior to modern currency, after all.
Inequality has increased but poverty has decreased. The world is so much wealthier now.
Yes high inequality is a problem but I'd argue too low inequality is a problem too. You need a difference of outcomes to motivate people. If that doesn't happen in currency it will happen in another way. For example people will invest in political power and work hard to corrupt the system in their favor. This happens with high levels of inequality but is reduced as there is a legitimate path to improving ones lot. There is something competitive in us the drives us to do better than our neighbors. That needs a legitimate outlet.
> Inequality has increased but poverty has decreased. The world is so much wealthier now.
Perhaps, but this is largely a result of manufacturing (a primary source of middle class jobs) moving from developed nations to previously agrarian economies. The same cycles will repeat itself until there are no pockets of cheap labor left in the world for the owners of these corporations to exploit.
It seems plainly obvious that history shows the opposite is true; corruption is increased when money and power are centralized amongst a few people. There's a reason the term "Robber Baron" came around the last time we experienced massive inequality as a country. If you have some examples to the contrary I would love to hear them.
Has it though? If piracy is the act of invading someone’s private space where they can be isolated them from help and taking from them, is ransomware just modern piracy with less violence?
Of course the sea pirates are still very active on some areas.
This is meaningless without more detailed numbers. If it's held steady or gone up by a few percent while, say, the percent of wealth and income received by them has gone up far more, then... whoops. They're better off.
Well the percent of the GDP that is taxed is pretty steady at 20%, which infers that spending/taxes grows at the same rate as income. Thus the rich are paying the same percent or more of their annual income over time.
This does not follow at all from those numbers (and reality). Tax pressure has moved towards the middle and lower class, to ease the “burden” of the rich and wealthy.
Look, if the top 1% of people used to share 10% of a country's earnings, but now share 20% of a country's earnings, their relative contribution to total tax revenue will grow without any change to the tax regime.
So you need to consider the change in income distribution alongside any change in relative tax contributions. Otherwise the stats you cite are pretty meaningless
Looking at 2007 was a peak in both income earned and taxes paid. Comparing it to today, income earned (as a %) decreased, yet taxes paid (as a % of total) is about the same.
So we can at least say from 2007 to now, tax burden increased.
The tax burden for the top 1% _income_ earners can totally increase while the tax burden for the top 1% wealthy decreases (they earn from dividends, not work)
Keep in mind that not everyone pays taxes on capital gains. People with a lot of appreciated stock can simply borrow using the stock as collateral, and not pay a single penny in capital gains. Depending on the entity that owns the stock, the interest on the loan might even be deductible.
I hear a lot about that, but in reality it makes no sense. At some point in time the loan needs to be repaid and equity sold which carries a tax burden.
You could "step up" the basis when you die, but I find it hard to believe some billionaire would roll over debt for 30+ years, pay 200-300% in interest, just to avoid 20% long-term capital gains?
I read a lot of conjecture about how this happens and many people said Musk did this, yet he paid $500M in taxes last year?!?
> I find it hard to believe some billionaire would roll over debt
Plenty of rich individuals do exactly that, though. Hang out in any retirement/investing forum and you see people doing the cold hard math and deciding not to sell the stock and pay taxes if the step-up basis is enough.
You don't even need a significant return on capital for the strategy to pay off, it just has to slightly beat the interest on the loan over a very long time horizon. Consider these numbers: $100 million subject to capital gains, $10 million in cash needed for expenses, a 2% interest rate, a 2.5% return on investment, a 20% capital gains tax, and a 10 year timeframe.
The borrowing strategy starts with $100 million and a $10 million loan, and ends up with $128 million and a $12.2 million loan, so net $115.6 million (and the interest is likely tax deductible).
The taxpaying strategy starts with $88 million and ends up with $112.65 million.
> A deflationary currency makes certain low margin economic activity extremely unattractive versus just sticking your money under the mattress
We can't say that is a bad thing. A lot of that marginal economic activity is probably consuming resources that could have been better saved for a rainy day.
I'm all for economic activity, but the trying to incentivise people to consume everything they can is a bad outcome - someone doing something productive then putting money under a mattress is a fine outcome. If something unexpected comes up they'll have savings.
Putting money under the mattress is an awful outcome.
If people want to save then they should put their money in to a _bank account_ where they can earn interest and their money can be put to use productively.
Not only does this mean they’ll have savings, but it’s also safer (can’t get robbed) and it leads to the positive outcomes GP described around things actually getting built, and the saver ends up with more money than before because your bank account has a positive interest rate.
Where this fails is if the currency is deflationary, because then it’s extremely hard for the bank to offer a non-negative interest rate and so it really is more attractive to put money under the bed, modulo the risk of it being stolen or lost
Under the current system yes. People do need a savings technology. Not everyone should have to be a part time investor. Gold was that technology but it didn't survive the tech transition. Now we have Bitcoin trying to continue gold's mission.
If the currency was not inflationary, people saving would mean that everyone else's money becomes more valuable. You save first, then you invest. Not the other way around. Unless you want dumb money pilling in everything and creating mega bubbles that will burst and destroy everyone's value.
I guess you are not living in Europe (or Germany for that matter) where interest rates are now negative and you are actually paying 0.5% for the service of the bank holding your money.
Central bank interest rates are negative but consumer savings accounts are not negative. A quick google search shows that savings accounts are offering either zero or nominally positive rates (0.02%). I agree that interest rates are super low in Europe right now but they aren't actually negative for consumers.
In Germany, as an existing customer, you have negative rates with many banks.
You also don’t switch banks on a whim. Not only because it’s a hassle to change your payment info on dozens of sites, but also because you’re going to be punished by SCHUFA, a corporate abomination that has a monopoly on credit ratings. Their algorithms try to infer financial responsibility from
how many bank accounts you have (fewer is better), and from how often you open new bank accounts (rarely is better). Once it decides to punish you for shopping around, its effects are devastating.
Well then you will have to tell that to the banks. I am not claiming that because I read it somewhere but because of firsthand experience.
They are not calling it negative interest rate but "Verwahrungsgeld", so basically a fee for keeping the money that is a percentage of how much money you hold there.
And their policy is, "if you don't like it you are happy to withdraw your money and go somewhere else"
That assumes that you thrust your bank and government not to steal the saving. Hi form Argentina! Take a look at https://en.wikipedia.org/wiki/Corralito and the immediate follow-up.
Yes, that's the point. The money gets lent out for people to go out and do things they wouldn't otherwise be able to, causing economic activity. A simple example: If you needed a truck to perform a job, but you'd sit home doing nothing because you couldn't buy it outright, that'd be a loss to the economy. The risk of a default is priced into the interest rate.
Saving money in the form of hoarding is bad. If everyone does it, the economy slows down, we become materially poorer, because the amount of work we perform for each other is lowered. That's why there needs to be an incentive to invest money, through inflation and interest rates.
And the other side could argue that continuously investing in things puts you at continuous risk, and stops you from saving for a rainy day. Also, it's impossible even under deflation to hoard wealth completely, because you still need to buy food and clothes. Presumably, under deflation you would buy more necessities and consume less unnecessary things. Also, setting interest rates is a form of price control (on borrowing money), and maybe lenders should be allowed to respond to supply and demand organically like they can with every other good.
Without hard mathematics, these debates are pointless. I don't understand why you can't see that. This isn't physics.
(Disclaimer: I don't own crypto. I sold all of mine.)
There's no such thing as not putting yourself "at risk" when it comes to finance, or life in general. Even a hypothetical form of money that was perfectly stable puts you at risk of not benefiting from economic growth - the continuous refinement that happens unless we all just stop showing up for work.
Ultimately, this is a philosophical argument about human behavior that mathematics can't model, because our very beliefs shape the outcome. In other words: Dude trust me.
> Yes, that's the point. The money gets lent out for people to go out and do things
No not really, the bank does not need deposits for that, the bank can just create money and making an entry in a database and then just put that in the person loan account, that person then can use it for buying house/business etc.
Using savings then giving that savings as loans is an outdated concept.
If I earn a dollar I want its value to be as stable as possible for as long as possible. Why would anyone want to submit to top-down technocratic social engineering projects designed to change their behavior by manipulating the value of their money?
You're already participating in such a project. Every government currency is inflationary, their value trends towards zero over time. This is by design. Capitalists want you to spend that money as soon as possible instead of amassing vast amounts of it. They punish currency holders with inflation. If you don't spend the money or lend it out so others can spend it, the money loses part of its value. They want people spending and consuming constantly in order for the world to keep turning.
"Change their behavior" is quite the understatement.
All this causes is a massive amount of busywork just to have a shot at maintaining the value of your previous work. This is not necessary for a good economy, not to mention all the externalities it creates.
> Capitalists want you to spend that money as soon as possible instead of amassing vast amounts of it
No, capitalists want your money to be productive. You don't have to spend your money, though that is an option, you have many other options for what to do with your money.
> you have many other options for what to do with your money
That's what I meant by "or lend it out so others can spend it". That's what all those options come down to. Money cannot just sit in someone's accounts doing nothing, it must either be spent or given to someone else who will spend it: loans, investments.
The dollar has been amazingly stable over the last 50 years.
Outside of the last year, we haven’t broken the feds 2% inflation target for the majority of the last decade. Further, we haven’t experienced high inflation for the vast majority of of time that we’ve been off of the gold standard. Yet, the crypto maximalists run around like the US is Zimbabwe.
The dollars you made in the beginning of your career, 50 years ago, would be quite few relatively. Every year you can buy a little less for it. So you need to work twice for your money, once to acquire it and once more to keep its value by investing or w/e scheme you come up with. Stable, possibly. Good for the common man? Disagree.
he or she just said. with bitcoin, the value of your dollar is going up. that sounds great, but it creates a pressure to not spend and means that the relative value of your debts are also going up
I get that you don't want The Powers That Be to have any control over anything, including your money. but we live in a collaborative economy. if your neighbor doesn't spend it hurts you, and vice versa. monetary policy allows the system to work, whether most people understand it or not
Because when everyone else stops investing, and starts hoarding their dollars due to deflationary pressures, the economy stops, and so does your ability to earn dollars.
I don't like brushing my teeth, but it's preferable to getting meth-mouth.
Because that change in behavior is what lets markets work. With an inflationary currency, people want to create more wealth which is a net benefit to a society. With a deflationary currency, investing in the real world loses money, which disincentivizes projects that make the world better.
The problem with these purely verbal arguments is that they can be made to sound convincing either way.
E.g. Inflation is good because it encourages people to invest in things, creating jobs. However, inflation is bad because it encourages people to take unnecessary financial risks (like borrowing or lending money) when they could instead save it for a rainy day.
Saving the money for a rainy day is what strangles the economy. The economy's health is, to an approximation, the rate at which people spend money.
Slow the rate at which money flows through the economy, and bam, welcome to a recession/depression.
It's not a question of morality, as much as it's a question of mathematics. You may consider saving to be virtuous, and debt to be sinful, and sure, fine, that is your value system, but the only reason any of us have work is because we all spend, as opposed to save.
You can envision a society where people mostly work for themselves, where this wouldn't be an issue. Unfortunately, modern society relies on specialization, and I can't make most of the things I need by myself.
All those doom and gloom you describe only happens if Bitcoin is the only currency in the world. It doesn’t happen when Bitcoin is supplementary to USD, EUR, CNY, etc.
This is similar to how the proponents of free market and central plan both think the other side is pure evil. In the real world, a functioning economy is a mixture of both.
This is exactly like how I will go to my doctor when I feel sick. But I'll also drink my own urine to cure myself. It's important to have a little bit of a mix.
If you have a counterpoint then by all means make an argument for it, but don't post.. this.
It's always disappointing to see what hacker news devolves into whenever cryptocurrencies are discussed. We should try to hold ourselves to a higher standard than this.
Bitcoin can inflate. It's just that in order to change the current agreement on what Bitcoin is and how it works, you need a majority of mining power to agree, but the Bitcoin community has been famously conservative and unwilling to any kind of change. The reason? Probably a small amount of fear, and a huge investment in ASICs that would not be able to work if Bitcoin changes.
Also the Bitcoin community is, almost by definition, made up of people holding a lot of Bitcoin. They have a strong financial incentive to make sure that it deflates instead of inflates so that each Bitcoin becomes worth more over time instead of less.
This is why I take dogecoin more seriously than most coins out there. Most coins have some built in deflation as a scheme to make money, such as Bitcoin's limited number of coins or Ethereum's burn mechanism. If you want people to spend money, you can't have hoarding it be the most incentivized means of using it. Dogecoin has a ~3% long term inflation, which is pretty inline with real world currencies.
Disclaimer: I may be absolutely in the wrong here, as I may be missing some fundamental economics knowledge.
From my understanding, inflation is not really a property of the currency, but a property of market in which given currency is used. It's not the USD that loses value, it's the specific prices that increase, not that some products get cheaper. If some country suffered from hyper-inflation, they may start using USD instead of their original currency, and local products would end up with a different inflation in USD, than USD in US.
In Bitcoin and other crypto, I doubt there is huge market which has prices set in those cryptos - they are used as a courier money for markets in specific fiat currencies, like USD. I doubt people pay 0.001 BTC for a server, they pay $100 but in BTC.
It is a function of the total quantity of the currency at any given time, that currencies distribution across the economy, and the supply of the products/services it is being used for trade.
Then the banking system gets involved and it gets a bit complicated, but essentially any currency that is used for fractional reserve banking will experience a slow (or fast, depends on regulatory control) expansion in its total quantity over time.
Of course nobody would perform unregulated fractional reserve banking with cryptocurrencies now would they? Well actually, this is exactly what tether, luna etc are/were doing under the hood.
> A deflationary currency makes certain low margin economic activity extremely unattractive
There's absolutely nothing that prevents low margin activity from becoming high margin activity. You just need to raise the price. And if there's no consumer willing to pay the raised price, is that activity a really good idea?
> Inflation encourages spending
> Incentive to spend.
So less crap being produced and bought in a whim and more decision making process on purchasing long lasting quality products (like it used to be). Less cheap plastic trinkets, less planed obsolescence.
Please sign me up for that wonderful deflationary world!
> So less crap being produced and bought in a whim and more decision making process on purchasing long lasting quality products (like it used to be). Less cheap plastic trinkets, less planed obsolescence.
Not really. Just more cash held instead of productive assets. The only thing a deflationary currency chang's about an economy is giving everyone a default investment strategy that wastes output.
Saving in a period of high inflation doesn't work if your interest rate is lower than the inflation level. Irrespective of that, inflation definitely has an effect at the extreme ends. If the price of bread increases every hour, you'd better get in line at the shop first thing in the morning. If inflation is zero or negative, then you might consider skipping meals so you can save today's bread money, which will be worth more in the future.
The real effects of a deflationary currency are unknown. The side effects of a change of this nature are, likely, so vast that they are impossible to anticipate. That's the general problem with revolutions of this nature, they sound good on paper but it's mostly first level thinking. Ok, you got your change. What next? I see things like communism and anarchism the same way. It's laser focusing on a very small number of the ills of the current system without considering any of the good things that come with it and how to, at least, maintain them.
>Inflation at certain levels is good and necessary.
This is just flat-out misinformation! The US currency experienced deflation though much of the late 19th century yet GDP grew faster than nowadays, which clearly falsifies the notion that inflation is "necessary".
> Some of the worst economic crises in history, including the great depression, were marked by significant deflation.
But literally "the worst economic crisis in history" happened on the watch of an inflationary central bank.
Moreover, during the greatest worldwide deflationary period ever the united states went from literally a war ravaged country that had just decimated (lost 10%) of its population to "world power" in 50 years, while also enjoying decreasing economic inequality and increasing quality of life across the board not to mention managing to manumit a huge chunk of its population.
Cryptocurrencies still have the unique property of being able to function as permissionless digital cash between parties. There is nothing else in broad use that can perform this function (there were viable cryptographic proposals in the 90s but nothing ever took hold).
Personally I think that's enough to justify a small market cap and a volatile price, but I agree it is speculation that has driven it to insane heights.
Thing is, it can't be it's only function - because in order for something to be able to actually function as permission digital cash it needs to have at least some value to someone who is a net recipient of that cash (i.e. they manage to receive more of it than they intend to send today). That value proposition can be stupid, but it has to be there, people have to agree in a social consensus that it has some value.
You can have something whose primary function is cash between parties and a secondary, minority function is being melted down for jewelry - since that provides a backstop ensuring that it stays viable cash, that there is some value for it.
You can have something whose primary function is cash between parties and a secondary, minority function is used to pay taxes or tarriffs to some party (starting with quite ancient times) - since that provides a backstop ensuring that it stays viable cash as long as that tax collector stays relevant.
That minority use can be relatively small and rare, however, if it does not exist at all, then it's a poor medium for cash.
You can have something whose primary function is permissionless digital cash between parties and a secondary, minority function is a speculative investment bubble - which ensures that it stays viable cash as long as that bubble does not pop. But not really after that.
There's been a huge macro bubble in govt that has been coming whereby the govt spends ever larger and larger percentage of GDP. We're now over 40% in the US and that's just going to continue going up, if you look at the pattern over the last 100 years. They can't increase taxes and they can't cut spending. And yet the spending keeps increasing ever more and more. Who's paying for it all? everyone holding Cash and Bonds. Look at the govt deficit as percentage of GDP, it's been increasing more and more. in the last decade: it was 3-4% in the good years and 10-15% in the bad ones. That's going to continue. GDP is mostly inflation. Which means if the deficit average 6-8% then inflation will need to match that too in the long term, otherwise debt as percentage of GDP keeps increasing.
i know this will get downvoted but I'd rather take an occassional 25% loss with the knowledge that I'll regain it in the future, rather than a guaranteed loss of 6%+ per year for the next 20 years that I will never regain. When fiat and the dollar goes down the tubes, people are going to want something else that can't be inflated away.
There's something to be said for diversification. Now that cash and bonds are finished, that only leaves equities and gold. for some people that's not enough. and if you want more diversification then you'll need some crypto.
Crypto is 1.5 trillion (bitcoin is 600B) and there are 300 trillion dollars in the world worth of assets. if the world invested 10% of assets in crypto, that's 30T. Gold is about 10T. How is 1.5T or even 3T insane?
EDIT: when i say crypto, i mean Bitcoin because the supply is limited.
> i know this will get downvoted but I'd rather take an occassional 25% loss with the knowledge that I'll regain it in the future, rather than a guaranteed loss of 6%+ per year for the next 20 years that I will never regain.
You're making the claim that you have the "knowledge" that you'll regain any losses with crypto. I'm not sure what the basis for that is.
The comparison is flawed anyway, the point of cash isn't supposed to be an investment with returns, it's currency you buy stuff with! Even with inflation running at over 8%, the dollar is still good as currency, you don't need to convert it to get paid in it and buy things with it.
Crypto can be either a currency or a volatile investment, not both. The gold standard famously linked the price of gold with our currency, and it forms part of the reason the Federal Reserve didn't act to stop the Great Depression - they couldn't just print more gold to increase the money supply (to grossly oversimplify)!
If inflation is your problem, then the solution is to make central banks' inflation mandates stronger, not to pick the next commodity-like thing to link our currency to, completely ignoring lessons learnt from Depression-era monetary policy. This problem doesn't have to involve crypto as a solution, even wacky stuff like the balanced budget amendment is closer to a solution to inflation than crypto.
If you're advocating crypto as a high yield investment, then that's something different and you shouldn't compare it to the dollar.
> Crypto can be either a currency or a volatile investment, not both. The gold standard famously linked the price of gold with our currency, and it forms part of the reason the Federal Reserve didn't act to stop the Great Depression - they couldn't just print more gold to increase the money supply (to grossly oversimplify)!
Uhm, why can't it be both? You describe as if there is one ominous "crypto" with a single set of static rules. There are many different tokens/coins/etc, some are "store of value", some are "stable coins", and some are "volatile investments". Crypto can and is all of them at once.
