I agree this is puzzling, but as I mentioned, lots of Democrats have gotten more aware of the possibility of government takeover lately, so maybe they'll be more open to hearing about it than the last five thousand times I've tried this.
Scott, this is why I'm crying laughing reading this. The party of "bake the cake, bigot!" is now oh gosh oh golly oh maybe you know Bad People could get court judgements to make people do things that they don't want to do because those things violate their principles? The party of the "Dear Colleague" letter is concerned about governmental overreach?
Bit late in the day to start worrying about that, isn't it?
This is how adversarial systems work. The Democrats do work showing us how the Republicans might be authoritarian, the Republicans do work showing us how the Democrats might be authoritarian, and hopefully we take both seriously and prepare for them.
Yuval Noah Harari thought that there was at least a small chance that 2024 would be the last free election in the United States. He mentioned this on Bill Mahr’s show immediately before the midterms. This was essentially the same message as the Nancy Pelosi fund raising emails.
He probably thinks that chance is even smaller after seeing the rejection of candidates claiming the 2020 election was stolen.
Repeatedly debunked lies did not carry the day, thankfully.
This wasn’t a case of both sides being a threat though.
I am way more cynical about politics, having had any idealism around it burned out of me. When I vote, I do vote for one particular party but given the carry-on of many of its incumbents, minor to major, over the past thirty or more years, I also think they should be flogged at the mast.
And now the two main parties in my country, which were as adversarial to each other as the Democrats and the Republicans, have happily settled down to a power-sharing agreement where Tweedledee and Tweedledum swap the office of (equivalent to) Prime Minister. They've settled on a mutual bête noire party to point at and go "if *they* get into power, think of the horrors that will ensue!" for the public to consume.
America doesn't have any kind of third party that the Republicans and Democrats can do the same for, but if there were, I'm happy to assume that Nancy (if she hadn't retired) would be perfectly comfortable in a similar arrangement where the Dems and the Republicans swap 'who holds the big seat'* while both of them pointing at third party as the real menace. Oh, I sent out fundraising emails five years ago claiming that my new best buddies were a threat to all that was true, good, and the American Way? Yes well, that was then, this is now.
So in conclusion, *my* take on that is not to take either of them seriously when they claim "if the Other Lot get into power, they will start up the re-education camps!"** and to want a check on *both* of them because *either* of them could carry out abuses when in office.
*Not the presidency, because that is different in the US, but I could see them doing a "Party X president candidate, Party Y vice-president candidate" selection where the public gets a choice of "do you want to vote for the Demopubs or the Republicrats?"
We can always rely on a party that loses some or all control of government to suddenly become concerned about unrestrained power of government. Those concerns will again become silly paranoia as soon as the party regains power.
Well handsome is as handsome does, D. For what it's worth, my experience is that a fair lot of those who are deeply skeptical -- I did not say cynical -- about politicians and politics are by nature the soul of kindness, but have had that tendency exploited once or thrice or eleventy-twelve times too often.
I don’t know that the point is to reach those urging for a hardline crackdown but rather those who listen to the urging with some sympathy but aren’t fully committed to that hardline stance.
To accept this argument you need to belive that an acceptable compromise is possible. If you sincerely think that your enemies are literal Nazis, that's clearly out of the question.
This is mostly just Bitcoin now - Ethereum and most other modern currencies have solved all their environmental impacts. I agree this is a point against Bitcoin.
Yes but isn't this most people's experience with crypto already? I.e. it's supposed to be great because you can just have a wallet and have people send crypto directly to your wallet, but most people in practice have some third party provider manage the technical side for them. Thus recreating the centralization (but worse).
Which leads to my question about Vietnam - are the people there actually sending crypto to other people's wallets without the help of any intermediary, like in the original conception of bitcoin? Or is it like people in the US who are using FTX or Robin Hood or whatever the equivalent over there is?
If it's the latter then Vietnam isn't actually breaking free of centralization, they're just using a central authority other than their own country's institutions.
> If it's the latter then Vietnam isn't actually breaking free of centralization, they're just using a central authority other than their own country's institutions.
You might be surprised how much additional freedom you can get that way. The authority they're using, unlike their own country's government, can't compel them to keep using it.
Sure, but at that point the invention is not crypto. The invention is giving acces to foreign authorities. You could just give them acces to Bank of America.
"The authority they're using, unlike their own country's government, can't compel them to keep using it."
Unless it's "if you ever want to see your money back again, keep using our services, otherwise we will mysteriously lose or misplace all your bitcoin and good luck getting us to cough it up, the government can't make us do that, you know".
The difference is the power of exit. Even if I'm using a centralized platform like Coinbase or whatever, if I'm unhappy with Coinbase I can move the entirety of my holdings off Coinbase in literally 30 seconds. Either to a competitor or to a fully self-custodied wallet.
I still expect even with fantastic decentralization, many if not most users will prefer centralized entities for ease and convenience. That isn't ideal, but as long as those centralized entities sit on top of a low-friction decentralized base layer they're subject to extreme levels of competitive discinpline.
"if I'm unhappy with Coinbase I can move the entirety of my holdings off Coinbase in literally 30 seconds."
That is, unless the reason you're unhappy with Coinbase is that they've frozen assets six hours before the company goes up in flames. Not like that has happened to any major crypto companies, though, right?
Seems to me this is really that you trust Coinbase more as a central authority than the Vietnamese government. But then that raises the issue of why. Three possibilities come to mind:
- Coinbase is doing some blockchainy shit and you can theoretically withdraw your assets and trade on the bare metal
- Coinbase is subjected to the free market
- Coinbase is subjected to legal regimes that you trust more than Vietnam's (like the US's)
> Yes but isn't this most people's experience with crypto already?
This is my big hang-up about crypto (plus apathy I suppose). But centralization-by-design isn't the same as centralization-by-bad-UX. The latter is a bug that can be fixed -- hopefully, eventually -- while the former is a feature.
Most people's experience with spaceships is designing them while it's on the ground. The point is decentralization, you can't just propose an alternative that doesn't have it.
True