I was a bit sloppy and I apologise, but if you take a given cryptocurrency, it's not possible for it to be a volatile investment and a stable, useful currency at the same time, those are completely at odds.
If you take Bitcoin as an example, it's too volatile to be used as currency, and most vendors accepting Bitcoin price items for sale in dollars, and convert the Bitcoin to dollars rather than holding them. It's not actually used as a currency.
Stablecoins could conceivably be used as currency but then they're not a volatile investment. Except if they become volatile UST-style and thus become useless for any purpose.
I don't know what will happen in one, three, five, or 10 years. But I do know this: the performance of your crypto investments will be measured in fiat, just like they have always been.
Nobody cares about how many Bitcoins they have. They care how many USD those coins are worth.
Yes, this is correct insofar as this is in fact how maximalists think of it. No genuine maximalist is pressed about yet another dip in the BTC value, and the term 'shitcoin' is broadly applied to LUNAesque creations, the feeling in that community being that the proper value is in fact zero.
My take tends to be that the cryptocurrency market is undervalued, and that 99%+ of all blockchains/tokenthings/whatever which exist are properly valued at zero.
The difference between that and BTC/ETH maximalism is those camps are convinced they know where the value will land, and I'm agnostic on that question.
This is not a valid comparison. BTC has a cap and LUNA can be minted.
In fact if anything the LUNA collapse is just a demo of what money printing gets you and how people with capital leverage off-market lending to take (steal) assets for a lower price.
Uh, no. The 40% number is completely wrong. We only topped 40% during WWII. We've been very consistently around 20% during non-recession years where it goes up largely because GDP goes down. We topped 30% for 2020 during a massive contraction and countercyclical stimulus. It will be back down in the low 20s for 2022. We not only are not on a runaway spending trend and we have survived shocks really, really well. Fiat has served society incredibly well. I'd sooner take a year of 8% inflation over bread lines due to deflationary spiral.
Edit: This chart is federal spending only, total gov spending is higher but OP is still probably looking at 2020 as the most recent data and it's a huge outlier due to the pandemic.
By that logic, the supply of 1996 Toyota Corollas is also limited, in fact even more limited than Bitcoin's. Should we therefore invest in 1996 Toyota Corollas?
Sure, comparing and old physical asset that deprecate over time with a pure digital asset built on a blockchain makes a lot of sense. Currencies are way easier to trade than physical goods.
Everything is a question of supply and demand, it does not mean it's valid to compare every goods to another on the market.
Well, if you have a theory of prices that only applies to one good and fails when applied to any other good, it means your theory is rubbish. This is why we must check whether the proposed theory works when applied to goods other than bitcoin. It's not a comparison. Although, there's nothing wrong with comparing different goods either.
Eh, once you stop caring about a functional 1996 Toyota Corolla the difference becomes extremely small. You can basically reduce the automobile to its VIN - that's how it's referred to legally. Whoever owns the number owns the "car".
Only 2.1 million 1996 Toyota Corolla VINs were ever minted; there will never be another. If 10% of the world assets were held as Toyota Corolla VINs, that would give us a value target for a VIN of about 14 million dollars per VIN; I think with those assumptions it's quite reasonable to value a Toyota Corolla at 1 million USD, regardless of condition.
So how do I transfer VINs between owners, that’s somehow different to any other (artificially) scarce asset? Whats the risk of counterfeiting with VINs? What if I don’t want a whole VIN but a fraction of one?
Bitcoin having any value is absolutely a shared delusion. But it at least has other properties that differentiate it from other shared delusions.
Bitcoin is limited until a sufficient number of stakeholders decide that the number should increase. While it may be true that this will never happen, it isn't bounded by physics or math.
If there is anything to learn from LUNA/UST, it's that the quantity of tokens in circulation has basically no bearing on the the _supply_ of tokens offered for sale at any given price.
Isn't your assessment forgetting something more fundamental about currency itself? I'm no economist, but the way I see it, all currency is "we owe you".
The real work is actual physical production and services. Currency tries to measure the worth, and later other people might recognize that you provided a lot of useful things in the past which afford you this thing that they're making now in return.
In my opinion, the most stable thing would be something of real value, like ownership over land, or production. If you own part of a business that makes real goods, or own land, or own raw sources of material, etc.
Like inflation might sound stupid, but inflation is kind of asking everyone to work harder for each other to get over a rough patch.
A dollar is worth less because we weren't able to produce enough things for enough people that wanted them.
It's all a bit vague in my head, but concretely, it's all an agreement between people of a society that decide to work together instead of against each other.
We used to barter, I want X, I have Y, let's trade, but that wasn't as convenient if no one that wants Y has an X, things would get complicated. So we kind of all agree, okay fine, let's say Y is worth some amount of a universal currency, and the price of everything will reflect the demand for each. But what if the production isn't keeping up? Isn't that when inflation kicks in? Seems like it's a good thing no? There's not enough things for everyone anymore so everything is worth more all at ounce.
What would happen with Bitcoin? Things would cost more no? Say there's major food supply issues, the amount of groceries you used to be able to buy for 1 Bitcoin, now it'll cost you 2 for the same amount. Isn't that just inflation?
Money was invented to solve the “coincidence of wants” problem (aka barter) but it was traditionally in the form of a commodity which was hard to come by (to resist inflation) so it could also serve as a store of value.
There’s also a difference between monetary inflation (increasing the amount of money in circulation) and price inflation (increases in prices due to normal supply and demand). “They” spend an enormous amount of time and energy to ensure people don’t understand the difference.
Did we? Really? Does economic exchange without money have to be barter? I've yet to see actual evidence of this, rather than just bald assertions or just-so stories.
Or is it just that the kinds of mental debt-tallying we've always done is facilitated by physical tokens (money) commonly accepted as unit of account?
How did you come to the 300T? Back when I looked into this I found around 45T (by just adding M0, M1, M2, and physical cash) [1]. Note that the numbers are from march 2021. The large difference with your number makes me suspect I’m missing something
Not really, since USD in the international currency of exchange, and every country needs to have reserves in dollars in order to purchase things like petrol and gas - so in effect every other currency tries to align to the dollar, for better or worse.
It isn’t that simple. Inflation indexed bonds have a coupon and a factor.
As inflation goes up, the factor goes up. Yay, keeping up with inflation!
But as market interest rates go up, the price of your bond with the lower interest rate goes down. Boo, crippling losses!
Now you can buy Series I Bonds to avoid this interest rate risk (i.e. duration) but you’re limited to $10,000 per year per social security number.
If you’re worried about inflation the best thing to buy is a productive asset. Like stock in a profitable business. That is… until so many people do that it makes every company wildly overpriced.
And...? The fact that your consumer habits are not reflected with 100% accuracy doesn't mean the basket is not representative of the average consumer. Again, feel free to come up with a better basket and explain why yours is better than the one used officially.
Correct, but I-bonds cannot be cashed out in the first year, and households who can't afford to save more than $10k/year probably aren't interested in having their investment tied out for 1 year.
Quite frankly, a S&P 500 index fund would serve them better than an I-bond, even during severe market drawdowns.
The occasional 25% loss? You mean an average month? Or a 99.9999% loss, as this very thread you are commenting on?
You are not decoupling anything. A minor correction in the real life markets caused huge parts of crypto to implode. You are leveraged, not diversified.
> Crypto is 1.5 trillion (bitcoin is 600B) and there are 300 trillion dollars in the world worth of assets. if the world invested 10% of assets in crypto, that's 30T. Gold is about 10T. How is 1.5T or even 3T insane?
Crypto is not worth 1.5 trillion of dollars, please remove the 1 trillion of USDT which are backed by air. At the very best crypto is worth 500B, in reality it's closer to 0.
Real assets typically have a use value and an exchange value. Even if you can't sell such an asset (meaning it has no exchange value), you can still profit from it by using or consuming it (it does have use value). Fiat money, including crypto-currencies, are pretty special in this regard in that they only have exchange value, and no use value.
Real world currency's value comes from an entire nation requiring it be usable for debt. That's an incredibly value thing to have. Cryptocurrencies have no such backing, and rely entirely on speculation for value.
> Cryptocurrencies still have the unique property of being able to function as permissionless digital cash between parties.
Unless the top few network operators get together and decide otherwise, as happened with Luna this week when the chain was forcibly halted by the validators.
There's one place where I think this may become useful: international trade.
Inside a country with an functioning economy people are willing to trust the government and companies to handle their transactions. When you move to the scale of countries trading, sometimes there's no one "above" that can be trusted.
Currently this is "solved" by just using the USD and trusting the US to not go crazy with it. The US and their allies are of course very happy with that and won't move away from it willingly, but some other countries are not.
Between countries that can't trust each other's economic policies it's harder to find a way to trade other than barter, and that's not very convenient. Look at Iran or Venezuela, for example, or countries that wish to trade with Russia currently but don't want to keep large reserves of Rubles. I could see some of these eventually trying out using Bitcoin to trade. And if it works well for that case, it may start to spread. Maybe countries that aren't too close to the US will start to think that maybe Bitcoin is a better option than being "subject" to another nation's economic policy.
The problem is that volatility and a small market cap make it a worse unit of exchange.
(One of the big reasons is that you need liquidity to be useful, if you can't easily exchange them for something else when and where you need to, the permissionless digital exchange isn't very interesting)
I don't see the advantage of circumventing government controls via crypto over the alternative of laundering the money. Or is it that crypto helps with the laundering process?
Stunningly, there are some people still trying to swing trade Luna. To a dyed-in-the-wool crypto investor the price is just a number that could go up or down. And people get dollar signs in their eyes thinking "If it's $0.00001 now, it only needs to go up to $0.001 for me to make 100X"!
Of course, they usually miss that there is no liquidity left in Luna to realize that 100x on an investment larger than pocket change, even if the market swings in their favor for a moment.
We won't see the bottom of crypto in general until more of the speculators with that mindset have been separated from their dollars.
Yep it's basically a game of musical chairs to see who will be left holding the bags. There will be tons of speculators speculating on the actions of other speculators.
E.g. If you're a speculator, you assume that hundreds of others are thinking just like you and are also wanting the price to 100X for just a moment. Which might drive the price slightly up. It's just a race to see who can execute the second to last trade before the whole house of cards comes crumbling down. Crypto is a pyramid scheme and a roulette wheel all in one.
The prices of Luna and Terra remains disconnected: their market caps should be equal, but right now, Terra is worth a lot more (on paper) that Luna. So the obvious arbitrage opportunity is to buy worthless Luna, swap it for Terra, and cash out.
The problem is that it's increasingly hard to do any of those three necessary steps, because exchanges like Binance have delisted the lot and the Terra blockchain itself keeps being halted (so much for being decentralized!).
The main feature of any decentralized technology is complete control and influence of a few increasingly concentrated wealthy and powerful groups, after all.
Perfectly explainable, you can exchange terra for $1 worth of luna, and after the exchange happens you can sell the luna for approximately $0.1 (because the price would have dropped by this much when you managed to sell it).
If you're a market maker, why wouldn't you? Your whole value-add is that you provide liquidity to folks who want to sell but can't find a buyer (a service in pretty high demand for LUNA right now), sell it at a later time point when there are relatively fewer sellers and relatively more buyers, take on the risk that there will never be fewer sellers and more buyers, and pocket the difference in spread. There's obviously risk in this, but if your business is market-making, you presumably have statistical models of this risk that you incorporate into the price you're willing to pay.
If I was making a market for terra, my bid would be $0.00, any higher is too much risk. No point in making a market for something that has 0 value and virtually 0 liquidity.
So did I. I've got 150,000 now. I've certainly spent $8 more poorly.
7 days ago that was worth $12 million. It's crazy
The team behind it did get up to 14 billion USD in deposits and they're encouraging (even at this price) people to continue to hold Luna. They're still on board apparently
Crazier turnarounds have certainly happened.
I feel bad for people who had money in it beforehand. I'm sure some of them were sick or out camping when all this went down and totally lost their shirt
Hah my position is up 600%. I'm in at 200,000 now. I've got some limit orders set between $0.0001 and $0.001, apparently my investment adage holds, "i make the right bets at the wrong amounts" - maybe I should set them for a dollar.
Cryptocurrency is a lot of things. Bitcoin, Ethereum, Monero and LUNA are very different technologies/products/networks/concepts. The decentralized aspect is the only overlapping theme.
The fact that your factual, noninflammatory comment is being downvoted reflects very poorly on the state of intellectualism on HN. Every time crypto drops 30% you see the same tired arguments and cringeworthy jealousy / schadenfreude. I'm not even pro-crypto and it's painful to watch.
Luna never had a limited supply. That was its achilles heel. Bitcoin is inherently supply-limited. Whether Bitcoin will suffer a similar fate remains to be seen, but it certainly won't happen on the same timeframe (99.9% drop in a matter of days) without SHA-256 breaking or some other double spend vulnerability being successfully realized.
As I understand, the value of Bitcoin is in an expectation that in future it will become a widespread payment method, and you can buy it cheap (well, relatively cheap) today in order to sell it later to those who will want to use it for transactions.
If my understanding is correct, then as soon as it becomes clear that there are better alternatives or Bticoin is unfit for this purpose, the price will drop.
There is plenty of marketshare that will buy Bitcoin for plenty of other reasons (store of value, protection from governments, criminal transactions, etc.), such that a lot of those reasons would have to be painfully clear to a majority of capital for it to go down dramatically (e.g. LUNA-style). What is clear to one of us may not be clear to other market participants.
Case in point: look at Gamestop stock, 15 months later. Still detached from reality, despite nobody -- even the buyers -- truly expecting the company to generate commensurate value.
You are somewhat correct in that yes most crypto is not private. However this isnt a binary state, often pseudo-anonymity (which most crypto can do) is sufficient.
Except to a well informed person with the proper tools, its difficult to follow even relatively basic transactions more than a few hops. How many of these kind of people do we think are employed by the IRS?
Even the FBI have been famously bad at tracking criminal funds, and they do have the expertise and tools.
It may not need to be that private. For example, a Chinese corrupt official can move his funds to the US by converting them to BTC and fleeing to the US to withdraw them. The Chinese government can track it down after all that happens but can do nothing due to a lack of extradition treaty.
That's an argument that people have been making since day 1 of Bitcoin many years ago. It's just dumb at this point, since clearly people see other reasons to buy it.
I'm not saying BTC is a buy at 30k or whatever price, but when you're writing the exact same post people wrote 10 years ago against the thing when it was at 10 cents you kinda gotta question whether your logic is sound.
Bitcoin is a store of value, like gold. Not a currency.
Yes, it's very volatile and no, just like gold, it doesn't protect you from inflation in the short run. but, it does protect from inflation in the long run. It doesn't have the adoption of gold yet, that's why there's more risk, but also more upside too.
> Bitcoin is a store of value, like gold. Not a currency.
Currencies have two properties: store of value and medium of exchange.
Gold has utility outside of store of value (you can make earrings or toilets out of it). Bitcoin does not.
Bitcoin has very limited uses as medium of exchange ("you can buy a pizza with it!"), I'm not aware anyone ever actually barters with gold anymore.
Both are speculative assets that store value, but have either lack medium of exchange or have limited use. Gold at least has some utility outside of these two properties.
That's it, there really is anything else to compare the two things by.
to quote Nassim Taleb "Gold and other precious metals are largely maintenance
free, do not degrade over an historical horizon, and do not require maintenance to refresh their physical properties over time. Cryptocurrencies require a sustained amount of interest in them."
if we turn off the servers then this value store would disappear.
Running a bitcoin server is relatively cheap. I have had a bitcoin full node running on my raspberry pi now for over a year (many people have had it much longer than that).
It's one of the main design principles of bitcoin, that it needs to be possible for someone to conceivably verify all transactions on a home setup. This ensures that we do not have to trust large operators to verify that the chain is following the protocol correctly.
It is one of the major problems with other coins, like ethereum, where this is not possible. This would leave it subject to pressure from political institutions in the future, which could force the reversal of transactions or freezing of accounts.
I was really disappointed that it was really easy to turn-off Luna blockchain .
I was also disappointed when a hacker penetrated 5/9 Axie Infinity Servers.
Both of these incidences outline that nobody has build a fast, secure, and decentralized solution yet. Maybe Cardano is the closest.
Bitcoin is inherently inflationary - the number of coins increased each epoch. Monetary inflation is just increasing the money supply. Price can go up or down. Price inflation is an increase in price.
Not a single satoshi will be added to the supply after 2140. The whole century leading up to that only adds a fraction of a percent of the total supply of 21M.
Agreed, but only partly. The GP's past reply history is telling: it is a typical pro-crypto reaction against everyone else (not just anti-crypto), just happened to be okay this time. The part I agree is the prevalence of stock arguments, which would be more entertaining if arguments themselves are evolving, but sadly that's not happening here.
What is a "typical pro-crypto reaction against everyone else" friend? I am flattered that you took the time to comb through my comments to determine whether I was on "your side" or on the "other side". And yes, I am obviously "pro-crypto", as you put it. Are you implying I am some sort of bad actor because of this? Please help me understand.
And I also agree there are no new arguments here. We've been rehashing the same pro-crypto vs anti-crypto discussion for more than a decade and at this point most of us who are not new to this debate are just arguing to let off steam. If you have anything constructive to contribute, other than ad-hominems, I'm happy to hear your side.
> I say "the price people were willing to pay" instead of "value"
The price people are willing to pay is how you estimate the value of something.
> For Bitcoin, the most popular one, on the order of 100.000.000.000.000.000.000 of hashes get calculated to mine a single block, multiple trillion per second. Within ten minutes, only a single one of those 100.000.000.000.000.000.000 hashes is actually used, depending entirely on luck. The rest are thrown away entirely. They do not form part of the final hash or anything else, the energy spent on them is lost.
You need to dig through 1 million gram of ore to find 1 gram of gold, depending entirely on luck. The rest is thrown away entirely. The energy is of course not lost but was necessary to find something of value (which also creates a lower price boundary). In contrast to gold, Bitcoin mining ensures provably fair probability of winning, has a tremendously lower barrier of entry, provides incentives to be run on renewable energy and produces far less waste.
The culprit here is likely that you don't consider Bitcoin to be something of value. Particularly for those with less financial privilege, Bitcoin can provide uncensored access to financial services and a long-term hedge against inflation.
I really like that comparison with the gold to raw ore ratios as a frame of reference, but isn't mining hashes in general just a completely arbitrary selection for a definition of work and wouldn't harnessing some more useful proveable activity tied to a lottery system be better ?
Even all the Miners locking cash in a single account with a constant reward function could be put to some real use and still generate the same return outcome of new minted coin to investment/work; just with fewer steps and without all the electric overhead.
> wouldn't harnessing some more useful proveable activity tied to a lottery system be better
Yes, but such a puzzle needs to be
- easy to generate at a certain difficulty
- difficult to solve
- easy to verify and
- the solution needs to be dependent on previous solution (so you can't silently pre-solve them).
Solving (stupid) hashes so far is the only activity that checks these requirements.
Another option might be to design a certain hash function such that when the hardware miners dedicated to solve them become obsolete (i.e. too expensive to be used for crypto mining), they can be easily repurposed for another problem set.
Thank you for the constructive comment but I think you are approaching it from a cryptographical computer science angle which even if solved still results in work as an empty puzzle of floating point mips and what I cannot yet rule out is a reimagined scope for real provable work that also has some positive social value like say creation of 1kwh of renewable energy placed on the grid. Suspend disbelief for a moment as to the many actual mountains you would need to move and consider that such a scheme is hypothetically possible on paper under laboratory conditions given an infinite capacity of unrestricted action. Puzzle solving in a sandbox might have been fine back in the OG whitepaper hypothetical days of Bitcoin et al but the stakes are sufficiently high now that considerable thinktank type effort could reasonably be spent on this problem. My reductio ad absurdum argument of all miners proveably locking and unlocking real money as work in to and out of a single bank account tied to a snapshot lottery mimicking the existing mint award outcomes seems at least less impossible and the mining account's interest can at least then be put to a real world good use.
> wouldn't harnessing some more useful proveable activity tied to a lottery system be better ?
Can you devise such a provable activity that has a difficulty that can be adjusted to the levels Bitcoin requires and is dependent on the last block's hash?
> Bitcoin can provide uncensored access to financial services
Example needed here, how are people with less financial privilege censored by fiat? Loan conditions? Definitely not, that's just the financiers not wanting to issue risky loans.
it failed as a currency, failed as a hedge and failed as a store of value. for 99% of holders like me it's just a speculative asset. nobody really cares about the pie in the sky idealism or libertarian nonsense spouted by maxis.
Here's another stat: Over the past month, the entire cryptocurrency market lost over $1T USD in market capitalization; about 50%.
There's different ways one can look at this situation. I take a bit of a grim view, for crypto as a whole. This was a "come to jesus" moment for institutional investors. Remember; Luna was a top 5 coin by market capitalization; over $50B USD in capitalization. Its unclear exactly what happened, but the prevailing thesis right now is that it was an "attack"; a valid one, by an extremely well capitalized entity, which played within the rules of the game.
This wasn't a loss of faith; it was a failure of technology. The rules were bad; and scarily similar to the rules all coins play by. A loss of faith can stay isolated to a single security; but a much more fundamental failure, like this, is a mark against the asset class. Now, investors will look across the entire ecosystem and start questioning whether any coin is safe. The technologists will say "BTC, ETH, they're proven, they're safe", and they're not wrong, but they also said the same thing about Luna.
What I think we'll see is: the crypto ecosystem will enter a depression over the next 12 months. Larger coins (BTC/ETH) will stabilize. Most other coins will struggle; and with their prices in a depressed state, they become tempting targets for attack by well-capitalized entities. We'll probably see more attacks like this one; not just against algorithmic stablecoins, but also more traditional consensus compromise attacks. Pressure will be applied to both USDT and USDC; Tether may implode, as many have predicted for a while, and USDC's future is also questionable if Coinbase has financial issues due to a drop in consumer & institutional activity.
In short, I would evacuate any non-BTC/ETH crypto positions. Some people may look at today as the "end of the crash". I think it was a signal; that crypto's Dark Forest security model isn't working; it got big; it developed derivative securities which enable shorting; and now has drawn the attention of well-capitalized entities who can move against chains with no repercussion.
Technically you could've still sold it even when the chain was "halted", since there were still a few exchanges that kept their various Luna markets open, and centralized exchange trades happen off chain. The problem was that you couldnt transfer your Luna from your private wallet to exchange wallet.
Now the chain has resumed, and you can transfer Luna between wallets, but they have disabled on chain swapping between Luna and UST, and closed the IBC channels which allow you to "bridge" your Luna or UST from the Terra chain, to another sovereign blockchain.
(er, just to clarify, since I'm looking back at this comment a few days later: I'm not a cryptocurrency fanatic and i'm certainly not looking to trade any Luna, I'm just saying that there are ways to trade Luna if someone really wishes to, they're just not the kinds of ways that cryptocurrency fanatics are likely to support/think about)
> For Bitcoin, the most popular one, on the order of 100.000.000.000.000.000.000 of hashes get calculated to mine a single block, multiple trillion per second. Within ten minutes, only a single one of those 100.000.000.000.000.000.000 hashes is actually used, depending entirely on luck. The rest are thrown away entirely. They do not form part of the final hash or anything else, the energy spent on them is lost.
All of those hashes and the energy required to generate them represent work that would need to be redone (along with all subsequent work) by an attacker in order to double-spend the transactions in that block. It's the most efficient way to use energy for security that there is.
Not really, it's secured by Proof of Violence/Imprisonment in partnership with the country's government. And the government spends a lot more energy doing that than bitcoin does
We need the state monopoly on violence in order to maintain an orderly society, regardless of which monetary system we use. The energy used by law enforcement to secure the financial system is a tiny fraction of the total, and switching from fiat currency to cryptocurrency wouldn't reduce that energy use at all.
The banking system has zero security for you as an individual. The DB admins though? They do enjoy some security. (Still not as much as Bitcoin, having central points of failure.)
Have you ever had a fraudulent credit card transaction? I've had at least 5 over the last 30 years including some for over $2,000. I call the credit card company, tell them this wasn't me, the charge gets removed, they cancel my card and send me another in 3 days. In the last 10 years their fraud monitoring has gotten good enough that they see something suspicious and block the transaction. Then they email, text, and call asking to verify if this was really me.
I always chuckle at the term "fiat currency." The USD, while at risk for inflation, is backed by the institution that is the United States of America and all its potential and resources. Sure it's not pegged to gold and is subject to inflation. But the purest form of "fiat currency" is crypto, which is only worth something because some people say it is. Bitcoin doesn't have an army and navy, and land from sea to shining sea.
You realize that “fiat currency” really means “by fiat” as in “by law”.
The law says the dollar is the legal currency of the US and they will (or would) literally take away your liberties if you threatened their monopoly over money.
> they will (or would) literally take away your liberties if you threatened their monopoly over money.
And this has happened. There have been many attempts to create own money, they all were eventually squashed by governments.
Governments allow limited "currencies" that amount to "stable coins" like coupons, bonus points, virtual cards/dollars/points specific to stores. But that's about it.
The government is all of us. A society self-organizing by whatever rules suit itself. If we want Bitcoin, we can keep it.
The government is an oppressive force that will squash dissent. This makes Bitcoin a moral imperative maintaining a semblance of transactional freedom in the face of that force.
Except that it quite literally means it's money because law.
At the moment it seems much more likely that the US government will survive than that BTC will be popular (and I think the relative values are fairly reasonable), but a few GPTs from now when computer governance becomes not only plausible but likely and crypto will seem like the only reasonable option.
I was a user of a defi dapp that ran on the LUNA blockchain and allowed me to go short or long on various stocks. The LUNA price didn't matter to me, but their blockchain and the dapp was useful. Not wasting time to go through KYC/AML in order to go long or short on a stock is a good thing.
Interesting. I didn't know much about the LUNA ecosystem outside of UST, but it looks like they had built quite a bit of applications: https://www.terra.money/ecosystem
I don't know what stages these projects were in, but it is pretty sad to see all the engineering effort go to waste. I hope some of these will be salvaged and ported to other blockchains somehow.
The difficulty of computing the hashes is the entire point of them, to enforce scarcity. It's not wasted if you belief that scarcity has worth, which in the digital world it certainly does.
The price people are willing to pay for something _is_ the value of something.
Cryptocurrencies are gambling in a similar manner to how owning risky stocks is gambling. A cryptocurrency provides various services, and the utility of those services is what ultimately drives the price. Bitcoin's services for example include borderless, permissionless value transfers. The reduction in friction is immense---if you're operating in Bitcoin. Thus one of the incentives to own Bitcoin.
> The reduction in friction is immense---if you're operating in Bitcoin
This "friction" is 100% intentional. We don't want free flow of capitals across countries, just like we don't want free flow of people. If we wanted it, we would have signed specific treaties to that effect, and those "frictions" would have gone away. This is what they did in the EU for example, where international payments within the union are seamless.
> The difficulty of computing the hashes is the entire point of them, to enforce scarcity. It's not wasted if you belief that scarcity has worth, which in the digital world it certainly does.
A very succinct and clear indictment of the entire cryptocurrency space.
hashing has nothing to do with scarcity. mining is only hard to ensure that the canonical transaction order is set by the majority of the computing power in the network. otherwise you get double spends. hashing is an ugly, wasteful way of doing this; Proof of Stake would be another if anyone ever figures out how to make it work.
You're saying the exact same thing. Bitcoin is created by special coinbase transaction with no predecessors, each block contains at most 1 of those, if block proposal was easy then peers would be incentivized to create money out of nothing.
Double spends are just another, smarter, subtler way to "create" money, by exploiting inconsistent versions of the same supposedly-shared state.
It all boils down to scarcity in the end, that's a necessary condition for a currency. Value is scarce, so anything representing and storing it must be so too.
It's also basically the only way to have a permissionless verification system that is resistant to sibyl attacks.
A sibyl attack, is where in an anonymous system, one person can easily pretend to be millions of people. If we had some magical way to prevent people from doing this, without having to verify their identity, and manually add them to a list of "trusted verifiers", we could do away with PoW.
"Cryptocurrency is gambling, plain and simple." I actually view it as a collectible, and find it a bit annoying when people assert that it is simply not valid to view it as anything but gambling (which it certainly can be). It has a certain aesthetic to me and I enjoy having it (if it needs to be said, I do not encourage anyone to buy it, and if you already do want it, I encourage a small position). Yes it is not rational. There is an aspect of 'this is inherently worthless', but that's been true of collectable cardboard for a long time. So has in-signalling and speculation.
If collectable cards were algorithmically printed into oblivion they would lose all value too.
Gambling is exactly how crypto is being used. Crypto is nothing more than a big casino and to anyone who just lost their shirt I say that's what you get for trying so desperately to get something for nothing.
Again, mostly not wrong but a bit annoying. I enjoy money that works with a programmable remote procedure call system (what I refer to as aesthetic, as sure, I can't call this super useful in real economic terms) and I'm quite willing to take a loss. Not sure what you're adding to what hasn't already been said; you effectively ignored my post.
If everyone was like you, then noone would care if crypto "loses" against fiat currency, because 1 BTC still equals 1 BTC.
Honestly, if that were the case (as it used to be, back in the early days), I would have zero problem with crypto. The tech isn't the problem per se, it's all the greedy leeches who are looking for a get-rich-quick-scheme.
That's a valid take individually but collectively it become invalid once widespread barter began and institional action bega. I don't see Chase offering Topps and Donruss in 401k plans, let alone Rolex and Omega packs. And criminal actors aren't asking to be paid with an amalgamation of granddaddy grade Colt 1911s and Spanish coins.
Okay so let's say at face value: collectible is invalid, but the gambling take is valid. How does that explain 401k plans any better? Surely some aspect of both the gambling value and the perceived future appeal (what I call aesthetic) plays into this? Or what do you categorize crypto as, if not those two things? (I mean this curiously, as I appreciate these don't cover the illicit nature)
you personally could view money itself as a collectible. that doesn't change the fundamental nature of money for 99.9% of the population.
I completely understand people who are interested in being a part of creating a financial system from scratch. but to most people, crypto is a form of gambling driven by fomo
> The difficulty with cryptocurrency is that there is nothing of worth backing it
There is not much backing any other currency either, apart from the fact that:
- the government forces their currency on you
- the banks forces you to save that currency with them
- people "trust" the fact that the currency will be worth something in the future
But in fact what backs up every fiat currency is pure air. Let's say the dollar stops being the international currency, good luck explaining everyone what it's "worth" when nobody else wants it.
> But in fact what backs up every fiat currency is pure air. Let's say the dollar stops being the international currency, good luck explaining everyone what it's "worth" when nobody else wants it.
This is a pretty simplistic view of how things work. Even if the dollar stopped being the main reserve currency, it would still have value, just like smaller reserve currencies like the Euro and Pound, because people trust the governments to be able to pay their debts later. Until the US government can’t pay its debt and really defaults (and not the default that happens due to political stalemate) the dollar will have value.
Bitcoin and other cryptocurrencies will never have this, especially if over the span of a few days it can lose a significant chunk of its value because of a sale of a few tens of thousands of Bitcoin.
Sure, but it might be a 10th of what it is now. So in fact it's not backed by anything real.
> because people trust the governments to be able to pay their debts later.
Nobody in their right mind excepts the US to pay their debt (except through massive inflation) - the same goes for Japan and a few other countries where the debt is so massive it can never be repaid.
> especially if over the span of a few days it can lose a significant chunk of its value because of a sale of a few tens of thousands of Bitcoin.
We are still very early days in crypto. It's like saying the internet will never change anything in the mid-80s, well before the web actually started. There's very tangible reasons for crypto to exist, such as not needed any kind of official middle-man in the middle to use your cryptocurrency. The fact that it has value or not is tied to its utility on the market beyond speculation. Whether that will ever happen is a matter of how stable the fiat currencies are going to be, I'd wage.
Yes , but the fact that we built societies on those things means there is great incentive for keeping it going (as even critics of capitalism eepeatedly keep noting).
The problem with cryprocurrencies is, that the one thing they are really not good at is being a practical, efficient replacement for fiat currency, which is why building societies on them is hard. You could as well speculate on the unique shape of certain types of sheashells and develope whole subsystems of people analyzing their shape, building seashell storage sacks and fake seashell prevention agency and it would be still be more efficient than crypto.
Say what you will but when I was living in a Third World country with a pegged controlled currency (no access to international payments) it was thanks to bitcoin that I was able to pay for goods and services online (books, hosting, etc.). Never before then did I ever feel connected to the rest of the world. Nothing will change that in my mind. Bitcoin is a currency.
>The rest are thrown away entirely. They do not form part of the final hash or anything else, the energy spent on them is lost.
I can see that you're trying to paint this as some sort of tragedy, but I'm not really seeing it. How is what you described any different than all the rocks that are "thrown away" when mining for minerals? Is it supposed to be better that the energy went towards terraforming the earth (ie. open pit mines) and therefore created something tangible?
Bitcoin transactions uses 1,719 kWh every 10 minutes.
I don't know that I understand the rock analogy - any unused rocks that are "thrown away" are easily repurposed if desired. The energy used in the other examples is lost to entropy and contributes to global climate change.
>Bitcoin transactions uses 1,719 kWh every 10 minutes.
1. you're comparing the energy use of a single vehicle against the energy use of a global network. if you were at least somewhat honest you'd try to compare like with like.
2. You seem to be missing the point. The quoted paragraph seems to be upset that the trillions of other hashes are being "thrown away entirely", implying that if they weren't thrown away it would somehow be less bad. That's the point I'm disputing. If you think bitcoin isn't a worthwhile use of energy, that argument doesn't need to depend on whether you're "throwing away" hashes or not, so I'm presuming OP is actually concerned about something being "throwing away".
>any unused rocks that are "thrown away" are easily repurposed if desired
>The gas used by armored cars to move cash around is a good example of similar economic cost.
No, both you and the OP seem to have pattern-matched my comment to "bitcoin's energy consumption is similar to [something else]" argument, which is not what I'm talking about.
> The difficulty that fiat currency faces is inflation
Is inflation bad? Some inflation is healthy! If your “currency” is deflationary, it’s not a currency because the house you bought will be worth less in 10 years.
Hasn’t deflation always lead to mass unemployment?
At the end of the day, it's either proof of work or proof of force. You can't have a good society build on force, implicit or explicit. In a perfect world we could go with proof of stake, but the world is what it is.
> The difficulty that fiat currency faces is inflation
Not just inflation. How many fiat currencies from 100 years ago still exist today? And for the one that still exist, how much value have they lost? I'll let you ponder on that.
The US dollar is backed by the sovereignty of the US government, the ability of the US government to impose taxes, and their willingness to accept the US dollar in payment of all tax obligations.
If the Fed used the Bitcoin blockchain as the ledger to settle tax payments, then Bitcoin would be a currency and would have something backing it. However, this would create a horribly deflationary economy which would plunge the country into a period similar to the middle ages in Europe where coin scarcity crippled productivity.
> The US dollar is backed by the sovereignty of the US government
This is completely meaningless. You're just repeating something you heard. Anyone with a coherent understanding of the USD's value proposition would not describe it this way.
> their willingness to accept the US dollar in payment of all tax obligations
This is a real, but small, factor in the value of the USD.
> would plunge the country into a period similar to the middle ages in Europe where coin scarcity crippled productivity
This isn't an issue with Bitcoin. There's no "coin scarcity" due to its high divisibility and near-ideal fungibility.
> There is nothing of worth backing the dollar either
What a ridiculous notion. Uncle Sam has the world's largest economy, the world's reserve currency, and more than a few aircraft carriers. Just to name a few of the backing assets.
Russia still has a functioning economy, and it's currency problems are not of the same nature as those that plague crypto. In fact, Russia's monetary problems are different enough that even if they had crypto instead they would face similar issues trying to use it that they face with their dollars because of the way sanctions are applied. Crypto may have promise, but it simply doesn't completely solve the class of problems that some people want it to.
> Russia had a lot of dollars, and then suddenly they were worthless or disappeared
Yes, due to broad international sanctions orchestrated by the U.S. You're unwittingly supporting my point.
If Beijing or Washington ever get around to treating cryptocurrency as an existential threat, make no mistake the market will be crushed and you will lose everything.
This is always my reply to crypto-heads: if btc/eth/etc. become too inconvenient for the U.S. government, or interfere in some material way with currency policy, the government will simply declare crypto illegal or regulate it to the point of pain, and that's that.
> Uncle Sam has the world's largest economy... and more than a few aircraft carriers
The dollar isn't meaningfully backed by any of those things.
> the world's reserve currency
You mean the dollar? The dollar is backing the dollar? At least you're correct about that one, I guess, although perhaps not in the way you intend. 95% of dollar value is "impredicative", so to speak; the same is true for Bitcoin (or any good money).
> The dollar isn't meaningfully backed by any of those things.
Yes it is. Either naive or uninformed to think that the United States has never militarily intervened to protect the massive economic inertia it inherited and acquired after WWII, particularly the Petrodollar system. These actions provided massive value to currency.
> the world's reserve currency You mean the dollar? The dollar is backing the dollar?
Inertia is an asset. Incumbents have the advantage. Network effects matter. BTC benefits from this phenomenon as well.
Fair enough on the petrodollar system, but that seems to be on the way out.
> Inertia is an asset. Incumbents have the advantage. Network effects matter. BTC benefits from this phenomenon as well.
You're repeating what I said in different words; this is the impredicativity I refer to. The dollar is valuable because it is valuable. Same with Bitcoin.
This is not an apples to apples comparison. They're not even in the same galaxy.
USD does not wipe out hundreds of billions, nearly a trillion, in value in the span of a few days.
BTC has no defense against antagonistic nation states that decide to make it illegal for average citizens to own crypto, such as BTC in China, or those that just decide to make it exceeding difficult to exchange for their national currency electronically. Bonus pressure points if your currency happens to also be the prevailing global reserve currency.
Literally tomorrow the feds could tell Coinbase, Kraken, et al, games up, your asset class is primarily used to facilitate ransomware, drug trafficking, and money laundering, including transactions that involve deeply sanctioned nations like North Korea or Russia, therefore we will no longer allow crypto <=> USD transfers on any platform.
The banks these platforms use to secure USD funds would fall in line immediately.
Poof, the vast majority of retail investors that prop up the price of BTC no longer have access to it.
Countries have tried many different strategies over the years to not conduct international trade primarily via USD, but despite the massive benefits should they achieve that, they've always come up short. BTC especially so. Just ask el Salvador.
My general point here is that crypto enthusiasts are far, far too dismissive of the power of the pen, and the big old brick buildings, and the militaries that support these institutions.
Like other upstarts before, crypto will be bent to suit the needs of humans. And not just an elite, neo-feudal class of early adopters. Assuming it doesn't just implode on its own merit in the meantime.
On Bitfinex it is trading at 0.02 (2 cents) it never dropped below 0.005.
So if this is the top comment and there doesn't seem to be anyone correcting you it seems HN has no skin in the game but loves to talk about stuff they can't even get accurate data on
Bitcoin has nothing to do with Luna. They are as similar as two unrelated Internet companies, like Google and eToys.
Inflation doesn't dilute the economy. Rather, it grossly distorts resource allocation. How do we pay for endless wars? Fiat funny money. How do we pay for $110 Luna? Again, fiat funny money. Luna is actually a symptom of our underlying system being broken---the system you are kind of defending.
Luna is intertwined with Bitcoin. The reserved to defend the peg were at least partly held in Bitcoin, which made the two asset correlated to at least some small degree.
Luna tried to make itself look better by "affiliating" itself with bitcoin, that's all. That is the attempted laundering of integrity and prestige. It failed.
> For Bitcoin, the most popular one, on the order of 100.000.000.000.000.000.000 of hashes get calculated to mine a single block, multiple trillion per second. Within ten minutes, only a single one of those 100.000.000.000.000.000.000 hashes is actually used, depending entirely on luck. The rest are thrown away entirely. They do not form part of the final hash or anything else, the energy spent on them is lost.
That's still more energy efficient than the regulat fiat system.
Is there electrical energy just burnt for no purpose in fiat systems? You are talking about efficiency, not absolute value. The transactions of fiat systems are orders of magnitude more than the bitcoin chain's.
You have contradicted yourself. By your own admission, Bitcoin is backed by the world's energy and computing resources (at least what is used on the network)
All energy and computing resources used on mining Bitcoin are spent and cannot be used for anything else. The concept of "backing" means that resources are available, and the entity backing them merely represents them. Stock is backed by the services and products a company provides. Fiat currency is backed by their respective part of the world economy. Resources are not depleted by backing those.
Saying Bitcoin is "backed" by the world's energy and computing resources is like saying that a wildfire is "backed" by a state's forestry reserves.
Let's also not forget that every bitcoin contributes massively to the destruction of our planet. From wasting massive amounts of energy (as much as a modestly sized developed nation) to wasting massive amounts of resources in terms of computing hardware.
>All energy and computing resources used on mining Bitcoin are spent and cannot be used for anything else.
Bitcoin mining can be used to monetize excess energy (especially with renewables) that would otherwise be wasted, so what you said is not entirely true.
The statement you quoted is true, regardless of your assertion. As for addressing your assertion by itself:
Energy storage and distribution networks constantly strive to minimize unstorable excess energy. Even under the assumption that that will not happen sufficiently, or, less hypothetically, by only taking into account the currently achieved levels: What you propose cannot be enforced. By design.
Bitcoin is decentralized, and everyone with an Internet connection and energy available can participate. That includes anybody with an even mediocre Internet connection and access to precious resources that can be converted into a single Bitcoin block and a massive amount of heat, for personally enriching transaction fees and a block reward in return. One of Bitcoin's very core principles makes gapless regulation unlikely, if not impossible.
What is your proposal for guaranteeing that only non-storable, non-transmissible excess energy is used for Bitcoin, other than individual goodwill?
Bitcoin isn't backed by energy,.it burns it. If a real estate bond was backed by physical buildings the same way that Bitcoin is backed by energy then the bond would be created by burning the buildings down.
The opposite is the case: whatever backs up Bitcoin's current valuation, it's all that allows the system access to those energy resources. Those energy resources in no sense support Bitcoin's valuation.
"Safe assets are much riskier than risky ones. This is I think the deep lesson of the 2008 financial crisis, and crypto loves re-learning the lessons of traditional finance. Systemic risks live in safe assets. Equity-like assets — tech stocks, Luna, Bitcoin — are risky, and everyone knows they’re risky, and everyone accepts the risk. If your stocks or Bitcoin go down by 20% you are sad, but you are not that surprised. And so most people arrange their lives in such a way that, if their stocks or Bitcoin go down by 20%, they are not ruined.
"On the other hand safe assets — AAA mortgage securities, bank deposits, stablecoins — are not supposed to be risky, and people rely on them being worth what they say they’re worth, and when people lose even a little bit of confidence in them they crack completely. Bitcoin is valuable at $50,000 and somewhat less valuable at $40,000. A stablecoin is valuable at $1.00 and worthless at $0.98. If it hits $0.98 it might as well go to zero. And now it might!
"I have in the past told the story of TerraUSD and Luna by saying: The weakness in TerraUSD is Luna. One UST can be exchanged for $1 of Luna, but that only works if people continue to have confidence in Luna; if Luna goes to zero then TerraUSD will follow. But you could also tell the story by saying: The weakness in Luna is TerraUSD. Luna, as the cryptocurrency of a blockchain ecosystem, would rise or fall with the value of that ecosystem. But Luna, as the thing supporting a stablecoin, could go to zero in a week if that stablecoin needed support. Terra was so unstable because it was trying to be stable."
Yeah, as someone who didn't know about Luna or Terra a week ago I think he did a good job of explaining the system, and the way it would fail, pretty well 2 days ago on Wednesday:
You can read down through where he details the Death Spiral. I also haven't paid much attention to other stablecoins, but I imagine the systems are similar, based on faith in the system, and only good as long as there's not a run on the system and more than some percentage try to get their money out.
Yeah but something happened when USDT was in the unpeg crisis 2 days ago.
See, if it fails then the big exchanges become insolvent, full stop.
Now here's the thing. With some exchange APIs you can see market order statuses, whether they're settled or not.
You can use this to determine market latency. If I want a market buy, how long does it take to settle.
So here's the thing, the latency on USDT buys was on the millisecond scale as best I could determine.
The latency on USDT sells was near minute scale.
It's a giant accusation so I'm not going to name-drop the exchanges I'm talking about and I'm just a single data point but if anyone else saw it contact me.
It looks like they "narrowed the channel" and put their thumb on the scale to prefer buys and float the price, pushing it back up.
Now this was at a time that the gas price was about 250/300gwe because of the massive UST exit and network delays were 15/20 minutes or so.
So even if you wanted to arbitrage it wouldn't have been worth it because the network was going way slower then exchange latency.
This started basically right when Tether tweeted about the billion in Avax and ran for about 12 hours or so
Ultimately it doesn't matter. These are unregulated securities and the exchanges can run their markets as the please and, if what I'm saying is right, good job keeping the thing you need to stay in business afloat. Coinbase stock (which I'm using as proxy for general sentiment) climbed 50% after tether got repegged and contagion appears to have been averted
I'm just wondering if anyone else saw this. It could be a coding defect on my part, a fluke because of the craziness of the market, me projecting and fooling myself, etc.
Please don't go around repeating this as fact, it as of now, needs independent verification
Tether isn't backed by cash but by a combination of short and long term loans and potentially even crypto. Fiat deposits are likely a small allocation. Calling it a scam is still disingenuous, it is backed by reserves (the more pertinent question is how liquid they are). People have been waiting for Tether to "collapse" for over 5 years now.
> When it comes to "backed" stablecoins like USDT the scam is even simpler: you just say it's backed by cash when it's not.
This is such a silly argument. USDT is definitely backed by USD. To claim that it isn’t is just a lie. I think what you meant to imply is that it’s not backed 1:1. This isn’t only an issue with Tether. This is the case with any fractional reserve banking system.
> I think what you meant to imply is that it’s not backed 1:1. This isn’t only an issue with Tether. This is the case with any fractional reserve banking system.
There is a minor difference, though. On a typical fractional reserve bank the deposits are backed by assets worth more than what is the worth of the deposits.[1] Not only that, there are other liabilities that take the possible losses before the deposits are being hit.
On a typical stablecoin, there is a reason to suspect that the coins are backed by assets worth less than the market cap of the stablecoin.
The difference may seem subtle, but it is a difference of a legitimate business and a despicable scam.
[1] In case you are interested, you can go and check the balance sheet of any bank you want. The part where the value of excess assets to back the liabilites of the bank (deposits etc) is listed under "Equity"
Is it definitely backed? As far as I know there has never been satisfactory proof that USDT has ever been backed by anything.
Yes fractional reserve banking is a real thing, but real banks must publish audited financial statements so that outside observers can asses the banks financial position. From small local banks to national reserve banks, the financial statements are out in the open for depositors and borrowers to scrutinize. This isn't possible with Tether because the fiat side of their books are closed.
If everything is above board at Tether why not release the books? It's such an obvious PR win and would increase adoption of their currency.
They haven't done so because they know the books are cooked.
NYAG, US DOJ and CFTC all found it was backed, from their own subpoenas. NYAG settlement with Tether forces them to keep updating disclosures.
Its 2/3rd backed by dollars and 1/3rd a mixture of commercial paper, which we don't have further information about. Rumor mill always swirls about that paper, but its probably not that controversial and would only be 33% of Tether. Likely would result in a liquidity crisis if more than 70-80% of Tether's were redeemed at once. Although I wonder if that's even possible now given how much USDT is locked in DeFi apps and liquidity pools and burned.
(Projects often lock assets in a liquidity pool share and then destroy their access to that share, to ensure to their community that there is always the ability to trade)
So Tether will probably continue working for partially the dumbest reasons.
If anyone ever provably burns a tether, then the tether organisation will help 'recover' the tether to anyone holding keys to a previous address that held it, or just anyone with a reasonable story how they accidentally burned the tethers.
This is their policy since some big players accidentally sent tether to addresses on the wrong Blockchain...
Thats pretty interesting. I don't think that would work for Tether stuck in a liquidity pool share that was burned by being sent to a contract or burn address. Traders can still shift that tether around, but it cannot be unbounded. Be a hard case to prove.
Fractional reserve banking lends out deposits. This creates risk, but the net assets on the books remain the same (actually assets increase due to interest). With USDT, they may have bought something like commercial paper, which would be similar to fractional reserve banking, or they could have spent it on something irreversible (e.g. a dividend) and thus the net assets on the books is lower than the amount of USDT. It's unknown which situation applies to USDT.
It’s not quite that simple, no? If I deposit 1M in the bank, that bank can loan you 900k. You then buy a Bugatti from me for 900k, which I then put into the same bank. Then the bank loans you 810k to buy an NFT from me…
If the bank has 1M deposits, its net assets are 0. It has 1M is cash and has 1M in liabilities to depositors. If the bank loans out 900K, then it still has 0 net assets. It has 1M in liabilities to depositors, 100K in cash, and an "IOU" worth 900K (ignoring interest). Tether is different. When it mints and sells 1M USDT, it gets 1M is cash, but doesn't have any liability to Tether holders other than the honor system. It could easily pay a 500K dividend to its owners and no one would know.
What you describe is called the “money multiplier model” and yes, it’s not how the actual economy or actual banks work.
This document [1] from the Bank of England (UK’s central bank) is the best description I know of about how those ideas (“fractional reserve”, banks lending out deposits, “money multiplier” etc.) are wrong.
That’s not true. It’s not just that real-world banks don’t do that, they just plain aren’t allowed to “lend out deposits”.
I guess you could say “fractional reserve banks” do, because “fractional reserve” is a textbook model and not something that happens in the real world.
The problem is that deposits are a liability. Banks can only lever up assets to lend, so deposits are on the wrong side of the balance sheet to do that. What limits how much banks can lend is capital (and capital adequacy ratios), not deposits.
Banks create new deposits when they lend, as well as creating an equal amount of private debt. The loan is an asset of the bank, which creates a corresponding liability.
Customer deposits coming in as cash or transfers from other banks are useful as liquidity, but can never be lent.
> The problem is that deposits are a liability. Banks can only lever up assets to lend, so deposits are on the wrong side of the balance sheet to do that.
When someone makes a deposit in a bank it goes on both sides of the __balance__ sheet. On one side the "deposit" is a liability for the bank - who owes money to the depositor - but on the other side it increases the bank's "reserve" account.
> I also haven't paid much attention to other stablecoins, but I imagine the systems are similar, based on faith in the system, and only good as long as there's not a run on the system and more than some percentage try to get their money out.
No, that's not true. There are categories of stablecoins. There are some in the category of Luna/Terra, there are some stable in name alone, there are many that work perfectly and some of those would be able to do 100% redemptions of the entire float automatically or in a crisis of confidence.
TerraUSD was a joke. People warned of the death spiral the whole time. Its merely amusing it got that big.
Matt Levine is usually great. But the reason why UST at 0.98 makes the whole thing collapse is not because people “rely on them being worth what they’re worth”. It’s because you can sell UST into Luna for arbitrage minting new Luna in the process, thus inflating Luna.
But Matt knows this. He describes the whole mechanics in his newsletter like 3 days ago. So not sure why the stretched analogy here…
Yes, this is the nature of arbitrage opportunities. You are leveling the price of two assets by moving liquidity. You keep doing it until the prices normalize and the arbitrage opportunity dissapears.
In this case "normalizing" was going to zero for luna because that is what became the shared understanding of the value of what it was backed by.
Luna didn't go to zero because the whole crypto market woke up and realized that was no intrinsic value to it. If it did, it never would've got as big or lasted as long as it did.
There was an explicit attack that crippled the peg to the point that their algorithmic stability mechanic couldn't self heal. Which led the Luna project to attempt to assist the peg by deploying their own reserves, which unfortuently didn't work.
There didn't have to be an attack for this to happen
It may have been, but it equally could have been mass de-risking due to market conditions causing lots of UST withdrawals. Once the peg goes for a minute, confidence soon follows and the whole house of cards unwinds
LFG had $1.5B of reserves to plug a hole in a $18B leak. It never had a realistic chance of working (unless it was fast enough to stop the initial depeg, in which case it could have delayed the inevitable)
Those weren't AAA mortgage securities that went bust in 2008, though some were fraudulently marketed as such. They were liar loans on second-rate properties chopped up into a bunch of tiny pieces and re-sold, based on the notion that real estate would only go up forever, so if people failed to pay the lender would foreclose and own real estate with more value than the original loan.
Seems similar to some methods of stabilizing a "stablecoin": back it by a traditional cryptocoin and assume that this other coin can only go up.
People who had only bank deposits didn't lose anything.
Those chopped-up pieces of crap got lumped together in big collections which got rated AAA, because the people rating them assumed that not too many of the little pieces would fail at the same time.
off topic, but I wouldn't have understood anything that happened in the last few weeks without Levine. now most of my days are waiting for him to post so that I know wtf just happened
That’s what the whole crypto industry has been saying for years. If they didn’t think it was stable (or didn’t want you to believe it was), it wouldn’t be called stable. Millions of people at this point have been led to believe a stable coin is stable.
I interviewed with Terraform Labs less than a year ago. The guy interviewing me was a pretty standard eng manager who'd left Amazon for the excitment of a crypto startup. I tried to prep for the interview by researching their white papers to figure out how the various balancing and investment mechanisms actually functioned on a technical level. But it was difficult to make sense of their white paper, which was fairly general, and different portions of their documentation seemed to contradict one another. When I asked what I'd been misunderstanding, he told me that I hadn't misunderstood anything: their white paper was not a full spec, and their documentation was out of date. In that case, I asked, how could one actually understand the protocol? "It's probably not possible at this point," he told me, "These things are in motion all the time." I thought his answer was pretty eye-opening.
Their interview question was: design a simple app which allows one to query the effect of crypto price changes on the supply & price of LUNA. I gathered that the upshot was, how big a movement would be required to break the $1 peg? I wonder if their models weren't good, or if their models were good, and they were just accepting a high level of risk?
>how big a movement would be required to break the $1 peg
This is the sort of question that's important if you are managing capital for the long term and need to ensure that you remain in the black rather than being grounded on the shoals of fate.
>Their interview question was: design a simple app which allows one to query the effect of crypto price changes on the supply & price of LUNA. I gathered that the upshot was, how big a movement would be required to break the $1 peg?
Lol it’s like a version of that xkcd[1]: “Oh, and if you could hurry up on those figures, that would be great, we’re not sure if the underpinning of our platform is at risk or not.”
Sure; but lots of papers don't publish their raw data or their code.
Or they do publish their code but its full of obvious problems. Abstract: "Algorithm X (ours) outperforms algorithm Y". Then you go read the code, and they have a sloppy implementation of algorithm Y which is missing all the obvious optimizations. Actually, they often have sloppy implementations of both algorithms X and Y, because they're a student and they've never really optimized anything before.
So the conclusion of the paper is that some sloppily written code that you can't inspect outperforms some other sloppily written code that you also can't inspect. Wow.
As my thesis in uni I was parallelizing some genetic analysis algorithm that a team published a paper about. I ended up with clean code with good speedup but my results were completely off from what was could be found in the initial paper. After weeks of pulling my hair out I looked into the actual code the paper was based on and found out that at some point they hardcoded a constant in such a way that there would always be a division by zero somewhere down the line which messed with their results. Been very sceptical of „peer-reviewed“ CS stuff ever since.
Even I am guilty of this. There is basically no incentive for anyone to properly cross verify all these papers. At best the reviewers would check for any egregious errors in calculations.
And awfully fragil pseudo-code, and hard-to-reproduce base data, and ridiculously extensive hyperparameter search, and specialty hardware, and proprietary libraries, and magic circumstances that a grad student with horrible sleep deprivation happened upon and now couldn't reproduce at gun point...
Having read my fair share of papers, I've noticed a few large areas which call into question the reproducibility of a worrying percentage of papers, to the point that I view CS as not much better than the social sciences:
- Papers that can't publish their code due to NDAs (thankfully, reputable journals aren't accepting this with the same frequency they used to, but there's still a large body of existing papers published in reputable journals that fall into this category)
- Papers whose datasets are not disclosed despite being essential since you can't just go and generate your own data unless you have ultra-specialized equipment laying around (typically this is also due to NDAs)
- Papers that rely on specific software versions in specific configurations and will break after the paper is published and the authors stop maintaining it ("oh btw this only runs on kernel 3.6" - security conferences are still rife with this stuff)
- Papers that rely on not just specific software versions but things like environment size and link order for their benchmarks (this was called out specifically in [0])
In theory, this should all be easy to reproduce, but in practice, it rarely is. Especially since many papers that do have code and datasets available upon request will have said code and data lost to time as professors move around, files get routinely purged, and the project is forgotten about.
It sucks because there have been some interesting papers I've read that I really wanted to check out the code for, only to find out that everything was lost when the fileserver went belly-up (and nobody had been testing the backups) or when the first author left and IT automatically purged the home folder it was stored in.
The crux of the problem is not Luna itself, but the Anchor Protocol (19.5% yield), which enticed users to burn Luna by investing in UST through a, for lack of a better phrase, Ponzi scheme. I get it - people like decentralization. But without some form of regulation, either by the broader crypto community itself or by governments around the world, situations like the LUNA/UST collapse will keep happening.
It is a ponzi scheme. There is no production to provide for this 19.5% yield. It is all taken from incoming investments into the system. And it is well known that ponzi schemes collapse when the influx of new money starts becomes insufficient to pay the yield. It is very natural for ponzi schemes to collapse even without any government involvement.
I think the article should have examined that possibility in addition to speculating about an attack.
It is very possible that the $2 billion that was removed on the weekend was simply a holder that having seen worldwide retreat from risky assets had decided to pull his/her money out.
That is not true. The supply of luna coins kept increasing, which means that new money was being pumped in without corresponding sellers. Furthermore, while on one side luna coins were being destroyed to support the tera peg on the other side new supply of luna coins was being created and new money brought in. This new money went to the luna foundation which used it to pay the yield on the anchor protocol.
So anything with inflation is considered a ponzi scheme in your eyes?
Just want to mention that I in no way support algorithmic stable coins, I think they are a joke (including luna/terra). But I also don't agree crypto currencies are generally a ponzi scheme (there may be a few exceptions).
I am not talking about crypto in general but the ancor protocol in particular. The ancor protocol provided 19.5 % yield without having any asset that actually produces that kind of income. It provided the yield from new investments coming in, which is the definition of a ponzi scheme.
> It is very natural for ponzi schemes to collapse even without any government involvement.
I read it as government involvement would stop the collapse of ponzi schemes by regulating them out of (legal) existence rather than by somehow propping them up.
Patrick Boyle argues fairly convincingly in my mind that the problem with this was the design of Luna itself[1]. TL;DW TerraUSD maintains its price by minting $1 worth of Luna in exchange for one TerraUSD coin. But this assumes that there are always going to be willing buyers for Luna, even if its price is in free-fall. When the price of Luna drops suddenly, desire to hold Luna decreases, causing TerraUSD to lose its peg, causing confidence in Luna to drop further, leading to the death spiral we currently observe.
One thing I’m not clear on: what oracle is deciding how much Luna is worth $1? How do you calculate a market price in a manner that the chain itself can rely on to function? I assume there is a smart contract doing this minting, but if that smart contract depends on an oracle…how smart is it, really?
In this case the Oracle is a consensus protocol where community nodes report the LUNA/UST rate.
But of course to make running such a node easy for users Terraform Labs distributes node software that reports a value chosen by Terraform. So in spite of the distributed consensus design the Oracle is just Terraform.
Everybody makes mistakes. Everybody has to learn everything for the first time.
I would suggest the fundamental problem is that nobody considered looking for counterexamples to assumptions in "legacy" financial markets.
Like, how could people who are excited about reinventing finance not be interested in the odd corners of existing markets, like penny stocks and whether/how they go to zero? Or financial crises and panics.
Sure, most people in the world couldn't care less, but by definition, if you are making cryptocurrencies, obscure aspects of finance are your idea of a good time!
One doesn’t need to look at traditional finance. A similar algorithmic “stable coin” Iron/Titan collapsed a year ago. The problem is with people not understanding anything before jumping in.
On the other hand, jumping in without understanding is why a small fraction of people got ridiculously rich from SHIB.
A simulation? This flaw should be obvious to anyone who took 10 minutes to read how the system works.
Synthetics backed by a 1:1 mint/burn are always going to crash and burn the same way. It's happened before, and it will probably happen again. High profile people have been shouting from the rooftops about this exact issue since launch.
I have some friends who lost everything in this, and it sucks. I did my best to explain this exact scenario to people who would listen, and ended up getting some pretty high praise this week from people I saved, but you can't save everyone.
We are now in a world where wealth is being rapidly redistributed from people who don't read the instructions, to those of us who do. The metaphorical sea levels on global finance are rising rapidly. Learning to swim now isn't just a recreational activity, it's a survival skill.
> We are now in a world where wealth is being rapidly redistributed from people who don't read the instructions, to those of us who do.
Are the people who "read the instructions" really the ones who benefited here? The main winners here, as far as I can tell, are the employees and creators of Terraform Labs—who benefited from people investing in a project that was doomed to fail—and the people who got in early and out early—who are probably more lucky than smart.
It's still unclear who initiated the original attack which set this whole thing off, but whoever did that likely took home billions exactly because they understood how this system works.
From the looks of it, there were at least two distinct events around 9am Pacific on Tuesday, and again on Wednesday, where someone very intentionally made massive moves to trigger cascading liquidations. The rest of the damage was caused by a significant loss of faith in the system, followed by a mad dash to the exits.
The people running Terraform were doing a lot better before shit hit the fan. Maybe Do Kwon was looking for an exit or something, but I doubt it was an inside job. Maybe I'm wrong about that. I basically started ignoring Terra/UST the moment I realized how they were trying to back their stable coin. There are enough good projects in the space, wasting energy ruminating about obviously dumb concepts is a liability.
There's one cutely named Synthetix. If you look into the rabbit hole of "algorithmic stable coins", many of them use the same mechanism.
What made Terra interesting to me is that Luna is usable for paying gas costs. All equivalent systems that I've seen have a backing currency that has no uses other than minting synthetic assets or pure speculating.
I have no stake in crypto besides a bit of eth. 2 coinbase examples. First: your deposits are covered only if they're denominated in USD. Second example was the fine print on Coinbase's crypto-loan thing where they said they're giving custody to a 3rd party and giving you all the risk. Good luck on that APY!
A free third example is all of these "APY" and yield-farming things in defi (usually) project figures based on a couple of early whales moving into a shitcoin, getting random people into it, then swapping liquidity to the next one. The initial move isn't exactly a lie, but assuming the next 6-18 months will sustain the advertised number is (imo) quite deceitful. Now you get to "stake" and lock yourself in for months! Yikes. That's on top of liquidity vanishing in a crisis.
tl;dr the nuance on this stuff is detailed, and the details are important in times of crisis
> I have some friends who lost everything in this, and it sucks. I did my best to explain this exact scenario to people who would listen, and ended up getting some pretty high praise this week from people I saved, but you can't save everyone.
Same here.
I was asked about crypto many times since it became legal tender in my country.
The country definitely went through an 'investment' craze for some months. Maybe in a similar way to what Robin Hood / GME was in the US in late 2020/early 2021.
For some people the damage was limited to the $30 they received from the government in their wallets, as a consequence of buying high and selling low.
For others who went all in and bought crypto with credit cards, is a different story.
Like for many people here the best investment they can make is paying up their up to 49.99% APR credit cards, but that doesn't seem exciting enough for many.
I remember having conversations with friends and acquaintances about investment options. Researching which bank offered the highest APR for term deposits, (they can sometimes be up to 5.5% for USD time deposits here), which investment options were available, or how usually investing in yourself (education) or paying debts is a much better investment.
At least one of them decided to go full on crypto "deposits" with higher APR, I haven't asked if they are underwater after the recent news.
Another thing that surprised me is that the ones that spent the most weren't IT people. Since originally here, Bitcoin was mostly an IT niche topic. A few lucky people that mined when it was possible to do it with GPUs or bought when it was bought about a $100.
With all this, most of my friends in IT were like "oh, I've known about this for a long time, I wish I had bought them years ago" but didn't take major actions. On my case I remember the first Slashdot post about Bitcoin and even downloading one of the early Bitcoin Windows wallet but I never mined.
Others were mostly bit annoyed for having to work after hours to update their companies' payment systems to handle crypto in a short notice.
But non-IT people where like very excited about it. It was surprisingly popular with 60+ and older acquaintances. I'm sure it was heavily promoted on local TV and probably by social media posts targeting their demographics.
I've met some 75+ retirees that even wanted to buy ant miners and others that bought crypto with their pensions. Like their first online purchase with card was for buying coins really. And I'm talking about the demographics that actually goes every month to the bank to update their bank booklet after their pension is deposited.
> Seems like something that should be so easy to catch in a simulation/test
The system has two stable equilibria, one and zero. If we assume zero is virtually permanent, the system always ends there. But it's highly sensitive to a volatility assumption. Ex ante there is no way to precisely estimate that.
I disagree. Anchor was a dumb-money trap that increased the fallout of UST’s collapse by at least an order of magnitude, sure, but it was not responsible for the collapse: algorithmic stable coins are fundamentally flawed, they’re a perpetual motion machine, they’re based on the belief that you can artificially create and sustain a market within a set of very narrow parameters. Luna was doomed to fail regardless of Anchor — and the founders knew that, because they’d failed in the same way before, anchor was their attempt to shore up the ruse (which worked… until it didn’t).
Most of it, but it’s not unique to the cryptocurrency industry, only the degree to which crypto is dumb money — many aspects of traditional finance are going down the same path, where it’s no longer professional against professional, but professional shooting a bucket full of laymen.
DAI works fine. Over-collateralization with a looming threat of liquidation has proven to be resilient against all imaginable forms of market turbulence. It still leans heavily on oracles that are basically run by humans, so there is risk, but the incentives seem to be about right to keep enough people honest.
UST was an obvious bad idea. This exact scenario was warned about over and over again, and Do Kwon did what he could to try to delay the inevitable, but here we are.
If the algorithm is “give us assets more valuable than the claim we give you in return” is it an algorithmic stable coin, or just an asset with an arbitrary price? I’m unsure I understand how DAI can be characterised as an algorithmic stable coin, given “algorithmic” is usually understood to mean “the thing from which it derives it’s value is an algorithm” whereas for DAI, like Tether (ostensibly), the value is derived from its collateral. I’m open to an argument to why it is a algorithmic stable coin though, perhaps my definition is too narrow? To my understanding, the point of a stable coin is stability of value for the holder, which isn’t true of DAI — because they’re still exposed to the volatility of their collateral.
People who actually hold DAI don't experience liquidation risks. It's the people who create the Collateralized Loan Deposits (CDPs) who are taking that risk, and in exchange, are given DAI.
Also, technically the value of UST was fully backed by LUNA, until the total market cap of LUNA dipped below the market cap of UST, and then it wasn't.
IMO it's not the collateralization that makes something an algorithmic stablecoin, it's the currency is managed entirely by on-chain smart contracts, as opposed to Tether or USDC etc, which are managed manually by humans working in a room somewhere. Who knows though, I just made that definition up. The algorithm that manages DAI is pretty rad, so it seems unfair to deny them the status of "algorithmic", but that's fine.
> Also, technically the value of UST was fully backed by LUNA
And what was LUNA backed by? Unless somebody gives a better definition I'll say it was backed by two things. One was UST successfully working as a stablecoin. The other was the vague promises made by the charismatic founder that they were enabling a whole ecosystem with hundreds of developers, creating blah blah. In other words, people bought into the hype that Terra was to become the next big blockchain startup and holding LUNA was as good as owning early stock.
So that goes back to the first point, and as soon as Terra wasn't able to run an effective stablecoin what was left? "We're still here making noise" says Do Kwon. Face palm.
Technically, sure. But now remember that market cap is simply last trade price * outstanding tokens and realize that if there’s not enough buyer demand to liquidate all tokens at that price or greater then UST wasn’t backed at that moment in any real sense. The true theoretical backing is buyer demand * buyer’s best bid for the sum of all buyers.
If a vault has a liquidation ratio of 150% and the value of the vault drops below that then the crypto in the vault is auctioned off for DAI.
If it's not able to raise enough DAI to make up for the DAI that was issued when creating the vault the protocol can mint and sell MKR for DAI to get rid of that debt.
But again, like we learned with Luna, if everyone is getting MKR at a discount, why would anybody else buy? Prospective buyers want to sell their MKR that they got at a discount, too.
Because not everyone is. The protocol has only ever gone into debt once. To get rid of that debt were about 90 auctions to burn about 4.5 million DAI. The market cap at the time for MKR was over $200 million. Even if it did crash the price of MKR that doesn't affect the stability of DAI because DAI would be fully collateralized my the vaults.
Right, but that's like saying "people don't care about how a company treats workers", "people don't care about privacy" -- speculators/shareholders occupy the most craven beliefs in all markets generally.
Decentralization is an _ethos_ that _can be found_ in crypto but you have to look for it, which means you care about it. If you don't care, fine, don't bother with it.
Meanwhile decentralization is actually an excellent measurement of the honesty of a given crypto scheme, and surprise surprise, only a few projects are willing to put decentralization before profits. But they do exist, just like there are a few tech cos that aren't extractive ad machines (not many).
Problem with regulation is that the term itself is ambiguous. What does it mean, who will do it, what are their limits and on what authority do they act?
I am not familiar with this specific crypto, but when I am offered to join a business that pays 19% in USD, I immediately know it can not possibly not fail. Regulations or not, you can't offer such dividend without major risk.
Then the subject of jurisdiction comes up. Who issued the tokens? If it is a USA company or person, it is one story, and they are likely already subject to some regulations. If it is an international community like ethereum, its another story. USA can probably ban it's distribution in USA, but not regulate.
Then, why would the regulations have to be mandatory? Organizations can voluntarily approach SEC and ask them to regulate the crypto they are about to issue. Submit to the appropriate rules and be an investor grade business. No new laws are really required for that. This way you could have trusted that if Luna fails, someone would go to jail. It's just wouldn't have been 19% dividend in that case, following rules comes with a price tag.
But do you need regulation? Promises to produce 20% interest out of thin air when banks don't offer a single percent are suspicious enough in my opinion.
It doesn't make sense. If there was a risk-free way to get 20% income without doing anything then people could stop working and live just from their savings.
Agreed! I would emphasize (and empathize) that there are muuuuuuch higher yields in the crypto space, so, many of these people felt like they were being responsible in a happy medium.
(The other yields are not fixed yields and very temporary, but it is easy to come out ahead. Not for passive investment chasers)
Regardless it was still up to them to be more discerning.
Amazing it got that big.
About half the yield came from loan interest. The other half was from Luna Foundation dumping money into Anchor's reserves. Users could take out collateralized loans against Luna, Ethereum, Atom, Avalanche, and Solana tokens. Anchor isn't what brought down Terra. The way UST was supposed to remain stable is what killed the whole thing when it backfired.
As I understood, people were taking loans at exorbitant interest rates because they could invest it back into some Anchor or UST related tokens and get even more profit. This is not a realistic business model.
Here is a quote from a random article:
> A popular strategy that many have used was the recursive lending strategy, this involved:
> 1. Depositing bLUNA as collateral on Anchor
> 2. Borrowing UST to buy LUNA
> 3. Swap LUNA to bLUNA to repeat Step 1
Regarding this:
> The other half was from Luna Foundation dumping money into Anchor's reserves.
And where do those money ultimately come from? I guess from unlucky investors who bought UST/LUNA and were left with useless tokens? Then this resembles a classic Ponzi scheme.
I disagree. The return could just go down over time. The idea of taking more loans out against your borrowed loans is risky and can be done with any other loan provider. It opens you to a lot of risk because if you get liquidated you will lose a lot.
>Then this resembles a classic Ponzi scheme.
Anchor itself isn't. A Ponzi scheme is where earlier investors are paid with the funds of later investors and is not sustainable without growth. In a Ponzi scheme not everyone can withdraw their money as the total reported money is more than the money deposited. In the case of Anchor the money reported is actually the same as the money deposited. Everyone is able to withdraw their UST. You can still get 18.06% APY on UST from Anchor right now.
The actual issue is with how Terra handles contraction of UST demand. As it turns Luna into an inflationary currency instead of a deflationary one. This is the danger of having your collaterals value tied to the growth of the stable coin itself. I can see how Terra + Anchor can look like a Ponzi scheme, but I personally don't see it that way. I personally just see another algorithmic stable coin deegging as demand for it goes down. The same thing would have eventually happened even without anchor. People could just get board of the project and decided to pull out.
Also those borrowers were receiving inflationary Anchor tokens as rewards. When the value of Anchor would spike high enough, borrowers were actually paying negative interest rates.
Anchor did a decent job of obfuscating the nature of the scheme.
That strategy is just a round about way to increase leverage. The interest rates weren't even that crazy. I think the highest I ever saw was 10%. Most of it gets offset from staking rewards from the collateral assets. I thought it was a good way to take out collateralized loans against staked ETH. It was great until it wasn't.
> But without some form of regulation, either by the broader crypto community itself or by governments around the world, situations like the LUNA/UST collapse will keep happening.
I don't understand what's so bad about just letting it happen continuously. People will eventually learn and if they don't, they don't.
As I understand it: Anchor is the only reason UST was (briefly) workable to begin with. There wasn't enough liquidity in the UST/Luna system to support a major stablecoin; Anchor was how they dragged that liquidity in: by giving people free money to help prop it up.
Take away Anchor and you're stuck at Step 7 of Matt Levine's Algorithmic Stablecoin Analysis: "if you do a good enough job marketing Luna, its price will not be zero. If the price is not zero, you're in business". As I understand it, the price of this whole ecosystem was driven largely by Anchor.
> But without some form of regulation, either by the broader crypto community itself or by governments around the world, situations like the LUNA/UST collapse will keep happening.
That's right, and that's OK. Capitalism allows failure. A free society allows failure. This is healthy. Luna was not a systemic risk. There has been no contagion. Nobody has lost their house or their job. When you don't allow failure, you get Lehman and the 2008 crisis. You get the Fed inflating assets to the point that it's actually dangerous, because they won't let the stock market fall.
Then you don't want to live in a society, you want to live in the Soviet Union. Because nobody can tell you if a business is a fraud in advance. There is no all-seeing, all-knowing bureaucrat that can detect Ponzi schemes. You just have to take away people's permission to do stuff. Which is ridiculous---Ponzi schemes only hurt people who are reckless. Why punish and impede all of us for the sake of reckless people? Your viewpoint is literally uncivilized.
The totality of my life experience has shown me it's precisely the other way around - it's the reckless people who punish and impede us all for their sake. Just like there are no all-knowing bureaucrats who can detect Ponzi schemes, there are none who can detect systemic risks either.
Whatever the soviet union was or wasn't, it was still a society. Making such exaggerated claims makes it difficult to lend the rest of your arguments any credence.
> Then you don't want to live in a society, you want to live in the Soviet Union
I think that there are many in between states for society, between the two extreme points of "allow ponzi scheme investments to be sold to uninformed investors" and "Communist dictatorship".
Instead of either of those two extremes, we could choose a middle ground of "Liberal democracy, where people running ponzi schemes are prosecuted".
> There is no all-seeing, all-knowing bureaucrat that can detect Ponzi schemes
Nothing is perfect. But it doesn't have to be. The government can just go after the obvious ones, at a very minimum, and get it mostly correct.
"Leading crypto exchange, Crypto.com, has announced that its users who traded embattled Terra’s native token, LUNA, on May 12 at around 12:40 – 13:39 (UTC) did so with the wrong price.
Crypto.com, one of such exchanges, has revealed that traders involved in the concerned transactions would have their transactions reversed, and a $10 reward in CRO, the native token of the platform, would be given to them as compensation for the inconvenience."
A likely answer is that as historically Luna was trading at 50-100$ it had a minimum price specificity of $0.01 or something, so the exchange might have converted lower buys/sells to $0.01 when it was trading below that
Its not weird for exchanges to reverse transactions done on their exchange if the price is wrong. Happens in the stock market all the time. TD Ameritrade, Etrade, Schwab, the clearing house. They all do this if things get too out of wack from the rest of the market.
I'm just not sure what you think you read, what did it mean to you and why was it interesting/absurd to you, compared to completely benign and ignorable.
They are not. Singapore’s business model is to be a hub for international business, and being low regulation is a important part of that strategy. Singapore regulates many things about it’s social structure, but international business is very free and open.
First there were MLM, HYIPs and other bullshit and now we have NFTs, Stablecoins, various cryptocoins and cryptotokens.
I think this Ponzi crypto assets are something like the evolution of fraud in a sense that scams are no more secretive, obscure and somewhat straightforward investment programs but more wrapped up in a sophisticated talk about cryptography, blockchain and DeFi which should bring you confidence that you should invest in them because they are more technologically advanced.
Somebody should write a book about Fraud in Crypto Assets from the more academic point of view and tbh I would very much like to read it. For example explaining the history of crypto fraud and scams, investigating them deeper and dissecting them from economical and financial point of view with the addition of explaining the basics of cryptography, blockchains and DeFi.
Luna is a sideshow. Sad for the people who got caught up in it and lost their savings, but Tether is the real game. When Tether blows up the entire crypto system is going to blow up. And this is why Luna was important, because it caused a loss of confidence in stablecoins across the board. For a while this week, it looked like Tether might actually lose its peg and start a death spiral.
DISCLAIMER: Never hold Tether, for obvious reasons
That said, Tether can't pop the way LUNA/UST did. UST was basically propped up by the value of LUNA such that when the UST peg is lost, more LUNA gets printed to buy back the difference. This causes the LUNA price to crash when the peg is lost, so people who know better try to sell before the rebalancing, crashing the price further, meaning more LUNA needs to get minted for every UST burned, causing rapid deflation. This is all done in a smart contract, and can't really be turned off.
Tether is run by humans. Turning USDT back into USD requires actual human interactions. The peg can be lost, and maybe permanently, but it's not going to suddenly go to zero over night.
If Tether isn't redeeming fast enough for the traders who want to cash it in, won't the market price drop quickly in the meantime, due to the run on it?
Yes, the price would go down, but there's no way to fully deplete the backing assets as there is with UST/LUNA. Unless iFinex literally says "lol we took all your money and won't be doing any more Tether redemptions", there will still be some people with faith in the system, presumably hoping for partial redemptions.
Unless iFinex literally says "lol we took all your money and won't be doing any more Tether redemptions"
You mean like this insane set of requirements that makes it basically impossible for the average retail investor to redeem their USDT for USD? [1]
- $150 for KYC + verification, minimum transaction amount is $100,000
- U.S. citizens must be classified as Eligible Contract Participant to redeem USDT via the website (ECP = individual investors with more than $10 million, individuals with $1 million net worth, businesses, etc)
- 0.1% fee for withdrawals up to a maximum of $1,000, which means Tether is redeemable at $0.99 for up to $1 million
- Any individual who is a U.S. Person and any entity that is a U.S. Person is prohibited from using the Site or any Services, [...] Exceptions to this policy may be made by Tether, in its sole discretion, for Eligible Contract Participants only, which shall be customers solely of TLTD.
If you so desperately need to trade tether for USD as a retail consumer then you can do it on Kraken.[1]
A dozen other websites will let you trade it for other types of crypto, which is the entire reason for its existence.
I find it amusing why people get so hung up on this. They aren't a retailer where you can pointlessly spend your USD to buy USDT and vice versa, the people who first offered a similar thing spent years in jail.[2]
Not going to jail is a strong motivator to let others deal with consumers. They are a b2b service for exchanges to provide an dollar equivalent.
As long as there are actors in the system who can liquidate Tether at ~$1, the peg will be maintained. If it goes to 99 cents, those actors would buy and immediately liquidate for risk-free profit. Who cares if you personally can redeem them -- you don't need to, as long as someone can.
Whether someone always will be able to is the critical question, and there are certainly enough red flags that I wouldn't touch tether personally.
I care because I don't require an intermediary to withdraw my USD "IOUs" from a normal bank.
In the case of Tether these intermediaries that decide whether or not I get my USD (Alameda, FTX, etc) are located on the opposite ends of the earth stockpiling cash by playing trading games and have a vested interest in ensuring I don't get my USD, especially when they don't have the full capital to redeem. You know this will eventually end up in a redemption crisis that will be magnified by shady loans/guarantees that attempt to stave off a de-peg but eventually blows up.
That's really the problem with Tether, they want to be a bank without the regulation, backing, or standard courtesies provided by banks. Everyone will eventually learn their 1920s banking lessons all over again.
There's a question of what rate these traders are going to do this arbitrage in a bank run situation. To do the trade, they need to pay cash under the assumption they'll be able to get it back later. (How long? A day? More?) Their risk of losing the money might be low on a normal day, but not zero. What if today is the day things get weird?
So any trader is going to have a limit on how much cash they're willing and able to put at risk, based on Tether's promises. This limit may be lowered if things look iffy.
They do profit if they can buy at a lower price. It's only competition that keeps them from doing that.
Oh suddenly middlemen are fine. I thought crypto was all about cutting out the middlemen?
Also, even if you follow that premise, that someone should at least be independent of Tether. With so much of the classification "at their sole discretion", this seems questionable.
> I thought crypto was all about cutting out the middlemen?
No, there are hundreds of great use cases for cryptocurrency. The idea that every currency should do everything is ridiculous. Tether was specifically designed to be a tool for "middlemen" to avoid the overhead of dealing with the archaic US financial infrastructure.
If you want to be able to redeem a stablecoin directly to USD in a bank account at a moment's notice, use USDC and a Coinbase account or something. Those extra benefits come with extra risks, where certain organizations can seize your USDC at a moment's notice. If you need to move dollars between crypto exchanges, use Tether. US bank accounts and crypto exchanges are like cesium and water. They do not mix, and tend to explode violently.
The reason that multiple things exist is that there are multiple use cases, even for things that seem to an outsider like they are very similar. Tether, USDC, and DAI all have very different use cases, even though they all represent a dollar. This is fine. This is the way things are supposed to work.
This assumes that the backing assets: 1-actually exist in the claimed amounts, and 2 - are easily liquidated in a timely fashion to provide cash to USDT holders when they trade in. You can cause a liquidity crisis in USDT if either of those are not true.
The problem is the same as with other bank runs: when people withdraw and there are not enough reserves (lets say temporarily - for example when the reserves are too illiquid) the ratio of reserves to obligations diminishes further - so when people get suspicious it will get into the same death spiral - more suspicious -> more people withdrawing -> the rations become worse -> it gets more dangerous -> more suspicious. Eventually there will only be illiquid assets left and a fire sale will get a small fraction of value back.
But yeah - initially it should go slower than LUNA.
Oh good lord no. It's backed by something they originally said was dollars, they then relented after people poked around a bit and confessed it's just a basket of stuff they consider equivalent to dollars (plus probably some dollars I guess?)
You're forgetting the 6 trillion-dollar "IOU, I'm good for it, pinky swear" from Deadbeat Dave. I'm assuming that's what their commercial paper holdings resemble.
Most of Tether's MC increase has come since the pandemic started. Since then roughly $70B+ USD has been handed to Tether, who have used that $70B+ to purchase backing assets at heavily inflated pandemic valuations, corporate paper of suspect ratings, loans of USD for BTC at high prices, etc.
This all works if the assets are stable and inflation continues. If the assets behind Tether are deflating or turn to junk they'll increasingly be unable to redeem.
Part of keeping this going is not allowing average retail to redeem their Tether for USD (imagine a one-way bank where you can deposit but not withdraw) and working with the larger crypto trading shops to shore up short-term liquidity issues.
A partial asset backing is not necessarily a bad thing (fractional reserve banking), but banks are far more firmly backed and regulated by the USG and have FDIC guarantees. The longer assets deflate and recessionary pressures increase the higher statistical likelihood of an eventual bank run on Tether.
I am just waiting for the day Tether is attacked is some coordinated way like this which tanks the value. It will be chaos, unless USDC, USDP, maybe DAI can replace it before it happens.
It’s certainly possible but much less likely than the attack on Luna. Attacking Luna gives the attacker enormous amounts of profit shorting due to the catastrophic failure inherent in Luna/UST design. Attacking USDT requires much larger capital with much fewer profits and may even backfire.
The problem with Tether is that the exchanges themselves have huge stakes in it. If Tether were to lose its peg all of a sudden by a significant amount, the exchanges themselves would have huge holes in their balance sheets. They may refuse to allow redemption of any crypto during that period where they're trying to raise capital otherwise they themselves might go bankrupt. A liquidity crisis in Tether could cause a bank run at every exchange, which could take down the entire crypto ecosystem.
The funny thing is whenever people attacked tether in the past there was always someone who shilled UST because it was "decentralised" and "not a scam"
General idea of having two balanced cryptocurrencies doesn't look bad by itself. But the promises to pay 20% of interest per year are super suspicious. Where would that money come from? What kind of goods or services do they produce? Do developers of cryptocurrency expect to receive exorbitant fees from users?
If there is no valid business model explaining where that 20% come from then it is just a Ponzi scheme.
It's an intrinsically flawed concept even without the 20% interest rate.
The algorithmic balancing between UST/LUNA doesn't help at all with maintaining a LUNA/USD market. UST is pegged to USD indirectly through LUNA, and LUNA itself isn't pegged to anything. Nor is there a big market maker willing to buy/sell LUNA at any price.
A stablecoin that isn't pegged to USD by a 1:1 cash backing by the issuer just can't work. Putting an extra cryptocurrency and an algorithm in between the stablecoin and USD makes the system seem more legitimate to users but doesn't solve the fundamental issue with an unbacked stablecoin.
Yeah, the important thing to understand is the balance only in a simplistic model that assumes unlimited liquidity. If there isn't enough liquidity then it just death spirals.
There are a ton of these schemes that promise 10-20%. At best it’s like those 2008 loans that won’t be paid back due to the crash, at worst it’s a ponzi. Celsius and Gemini and a hundred others. There’s a lot more tears left to be spilled
It wasn't a guaranteed 20% APY. APY for defi protocols are constantly in flux and change based off how much money it makes and how many people are providing liquidity. APY is typically calculated per block and is based off how much everyone made in that block. It doesn't mean that it will be able to keep up that rate for a year. For a time Anchor was able to make more than enough to pay out 20% APY and it built a fund to pay out when it didn't make enough. There wasn't enough demand for Anchor to support a 20% APY so they were lowering the target over time while the previous profit made up a portion of what was being paid out.
>Where would that money come from?
The money came from staking rewards from tokens people deposited as collateral and from interest on loans people took out against the collateral they deposited.
>it is just a Ponzi scheme
Anchor itself was not a Ponzi scheme. You could withdraw your investment at any time. Your money wasn't paying out other people's returns.
Thank you for clarification, but I still don't get this part:
> and from interest on loans people took out against the collateral they deposited
To be able to pay out 20% interest rate on deposits you need to issue loans at higher rate. But who would take such a loan when they can go to a traditional bank? Furthermore, the borrower needs to provide a collateral.
Money cannot appear out of nowhere. There should be somebody buying something, like products or services (not just cryptotokens). Or at least a reasonable expectation of someone buying them.
>To be able to pay out 20% interest rate on deposits you need to issue loans at higher rate.
No, as I mentioned part of that 20% comes from staking rewards. I also missed that there is also a small liquidation fee that contributes to what gets paid out.
>But who would take such a loan when they can go to a traditional bank?
Because you can instantly get the loan. Because you get paid in ANC for borrowing. This ANC can be sold to help offset the interest. 10% Anchor's protocol fees are used to buy ANC which is distributed to people staking ANC which incentivizes a demand for ANC. At times you would make more in the ANC rewards than what you had to pay in interest.
A scheme is a plan. Saying just that trivializes the massive amount of work creating a community, creating websites, working on the distributed system itself, doing the marketing, creating smart contracts, getting the smart contracts auditted, setting up bug bounties, writing documentation, moderating the community, creating tools for visualizing the blockchain or other stats, creating various other dapps, etc. Pretty much everything worked on is open source too. You can find it on github.
I don't go around calling Linux a scheme, or emacs a scheme, or blender a scheme.
Madoff also did all those things. Every time I look into one of those “projects” it either depends on money coming in or other parts of the crypto system growing. Stop fucking lying to people, and especially don’t compare it to something like Linux. So much wasted effort for nothing
>Every time I look into one of those “projects” it either depends on money coming in or other parts of the crypto system growing
Can you please explain what you are talking about. There are a lot of different projects that are related to cryptocurrency. I think we are talking past each other.
>Stop fucking lying to people
What lie did I tell? I have been trying my best to explain how things work because I have been looking into how it functions over the past fwe days.
>and especially don’t compare it to something like Linux
I was just picking open source projects which have a community built around them.
> But who would take such a loan when they can go to a traditional bank?
It’s not like people generally take out these loans to put into productive use. They put them into even riskier and scammier crypto get-rich-quick schemes.
If anyone is really serious about creating an alternative currency which is capable of revolutionising finance make it impossible to profit from speculation with it. As it stands cryptocurrency is just more of the same from the little man's perspective - another toy for rich kids to try to take from society without giving anything back.
A great breakdown of Luna and Terra, notably recorded a week before the collapse. It's very amusing watching the hosts trying to figure out how this coin is supposed to remain stable while promising 20% guaranteed interest.
It won't be consistent though. No one would ever call investing in broad market indexes "StableGains" or something like that. I probably should have left EM debt off the list.
The only way a true collapse to zero could happen for any other cryptocurrency is via a similar mechanism (either an unprotected mechanism to mint unlimited amounts of the currency in a rapid manner, which some mid-tier cryptocurrencies do have, or a bug/vulnerability that allows attackers to duplicate/double spend reliably).
Luna didn't collapse 99.999% in a matter of days because of a loss of faith in 99.999% of ITS value by speculators, but because of a ~50% loss of faith that triggered exponential inflation (printing of Luna tokens) based on the simple algorithm governing the ex-stablecoin. The fact that the supply of Luna started multiplying exponentially every minute that the stablecoin remained underpriced flooded the market with insane amounts of Luna. By virtue of the total amount of new Luna minted, its market cap is still around 300M (a "mere" 98.5% loss).
Bitcoin could go to near zero, but it would take DECADES and be a very drawn out process without SHA-256 breaking or every relevant country jointly criminalizing its existence. You could look at the values of any of the other deflationary early cryptos that clearly are now not going to play a pivotal role in the crypto landscape (e.g. LTC, BCH) and yet have essentially maintained their values and slightly grown with the market, slowly ceding market share to more relevant coins. In reality, coins like LTC and BCH should have lost 99% of their 2017 value, but because they are not inflationary like Luna, it hasn't happened and won't anytime soon.
Contrast this with a company that can clearly, unambiguously go bankrupt. These go to zero all the time when their value is essentially nothing by virtue of no longer doing business, they are legally disbanded, and removed from exchanges.
> This matters for three reasons. ... First, over $15 billion in crypto value has been wiped out through luna and UST alone. ... Second, it raises questions about other stablecoins. ... Lastly and possibly most signifcantly[sic], the collapse of UST has caught the attention of powerful politicians and regulators.
To oversimplify, it only matters if you care about crypto. And if you do, you already cared about this.
There will absolutely be contagion into the rest of the economy. A lot of funds are long crypto, they will have received margin calls so will have to liquidate other assets driving those prices down etc. It's still to be seen how much contagion there will be, but there will be some.
It'd be nice if there were a form of money that were created with a locked inflation rate, distributed at random, fair to all, voted upon by its users, backed by a real-world asset, and freely tradable online. Oh well.
This isn't a matter of debt though, is it? The absolute worst case for a retail crypto investor is that they lose all of the money they put in. I can't imagine a bank signing off on a big loan to buy speculative assets.
Why LUNA is now trading at $0.033 at Bitfinex - but $0.0004 at Kraken? I understand that it is probably impossible to arbitrage it now - but two orders of magnitude? Come on!
Why UST is still trading at $0.16 - even without arbitrage mechanism to stabilize it? Some people still have hopes. This might go on for some more time.
The revival plan is to emit a new token and give away some of it to UST holders (https://agora.terra.money/t/terra-ecosystem-revival-plan/870...) - even if that new token gets the $1 value (which is probably not possible any more for algorithmic stable coins) - than still the 10% of $1B would mean $100M - that is 20 times less than the current market cap - so the UST price should be about $0.008 assuming that it all works. It is impossible to short it at Bitfinex right now though.
There might still be some value of the Terra ecosystem - so many talented people working on it, even a bankrupt startup can get some price via acquihire - but the Terra ecosystem was a ponzi schema maybe its value should be negative?
https://twitter.com/zby/status/1525407557371691008
Stablecoins are the grease for CEXs the gateway (drug) for - since a lot of people trust their keys in the hands of the exchanges themselves - "claims" on listed cryptocurrency tokens.
In service of efficiency and maximizing profits: claims on cash with claims on digital tokens. I will leave out the massive inflationary use of cryptocurrencies themselves like CEXs issuing their own tokens as a bonus sideline. At this point one could easily argue that the market cap lists are advertisement panels controlled by CEXs disguised as score boards (filled with "sponsors".)
As we know from the practices of centuries old fractional reserving (how much does a bank has to hold on reverseves to create some amount money (credit) out of thin air?) "traditional" stablecoins are most certainly backed by (intransparent) fractional reserves, the most infamous one being Tether. For all we know they could be running at whatever is needed (some percent) to keep the machine barely running by people cashing out.
Sooner or later triggering events will briefly pause the music on those merry trips to Jerusalem - but on this scale of course not equally for all so that those at the centralized sources themselves have enough time and the insight to react accordingly by taking everything they can and run; which again leaves the rest with basically nothing.
So, in short exactly the opposite of what were/are the stated goal of cryptocurrencies.
From that perspective I am eagerly awaiting the next iterations of CEXs and at some point after a lot of financial casualties the growing awareness of their abusive ecosystem of playing into the addictive and destructive nature of gambling fueled by the financial insecurities and disillusionment of social mobility a lot of people are facing in the real world. But I guess, this will be a long fight.
I never owned UST, never got asked if I accept it or anything. I never understood why the currency seems so relevant. Now I know it's because a few big investors.
The only stablecoins I see actively used in the real world are Tether and Binance.
My point is, nothing changed and nothing of value was lost for a big part of the crypto community.
“It all started this weekend. Over $2 billion worth of UST was unstaked”
Someone with $2B did the math using the new higher rate of inflation and pulled out of an asset that doesn’t produce anything because it has simply become less attractive. This pattern will keep repeating until inflation drops.
It would be funny if someone issues a stable coin for usd and then turns around and levers up on treasuries. And then interest rates go up and they get margin called on their treasuries position by their bank, oops !
I think the elephant in the room is the self harm that is happening. It may be very rare, but it is happening, and it happens in stock market crashes too (not just in crypto). Even if you don't care about crypto, even if you think people who trade in crypto are idiots, please remember there are real humans behind these things.
If you're licking your wounds, remember that things come and go. I know that's a shitty thing to deal with (I've lost my ass is crypto before too so I know first hand), but don't do something to yourself that is permanent and can never come back from. It's absolutely NOT worth it.
If you dodged this one, now is the time to be full of compassion to your fellow humans, not dancing on graves and gloating in "I told you so."
I think one can have compassion but there is also no need to infantilize people. It's not idiocy that drives people to this, it's greed. It's the idea of obtaining wealth without work, of speculation, and the thrill of what is plainly gambling. That is a vice in many traditions for a reason, and we would do well rather than just being compassionate to create a culture that doesn't tolerate it.
Protecting people from foreseeable disaster is not the same as infantilizing them, and greed doesn't explain why we need laws requiring seat belts and prohibiting unsubstantiated claims on herbal "remedies" and warnings that hot coffee is hot. A big part of the value of society is the accumulated experience of "seemed like a good idea at the time but wasn't", but only if we make sure that experience is shared with the next generation of tulip bulb speculators or beanie baby collectors before things get out of hand again.
>It's not idiocy that drives people to this, it's greed. It's the idea of obtaining wealth without work, of speculation, and the thrill of what is plainly gambling.
Is it greedy to have a 401k? People and companies have been pushing crypto as a reasonable investment for years. For example, it felt like crypto took the place of beer as the primary advertiser during this year's Super Bowl. It isn't all crypto assholes sitting at the top of Ponzi schemes who have been and will be hurt. Plenty of normal people only put their money in because they saw Matt Damon and Larry David talk about it on TV like any other traditional investment vehicle.
I put up with four years of drive by trolling on r/buttcoin from the "have fun being poor" crowd.
And when I post on this forum that crypto is just a worthless decentralized Ponzi scheme that doesn't solve any problems I'll get neckbeards explaining down to me that I just don't understand. Don't get me started on the ones who think that crypto is some kind of radical utopian political solution.
There's literally nothing there, it is all smoke and mirrors, and if you don't understand that and consistently shit on the people telling you that the digital tulips aren't wearing any clothes, don't be surprised when those people don't give a fuck when you lose it all.
I will absolutely dance on graves over this. I'm that deeply exhausted with all of it.
I don't think this is the end of crypto. I expect it to become a permanent competitor to casinos and the lottery. So I hope that people who have been wiped out understand that they can jump in again someday and hopefully pick the next winner.
> I think the elephant in the room is the self harm that is happening
What is this even supposed to mean? Any large enough institution that involves risk is going to involve suicide, because some people when harmed will choose suicide. Some sports fans are harmed when their team loses, some are harmed so greatly that they commit suicide. Is fan suicide the elephant in the room for professional sports? Some people are harmed when a relationship breaks up, _many_ of them are harmed so much that they commit suicide. Is suicide the elephant in the room of interpersonal relationships? Is there some fundamental problem with romance or sports that must be addressed to prevent further suicides?
I think the loss of personal finances is far more acute than sports, but Sam Anderson, in the book Boomtown, conflates Timothy McVeigh's disillusionment with the Buffalo Bill's Super Bowl loses in the early 90s. It's a good little section of writing.
I've been angry about it since the beginning. This was predictable, and now people are asking for compassion?
Compassion was us yelling about this since the beginning.
Compassion was the folks who developed Dogecoin as a satire coin to explain the problems involved in the system.
Asking people to 'be full of compassion' is fine, and dancing on graves is terrible, but the time for compassion was the warnings that were years back, in the face of 'have fun being poor' taunts, while never ever folding or letting up. The sentiment here was the same type of nice but not kind nonsense that has gripped much of the culture.
I try to think of the people I convinced not to speculate in these markets. The fortunes not lost because people came to me as a life long investor, asking my opinion of cryto markets, and me carefully arguing that they were a commodity, not an investment vehicle, and you don't generally invest in rocks, because rocks don't produce anything.
Those of us out there that saved people from losing their life savings will never be acknowledged, because humans do not care to think about the lives that were saved by safety precautions, only the lives that were lost due to negligence.
There are a variety of non-tech circles that I incidentally run in. Biking, skiing, gaming, etc. Because I'm the "tech founder" of the group I regularly get questions like, "Soooo... know of any good crypto I should invest in?"
My response eventually consolidated to, "When making an investment, don't buy things you don't understand. Because odds are someone selling it to you as an investment does understand it, and that difference in your respective understandings is their investment."
Just pointing out 1 dogecoin is still worth 1 dogecoin.
Wow!
(Also 100% agree on the compassion thing: schadenfreude for ostriches who thought sticking their head in the sand would make the objections false is only natural.)
I know you're being flip, but this is exactly my point. If you needed doge to go out and buy an NFT (if that's your cup of tea) you can still go convert your money into doge to buy an NFT!
The usefulness of the commodity doesn't change, just like apples or steel, it's something you can go out and buy with your savings. Just don't buy apples because you think the value of apples is going to skyrocket forever! At best, apples will go up for a temporary period and then find equilibrium.
> Just don't buy apples because you think the value of apples is going to skyrocket forever
This is terrible advice. People speculatively trade commodities all the time, including agriculture commodities. They are just as valid of an investment as equities are.
Your advice that commodities are “not an investment vehicle” is simply wrong, and can be proved wrong with very minimal effort. I wonder how everybody you convinced using this rationale is going to feel when they discover it is nonsense…
Commodities can be part of a general portfolio. They can be a reasonable hedge on inflation and, if you are well aware of their markets, reasonable to speculate on. I would surely explain this to anyone i talked to.
That said. "Buy bitcoin/eth/avalanche/shitcoin" is not a nuanced understanding of commodities, and the people i was talking to were not asking if "a responsible percentage of their portfolio should be dedicated to commodities."
These are multiple people in my life, people with no equity positions asking if they should put some of their precious savings into bitcoin or etherium, period, and asking which one. After that we had long talks about investment philosophy.
I think you need to get better at explaining your philosophy then, because the entire basis of your parent comment is that commodities are “not an investment vehicle”. Advice that we now seem to agree is not correct.
I am extremely precise when i explain it. If you're going to espouse a position that commodities are something that laypersons should be fine investing in, then i'm going to say we have very different points of view.
“You are not knowledgeable enough to invest in commodities” is probably good advice for most people. It is also honest and clearly demonstrates the way in which you’re being (perhaps rightly) judgemental.
“Commodities are not an investment vehicle” is incorrect, and the way you are presenting it in this argument is intentionally deceptive.
The first quote seems to be the advice you mean to give most people. The second one seems to be the advice you are actually giving, with the implication that you think it will be more effective when it’s presented deceptively?
I would highly recommend you change your approach here. Because all of these people will one day figure out you lied to them, which will taint the credibility of what should fundamentally be good advice.
What you're saying makes zero sense. What is this commodity that you think will skyrocket forever, that people should perpetually hold as an investment vehicle?
As the article mentions, the drop for BTC and ETH was nothing unusual. This was a problem specific to UST/LUNA. Plenty of people in crypto warned about them. Algorithmic stablecoins like this have been tried before on Ethereum and all of them have failed.
I'll just point out that talking about being "kind" (under this nonstandard definition) isn't doing it. It's great that you gave your friends good advice, but is that what you're doing when you're bringing it up today?
None of us are doing anything material by talking about it on Hacker News, but the person you replied to seems closer to being kind at this moment?
You can be nice at this moment, but it's not helping anyone. Being kind, in this nice vs kind sense, means actually fucking doing something beyond purely symbolic gestures.
Yeah, when even cryptocoin bulls consider these ponzis... you have to wonder if there is any rational reason for holding them is a greater fool and a belief that you can get out faster than others. I do wonder how you calculate the psychic cost of constantly monitoring your "stable coin", or maybe the answer is just the 20% annual returns on Anchor?
Where are the news articles about the stablecoins functioning perfectly? There are a quite a few stablecoins functioning perfectly.
You pressed play on your “oh a crypto thing” script about anything crypto related and tradeable. You’re in comfortable and like company, but the issue with it is that it dilutes the conversation way from the one specific organization that launched Terra and Luna. This is the exact forum that should be talking about system designs, instead has all these odd anti-speculation rants. Half of this forum is paid in lottery tickets, its out of character.
Read up about wildcat banking system in the late-1800's early-1900's. That's what we need to educate people about. Not all the banks failed. Not all the notes were worthless. Many, many people still lost their life-savings.
This is not new. This is not the first speculative bubble. This has all happened before.
There is nothing inherently flawed about the concept of a stable coin. They should still not be considered an investment vehicle.
It's time for regulation. Financial institutions that can cause systemic damage are regulated and taxed to pay for (a) that regulation and (b) remediation should (a) fail. We need that for crypto.
> are a quite a few stablecoins functioning perfectly
If people believe this, we need special regulation for stablecoins. The one thing more dangerous than a risky asset is a risky asset pretending to be safe. (The regulator and its enforcers can be funded out of a special tax on stablecoin holdings by U.S. persons. Hell, make it revenue positive.)
There will always be things people can interact with
instruction goes in, stablecoin comes out
input output
smart contracts are vending machines placed on the side of an ephemeral gas station
what regulation would you like to see and how would it apply or prevent.. anything with that reality?
I think instead of punitive taxes the regulators could try to make an approved framework seem more attractive, which just creates another additional option for the user
> what regulation would you like to see and how would it apply or prevent.. anything with that reality?
Publicly disclosed audited financials for stablecoin issuers and a tax on holders of crypto assets that funds enforcement and, possibly, restitution if e.g. someone goes homeless. Starting point would be casino regulation.
Netflix was doing great, then other services came along. Local restaurants were doing well, then covid hit. Most things have a life cycle and black swan events happen. Can't be avoided; you can only have a contingency plan.
if your protocol is vulnerable to a death spiral initiated by any flash loan by anyone at any time, and people told you over and over again, its not a black swan
Stablecoins function perfectly until they don't. The others aren't immune to this kind of failure, though they may be more resistant. Once they become unpegged, you can get a "run on the bank", since there's no insurance to protect investors.
Imagine the people in the 1920s that were like “you know what would be funny… what if we got the government to add confidence to our private business with public money and then we get all the customers and skim a little bit from them at every turn, I know I know its dumb but that would be funny right”
Did you mis-paste? I don't know what that east coast west coast tweet have to do with anything? Seems like a non sequiter, unless I'm missing something?
It's effectively a non sequitur, yes. The point is that "feeling bad" for people who lost everything does not help them.
It is not, in fact, compassionate, at all. Compassion is donating to funds that help these people. Compassion is not participating in tax-avoidance, and participating in gov't, so we can have a society where people can actually lose everything and move on with their lives in a reasonable way.
"Feeling bad" isn't helping anyone and is actually just a way of making yourself feel faux-noble.
I agree with your stance, but think the metaphor itself is very strained. FWIW I also think the call to action here was "don't be a dick" more than it was "feel bad".
Of course being a dick while advocating for better protections from this kind of scheme is better than feeling bad and doing nothing.
I've read it, the thread makes its way through the internet every week or so. In this case, it seems to just muddy the waters, but obviously others disagree.
Good for you. People like you will make money. That's how all speculative bubbles form... nobody would join them if there weren't highly visible gains in wealth, but they are effectively zero-sum. Unless the product creates value, independent from speculative value, it's a bad investment period.
The entire reason we were banging our drums was exactly because people made money, but the music will stop, and when it does, all that value disappears. There is nothing wrong with crypo as a commodity. If you need it to build something with, fine, but it's not a wealth creating asset. It's a commodity, which is effectively never an investment vehicle.
It does create value. It is an inflation resistant currency I can and very frequently do use to buy things and settle debts. It historically trending up in value is a fantastic and expected bonus because of the inflation resistance and utility. I would keep the same amount of value in bitcoin I do today if the price was truly fixed, or if the price returned to a penny. I will not be selling if it drops to 1k either though losing that much buying power seems unlikely at this point. I want an alternative to the banks, which is the problem bitcoin was created to solve. Not to be a stock.
I bought an item for thousands of dollars in bitcoin just this week just to dodge paypal fees. Some of my clients pay me in bitcoin too. I am considering offering a discount for it as it saves me conversion fees.
The traders are speculating and most of them do not care about privacy or censorship resistance or using it as a currency so they are just here for the hype and greed. They are fickle and will lose a lot of money.
I just buy, hold, and spend, because bitcoin is a currency that, if used without kyc exchanges, offers much better privacy and censorship resistance than visa, paypal, or mastercard.
Privacy and censorship resistance are utility.
Those betting against the internet succeeding long term as the defacto way of exchanging data were wrong, and those betting against decentralized value storage will be wrong too. It will get worse before it gets stable but I am in it for digital sovereignty above all else.
And there isn't realization that crypto isn't zero-sum market, but actually a negative-sum market. The not insignificant money spend on it running in first place must come from somewhere. Traditional markets are pretty cheap comparatively.
Unironically as a Nigerian Bitcoin has been a god send. I was and am completely skeptical about crypto given that I believe 99.9% are basically complete scams. However, the idea of a censorship resistant layer of money transfer with no intermediary has worked wonders when our government was restricting access to our own money in our bank accounts. Will Bitcoin be that in the future? Who knows, but the demand is there for sure if you live in a society like this.
Can't Nigerians open bank accounts in a foreign country? Why did you need cryptocurrency to achieve your goals?
I can only imagine it's easier to pay for life's essentials with a debit-card issued by a UK or Dubai bank in Nigeria (or cash withdrawn from an ATM using the same card) than it is to pay for those same things with Bitcoin there.
Don't people trade in commodities though? Corn and soy and other things fluctuate in price because of their utility and changes in supply and demand, no?
The commodities trade is driven by people needing those commodities. Right? Like, Kellog and Absolut need wheat. They need them because their business relies on them. They are willing to pay a premium, to make sure their supply will be there when it's time to make cereal or vodka.
(interesting aside, the best heuristic i ever learned on how to get good vodka, look up the manufactures headquarters/operations location on google maps, and if you don't see grain silos, don't buy the vodka)
Who needs bitcoin? Honestly not many people right now. The speculative boom is that, in the future, it becomes internet-cash. Then people will need it, they'll want it a lot to buy things in the internet, and that's fine. If they do, then the value will go up.
However, aside from the fact that bitcoin is absolutely not able to handle cash-like transactions at all, there is still no reason for normal people to speculate on it now. If it becomes the de facto internet cash of the future, then, cool, you just exchange for it in the future.
The idea that anyone could ever anticipate the future demand of a trivially replaceable ledger of exchange is... honestly insane. I'm not saying it's not worth speculating on, but please, god, don't put any serious portion of your investment portfolio in those types of arbitrary bets!
(interesting aside, the best heuristic i ever learned on how to get good vodka, look up the manufactures headquarters/operations location on google maps, and if you don't see grain silos, don't buy the vodka)
Some years ago I updated the Wikipedia article on Skyy vodka, which read like a press release, by putting in actual facts. Such as that the ethanol came from a industrial ethanol plant in Pekin, Illinois which also made ethanol for fuel use. Then it was shipped by rail, in tank cars, to a company in California which mostly makes low-end booze, but also will make a custom brand for you if you pay them. The water used is tap water run through a reverse-osmosis plant. A little bit of re-distillation for polishing, some mixing, some flavoring, and it's piped into the bottling line.
The outsourcing company makes about a thousand different brands, but, as they admit in interviews, there are only about hundred different recipes. Skyy itself was purely a marketing company - everything was outsourced. Eventually they were acquired by a real manufacturer, so they found an exit.
So it was a meme brand. But a real product. Now we have meme brands with nothing behind them.
Looking at you, Bored Ape Yacht Club / Otherside / Yuga.
"Who needs bitcoin? Honestly not many people right now."
Worldwide, lots of people.
There's folks in Venezuela and Zimbabwe who need Bitcoin because their national currencies are hyperinflating.
There's folks in El Salvador who need Bitcoin because it is their national currency.
There's folks fleeing Ukraine who need Bitcoin because their nation is at risk of being swallowed by a large empire.
There's folks in Russia who need Bitcoin because their nation is doing the swallowing and getting cut off from the world financial system as a result.
There's folks in China (and other countries) who need Bitcoin because their nation can't be trusted not to interfere with private property and it's good to have a little insurance policy on a thumb drive, piece of paper, or memorized.
I think that cryptocurrency is one of those areas where people in the developed world look at their own life experience and think "Who could ever need that?", not realizing that they represent a tiny fraction of humanity and that the experience of most of the rest of the world is dramatically different. I work on a product (Android) with about 3B users. I work on a tiny segment of it (tablets & TVs), with about 12% market share combined, and we're always struggling to get the larger org to invest in developing us. But when you run the numbers, you realize that the 12% of Android users with a tablet or TV is about 340M, more than the entire population of the United States. Similarly, the number of mobile phone users with accessibility needs (largely vision difficulties) is also larger than the population of the United States, yet it's awfully hard to get people to consider screen readers and assistive technologies when developing.
Americans in general are wildly unaware of what a tiny percentage of humanity they are (for reference: about 4%), and this comes up over and over again in HN threads.
Hello, i'm from a country which is going through rapid inflation (>50% annually).
It's true that people here need either an alternative currency for purchasing foreign goods (access to USD or other currencies is restricted, and customs fees are insane), or an alternative asset for keeping the value of their savings.
But it's not true that people need Bitcoin. As a currency for purchasing things, Bitcoin is useless. People here are better off evading customs taxes (smuggling), and purchasing via USDs bought on the black market. And for keeping the value of their savings, again, people usually turn to USDs. Some people have speculated with BTC and other cryptocurrencies, yeah, but this is not so much for savings, but more for greedy speculation.
And it's not like the USD is important on itself, it's just an intermediate goal for something else. If the USD becomes too unstable or loses much of its value, people here will turn to other stronger foreign currencies.
So, imagine what this means in the context of what your parent comment said: that Bitcoin's ledger being trivially replaceable.
No, Bitcoin is not needed here. Not at the moment at least. And if it is in the future, so be it, but so can be any other crypto or alternative currency. Who can predict which it will be (if any)? I don't see how betting on future Bitcoin's value for countries like mine makes any sense when there nothing inherent about Bitcoin that would make more valuable than any other alternative currency.
You are talking about storing wealth. There were already myriad ways to store wealth before bitcoin. Precious metals, jewelry, property, etc., bitcoin is not needed like wheat is for vodka. It is just one way of many for doing the things you describe.
I'm not saying bitcoin is going to zero. In these threads, i've always said bitcoin has perfectly reasonable use cases, but if we're being honest not many people really need to use bitcoin, and yes, i'm saying, in the the grand scheme of things, the population of El Salvador is not many people. It will probably not become the de facto unit of exchange in our lifetime, or ever.
I'm not talking about bitcoin is a vehicle for temporarily transferring wealth from one asset to another, i actually think it's pretty useful for that, i'm talking about bitcoin as a vehicle for investment... which is why the lion's share of people have been buying it in the last decade.
So why is it needed and used outside those situations? Like let's say Euro-zone and USA? Seemingly extremely stable currencies, with SEPA absolutely superior user experience if costs are considered. Do those listed markets really support the value we see?
What percentage of your examples would not be wildly better served by owning USD?
Maybe China?
Certainly Venezuela, Zimbabwe, El Salvador, and other countries around the globe already use USD as a de facto currency. Heck, in Zimbabwe and El Salvador it's de jure as well!
To be fair, China is a big chunk of the global population already. But crypto enthusiasts are wildly unaware of what little use it actually has. It comes up over and over again in HN threads and on Twitter.
The Ukrainian Hryvni is only down about 10% since the war started. The Ruble is actually up 10% (these are all quotes on open markets, not ones controlled by governments)
Bitcoin is down more than 30% in that time. It has a short history with incredible volatility and is very illiquid in a bad situation.
Government currencies aren’t the best when controlled by tyrants, bur crypto isn’t ready for global adoption yet. Would you park your GTFO money in a commodity that can be destroyed by an Elon Musk tweet?
I'm generally curious about this question because it popped in my mind when I read your comment but what about the situation where someone builds or buys a house in a dense forest in California?
Said house is destroyed in a fire, insurance can't pay everyone out (see Paradise fire) and then those same people end up begging others for support (Including GoFundMe) pages.
Didn't they gamble on having a house in a high risk area and lost? Why do we only bail out certain people and not feel bad about it?
Well presumably they have insurance, although I think the days of insurance companies offering insurance to just about anywhere in the western US are numbered, with the rapidly disappearing water and constant threat of wildfires. But people who bought LUNA didn't buy insurance.
But generally I agree with you, there are definitely tragic events that happen to people that get more sympathy than other types of tragic events, even if they're pretty similar ultimately.
But I'm also someone who "gambles" on nothing but "ponzi schemes", (i.e. I buy Bitcoin and Ethereum) according to HN. I don't have insurance though, if some black swan thing happened and I lost it all, then I don't have much recourse.
Crypto is far from the only thing where that's a possibility, though. I'd say three of the startups I worked for have been even more of a gamble than my crypto purchases (all three shut down a little more than a year after I joined and I never made a dime more than my kind of low salary, and they didn't offer a 401k so I missed out on a lot of financial accumulation and security there).
That is in no way "gambling" and is in no way analogous to cryptocurrency investments.
Everybody needs a home, and one way to have a home is to buy one. Investing one's savings in buying a home comes with the expected option that one can live in it indefinitely if one wants to. Fulfilling this expectation does not depend on others becoming homeless, nor on their home becoming worse, nor on others being unable to buy a home in the future.
On the other hand, nobody needs to invest in cryptocurrencies. Investing one's savings in cryptocurrencies is done on the expectation that they will increase in value at least until one can sell them at profit. Being able to do this depends on others losing out by comparison, inasmuch as one expects others to buy the same amount of currency at a greater price.
> Investing one's savings in buying a home comes with the expected option that one can live in it indefinitely if one wants to. Fulfilling this expectation does not depend on others becoming homeless, nor on their home becoming worse, nor on others being unable to buy a home in the future.
I don't think any of this is true. You buying a home deprives someone of said home and drives the expected price up. We have a homeless crisis in California because we are not building enough and everyone is treating housing like an investment ("It can only go up!", "This is an investment!").
Living in it indefinitely is also a pipe dream. You're paying taxes and fees that can increase or change at any moments notice if enough people agree. This requires the same consensus as fundamental algorithmic changes in cryptocurrencies. You can't bank of living somewhere "indefinitely" without agreeing that it's a gamble...nothing is guaranteed.
Regarding the "need" to invest in cryptocurrencies, I can kind of agree. Shelter is a need because it helps us survive more efficiently but one could argue investing/growing wealth should also make life easier to live if it works out.
You don't see a difference between people losing their homes, and people losing their money because they were greedy and bought some pictures of apes they thought would make them rich?
The tricky part is, a lot of flood-prone areas tend to also be very economically active overall. Lots of ports on the coasts or along riverbanks which need people to operate and deal with the economic activity of the area, but rivers do sometimes flood and hurricanes will push water inland.
I just wanted to share a counter example to those saying Bitcoin is a poor savings vehicle. I did something I believed in and happened to get a better result than I ever planned on. I am in it for digital sovereignty, and establishing an alternative to banks and inflationary fiat that is accessible to all. It going up in buying power on average is something I also do not really see as surprising given the deflationary nature, interest, and adoption.
When the traders walk away I will still be using Bitcoin as a way to store and transfer value p2p unless something with similar properties replaces it.
It is a poor savings vehicle. You got lucky. You are confirmation biasing yourself into thinking it's a good savings vehicle. This it tough love and for your long term well being you should acknowledge this.
You could say the exact same thing about the broader stock market volatility (read: downturn) we’re experiencing. How one can be considered gambling and the other not?
At least the crypto investors aren’t expecting a wholesale bailout at any point, unlike “sophisticated” institutional investors as we saw in 08…
>How one can be considered gambling and the other not?
Because stocks have inherent value in the form of dividends or the potential of future dividends (or the current/potential stock buybacks, which are mathematically similar).
I think this misconception must be the root of the whole issue.
Stocks appear to have inherent value if you don't look at the entire planetary economy as a system.
In reality dividends don't distinguish between productive innovation and wealth extraction.
Innovative dividends are derived from the use value of new goods and services which increase freedom of action for the majority of the population. Wealth extraction is derived from zero-sum movements of capital, typically benefiting rentiers at the expense of productive employees, decreasing majority freedom of action.
But even the first can create externalities - which are real physical cost which are not accounted for.
A house that burns down because of climate catastrophe is a real physical loss. A increase in the value of a house created by aggressive speculation is an imaginary gain that only exists because the people in the game believe in it.
Trad economics exists to hide these differences, and make a hallucinatory financial reality which seems more real than the physical world.
Crypto is an obvious symptom of this hallucinatory mindset. Not only are the tokens imaginary, but the environmental costs are catastrophic.
But the rest of the economy really isn't built on firmer ground.
The fact that there is wealth to extract implies that the ticket that allows you to control the extraction has value. The company has assets and the ticket gives you proportionate ownership of them and proportionate control of where they go.
>A house that burns down because of climate catastrophe is a real physical loss. A increase in the value of a house created by aggressive speculation is an imaginary gain that only exists because the people in the game believe in it.
And a house that is built creates real value by taking land, adding materials and labour, and creating something worth more than the sum of its parts.
I don't need to forgive all of the economic system's sins to explain why stocks have value.
> Stocks appear to have inherent value if you don't look at the entire planetary economy as a system
Stocks have value because companies have value. You can buy the whole company and have something with positive value. Buying every outstanding derivative nets out to zero. Buying every cryptocurrency leaves you with something worthless.
You’re arguing semantics. No one is arguing that dumping all your money into Bitcoin or PTON specifically is a good idea.
> One, I can buy a Peloton. People pay for Pelotons. Positive sum.
Yes and once Peloton runs out of people to sell overpriced bikes and treadmills to, the valuation will (hopefully) return to reality. Uber continues to lose money on every ride.
If you’re going down the “people pay for it” route, we could say that people also pay for NFTs of monkey pictures.
The only way to not gamble wealth is not to have it. Leaving cash in the bank is gambling that government won't inflate it away. Buying equities is gambling that market conditions won't change. Buying bonds is gambling that the returns will outpace inflation and that the bond seller won't default.
This is a false analogy between taking measured risks and gambling. Putting 100% of your assets into anything, particularly a cryptocurrency, is gambling.
Putting 100% of your assets into one thing is bad gambling. Putting your assets into diversified, positive-sum assets is good gambling. I can play semantic games too :)
> Putting your assets into diversified, positive-sum assets is good gambling. I can play semantic games too
Semantics means arguing over definitions, not misunderstanding them.
The difference between positive- and zero-sum systems is unambiguous. We can call participating in the latter, whether by trading cryptocurrencies or derivatives or playing slots, with an intent to profit gambling or wijiwogging or blurlippening, it doesn't matter, the expected outcome is the same.
>Semantics means arguing over definitions, not misunderstanding them.
Ah the semantics of semantics. If two people disagree on a definition, then there will be some belief that the counterparty "misunderstands" the definition. That goes hand in hand.
>The difference between positive- and zero-sum systems is unambiguous.
And uncontested.
>We can call participating in the latter, whether by trading cryptocurrencies or derivatives or playing slots, with an intent to profit gambling
Yes we can.
We can also call a well diversified portfolio of 'positive-sum' investments gambling. You are risking your money on the chance you'll have a favorable outcome. There is no riskless portfolio. You are forced to gamble if you keep your wealth, because there is always an element of chance regarding maintaining your wealth. The default, uninvested state, for most is to gamble inflation won't eat it away.
Again, semantics: 'Investments' are not required to be made on 'positive-sum' underlying assets. For instance, airlines may make an investment in oil futures (a zero sum contract) to hedge expenses that correlate with their fuel costs.
>Crypto and slot machines are not positive sum.
I think this the part where I link to a wikipedia page of a fallacy I don't understand/doesn't apply? /s
Did new wealth get created? Cryptocoins are a negative sum game (trading is zero sum, but since mining wastes resources, total has to be negative). For you to have gained this wealth, a group of people have to have lost this wealth, they might not have realized it yet.
A ponzi scheme doesn't stop being a ponzi scheme because your personally profited from it. It doesn't stop being a ponzi scheme because it uses complex technology that 99% of people don't understand.
Let’s see if the next decade delivers returns like the last decade. There’s no guarantees of that, unless you believe past performance is an indicator of future success.
I won’t be getting a house unless it does, so here’s hoping.
I also won’t be in trouble if it doesn’t, so here’s also to a sensible investment strategy.
Even if you think BTC with limited coinage is valid (vs Dogecoin which is unlimited), how can you believe an algo "stable coin" like UST is after the iron.finance failure?
I am still holding that bag and buying more myself because I see utility in private, decentralized, and censorship resistant value storage.
I will have no regrets for funding digital sovereignty. It is a war for critical freedoms that if lost at least wont be as bloody as those with weapons.
The world I want to live in requires decentralized money and governance and I continually vote with my wallet.
I will gloat and dance on graves of assholes who mocked me “ngmi”. I would be graceful and compassionate to those crypto supporters who did not call others names. At the end of the day, the people you meet on your way up are the same people you meet on your way down. If you were asshole on way up, you made your bed.
Bankrupt? His company built a huge reserve of bitcoin to use to defend the peg in a “non profit foundation”, no one knows what happened to this money. My cynic take is that at least a good portion of that didn’t get shoveled in the incinerator that was Luna in the last few days.
> Even if you don't care about crypto, even if you think people who trade in crypto are idiots, please remember there are real humans behind these things.
I don't care. There is nothing, NOTHING you could say to make me care about selfish cryptocurrency assholes.
The "moving to PoS" line is so worn out and repeated that it should be flagged as a bot post every time. It's like hearing "thank you for holding, please listen closely as our menu options have changed" to those of us waiting on the line for Blockchain to just turn into ashes already.
100 tiny coins that nobody seriously trades moving to PoS doesn’t mean anything, ETH has been moving to PoS “real soon now” for literal years. Bitcoin and it’s variants can hardly decide on the max block size, so a fundamental shift like PoS doesn’t seem likely.
Also, PoS doesn’t solve resource shortage pressure - it reduces some power consumption, but it still puts artificial pressure on chips and drives.
Today they set into motion the first public testnet PoS migration, Ropsten, which will occur at a specific TTD within the next three weeks or so. This is the first time a long-lived Ethereum network will be migrated to PoS. There are only a handful of public testnets, after that the only thing left to do will be to merge mainnet using the exact same process.
If you don't follow the development process, it's easy to say "any day now I'm sure." But for people who choose to run the software and personally participate in the merge rehearsals, the proof is very much in the pudding.
> Also, PoS doesn’t solve resource shortage pressure - it reduces some power consumption, but it still puts artificial pressure on chips and drives.
PoS doesn't really use more resources than any other typical data center application. Without resource-intensive PoW miners, a blockchain is just a piece of software like any other, really. A copy of the entirety of Ethereum fits on a single consumer drive.
> A copy of the entirety of Ethereum fits on a single consumer drive.
Also this is an active area of development!
The most widely used Ethereum client Geth (Go-Ethereum, because its written in Go) has 3 or 4 modes. a pruned+fast synced node absolutely fitting on any consumer drive. while its archival node with all the prior states of the blockchain (not necessary for consensus) takes 9 terabytes, and is nearly impossible to sync up with without specialized drives and computational resources.
Other clients improve on that. Erigon is also go-based but with a different data structure, it only does archival nodes and takes 2 tb. Rust based ones like Akula and Silkworm also only do archival nodes, and they take 2 tb as well. Roughly 400% improvements in performance, and the same gains are seen in how much space they take.
There is probably more room for improvement as well, such that an archival node is a viable thing to do.
An archive node stores the same data, in an information-theoretic sense, as a standard "full" node. The archive node just has all the state deltas unpacked out to disk with all intermediate states readily accessible, which is useful for specific use cases like block explorers and analytics services. You can confirm this by syncing an archive node off of a standard "full" node on an isolated network.
That 9TB (or 2TB) is only 400GB when it's stored without all of the states unpacked to disk (i.e. non-archive node).
You know, people elsewhere in this thread are asking for compassion.
It's not enough to just show compassion to those that lost. Their money didn't get destroyed, they traded it for something they didn't understand, based on lies of the counterparty that sold them the crypto. If people that lost their money deserve our compassion, which I believe they do, those that took their money deserve our contempt.
But I'm not worried. You sound like someone that hasn't fully cashed out yet. You are still in the ponzi. And you probably won't hear me. So keep your coins, since you are so smart. One day, they will be worth the actual value they bring to the world. Zero.
As said out above the crashed cryptos were PoS, and the comment you replied to said nothing about those who lost anything. So you and the grandgrandparent are the salty ones here as kova correctly pointed out.
The very idea of an algorithmic stablecoin is beyond idiotic. A lot of Crypto Andys are former gold bugs who bemoan th eloss of the gold standard (fun fact: the US dollar was never 100% backed by gold). Collaterized currencies are better but gold bugs still miss the point of what makes the US dollar work.
A currency only persists so long as people believe in it. That's it. As soon as that belief goes, it's all over. Even if it's collaterized that's true.
What actually maintains the value of the US dollar is the long dick of the US government through the Fed obviously but also foreign and domestic policy. It's the ability to project military power anywhere on the planet. It's the nuclear arsenal.
So it obviously sucks that people lost sometimes a lot of money on Luna (seriously the subreddit is a dark place now) and I believe at least some of the anecodtes of people losing their houses.. This probably shares a lot of pathology with gambling addiction (fun fact: gambling addiction has the highest rate of suicide of any addiction).
But you also need to recognize that a lot of people who got wiped out by Luna were in it to get rich quick. I mean even the ~20% staking returns on Anchor should be alarming by itself. Who is paying for that 20% return? It's bound to be a Ponzi scheme.
> What actually maintains the value of the US dollar is the long dick of the US government through the Fed obviously but also foreign and domestic policy. It's the ability to project military power anywhere on the planet.
What actually maintains the value of the US dollar is that it's actually used to exchange goods and services. If you have $100, you have a reasonable idea of what it can get you: 20 Big Macs, 2 pairs of jeans, or 1 hour of work from a Bay Area SWE. The value of the dollar isn't just backed by the government. It's backed by everyone who offers goods or services with exchange for a predetermined quantity of dollars. This gives actual currencies momentum that cryptocurrencies simply don't have.
What actually maintains the value of the US dollar is the demand that is created by how it's the only thing you can use to pay the taxes you owe to the US government.
Even if no one cared about dollars for anything else, this would still give it value.
That the government demands US dollars is completely orthogonal to the value of the dollar. They can demand a weaker dollar or demand a stronger dollar. Argentina demands Argentina pesos, but their currency is embarrassingly weak. Their attempt to increase demand to their currency by taxing exchanging to foreign currency predictably has no nothing to control inflation.
> What actually maintains the value of the US dollar is the long dick of the US government through the Fed obviously but also the US government itself. It's the ability to project military power anywhere on the planet. It's the nuclear arsenal.
I started reading yesterday on DAI, an algorithmic stablecoin running since 2017. The thing is: a sizeable percentage of DAI is made of... USDC (a non algorithmic stablecoin created by Coinbase/Circle/Centre). They overcollateralize it and so far so good (since five years). They're even saying they're so overcollateralized they should widthstand USDC going to zero (or their USDC wallet being frozen by Coinbase, as Coinbase can do if asked to by the US authorities).
algostable != overcollateralized stable. Being an overcollateralized stable means it's actually backed by something, even if it's USDC. An algostable is backed by the sister token (eg: LUNA), and relies on faith and confidence in the sister token.
DAI is not algorithmic at all, but it is controlled by smart contracts. For $1.00 of DAI to be minted, a user has to post somewhere between $1.25-$1.50 of collateral. The act of creating DAI is literally that of taking out a loan. Over time, your debt to the system accrues interest. If your collateral falls under a certain price threshold, the issuer of DAI (MakerDAO), will seize your collateral to close your position. You keep the DAI, and MakerDAO liquidating you keeps the system above water and DAI at the dollar peg.
Algostables are not collateralized at all. They're more akin to ancient gold coins. Think of Luna as a small piece of gold. When UST is created, the Luna is "melted" to form the UST. At any point, the UST can then be "melted down" to get the Luna back out of it. From a certain point of view, UST literally is Luna.
DAI started out backed only by ETH, they added other collateral later. Even when only backed by ETH, DAI stayed within a few percent of the dollar, despite a 94% drop in the ETH price in 2018.
And Magic Internet Money (MIM) is overcollateralized with interest bearing crypto assets, and is also natively multichain via Multichain protocol
(The naming is supposed to cause consternation from people that dont matter, but since we’re all in one place now, the system design can now be evaluated independently)
Its basically what DAI would have been if DAI launched in 2021 and had choices, compared to 2017
> The very idea of an algorithmic stablecoin is beyond idiotic.
This is key. It's either idiotic or malicious. The general structure of the relationship between Luna and USDT should be identified as a species of scam and criminalized going forward.
Even for overcollateralized ones like Dai? There's an arbitrage mechanism that forces the overall backing to be greater than 150%. Now it may perhaps be somehow conceivable that the value of the backing drops by more than a third within a single block, but that still makes it an order of magnitude more stable than banks, which usually operate with ~5% equity (and that's post 2008 regulations, and based on rather optimistic book values; the market capitalisation is often significantly less).
The analogy fails because calling it Bitcoin implies a desire for it to be viewed as a currency, not an asset, in the same way DRPK implies a desire to be viewed as D, P and R.
> What actually maintains the value of the US dollar is the long dick of the US government through the Fed obviously but also the US government itself. It's the ability to project military power anywhere on the planet. It's the nuclear arsenal.
It seems fashionable among libertarians to attribute the US dollar’s value to the US military, but that is at best a tangential reason, not the root reason.
The root reason for the US dollar’s value is that the robust and innovative US economy ensures enough consistent productivity, wealth creation, and economic growth for the tax base to service the interest on US Treasuries, which back the USD since Nixon took it off the gold standard in the 70s.
That’s it - the world trusts that it can hold US Treasuries, benefit from the interest they pay, and that US won’t default on them - the risk-free rate of return, almost as risk-free as gold but with a more consistent and predictable return (as long as the USD doesn’t undergo hyperinflation).
A strong military is a side effect of a strong economy, not a cause of it. China is probably the best recent demonstration of that.
You may argue the US economy depends on foreign oil and hence a military capable of guaranteeing that supply, but that’s not entirely true either. In recent years the US vacilates between net importer and exporter of oil [1], and could be a solid net importer with enough political will and impetus.
US economic and military strength probably has something like a 0.9 correlation. At that point, I think it’s ok to just substitute one for another in those kind of discussion without trying to figure out the causation link between the two (which probably isn’t a one way effect anyways)
Even if petrodollars ends, USD will still be one of the three or four most valuable currencies, alongside the Euro, Yen and maybe Pound, for the foreseeable future. China isn't trusted enough yet, and their impending invasion of Taiwan will make them even less so. The most stable and trusted remaining currencies are those four.
The idea of an algorithmic stablecoin is genius, time will tell if it works. But overall Luna’s crash isn’t too damning of the idea, because the root cause was a Ponzi scheme. (Which was identified and advertised as dangerous within the crypto community.)
The ponzi part was not the root cause, it merely sped up asset accumulation until it became a ripe enough target.
The root cause was the flawed arbitrage mechanism. It relied on always being able to redeem 1 UST for $1 equivalent of LUNA, and that relied implicitly on LUNA having value. Without that, whenever somebody cashes out UST they also cash out LUNA causing both prices to enter a death spiral.
And what value did LUNA have? Nothing more than the promises of the development team that you were getting in early on a soon-to-be-burgeoning ecosystem. "Hundreds of developers! Amazing new protocols!" In other words, vaporware. Which during a bull market can work for a time.
I agree with you that a functioning algorithmic stablecoin would be "genius". However I prefer calling it the Holy Grail of stablecoins. Powerful, if it exists.
> So we see that there never was a 100% reserve era in British or U.S. history. The 100% reserve gold standard that people sometimes talk about today is a fantasy.
The gold standard was never about keeping 100% reserves. It was about maintaing a peg and that technically doesn't even require you to have any gold.
Yet, somehow, DAI (an algorithmic stable coin running on top of Ethereum as I understand it) has apparently managed to keep its peg since 2017. I read on it yesterday and I'm very intrigued. It's a gigantic target for dark hats and yet so far nobody found a way to attack it.
And it's not small: $6bn of DAI worth 1 USD each circulating.
As I understand, Dai is an overcollaterized stablecoin. People mint Dai by locking up cryptocurrency into its smart contracts worth more than the Dai they get. I believe that collateral can be automatically liquidated in the case of a crash of those assets. This is different from an "algorithmic stablecoin" as the term is commonly used, since by that people usually mean a coin which doesn't utilize collateral.
The question is why is one cryptocoin "collateral" and the other "not collateral?" What's preventing whatever coins DAI depends on from a death spiral?
In my opinion the difference is that value of the collateral is mostly independent from the value of DAI. DAI going below $1 doesn't cause the price of USDC or ETH to go down.
DAI is overcollateralized ($10B of collateral for $6B of DAI). Generally the definition of "algorithmic stablecoins" is that they're undercollateralized.
this is a semantics issue. people primarily call overcollateralized stablecoins their own thing. most/all have some sort of automation involved, which allows of the word algorithm to be used. but algorithmic ones are the ones that have no collateral, or as Do Kwon pioneered - last ditch effort of partial collateral.
I have one message for crypto-addicts - get an 'effing life instead of wasting it trying to get something for nothing. In other news the war in Ukraine rages on, millions of Ukrainians have lost everything and thousands of innocent lives are being lost. Some perspective please.
there are so many crypto projects on hold because their ukranian devs are getting shelled, really stopped me from buying the dip on some the last few days since nobody can answer "wen roadmap"
I say "the price people were willing to pay" instead of "value", because now that nobody wants to speculate with LUNA, it did fall down to its intrinsic value: Practically zero. Nobody needs it for anything besides buying and selling it from and to other people, which is not happening anymore.
Cryptocurrency is gambling, plain and simple. The difficulty that fiat currency faces is inflation, which roughly means diluting the economy that backs it too much. The difficulty with cryptocurrency is that there is nothing of worth backing it. Factor in the horrifying externalities, and its worth is negative.
For Bitcoin, the most popular one, on the order of 100.000.000.000.000.000.000 of hashes get calculated to mine a single block, multiple trillion per second. Within ten minutes, only a single one of those 100.000.000.000.000.000.000 hashes is actually used, depending entirely on luck. The rest are thrown away entirely. They do not form part of the final hash or anything else, the energy spent on them is lost.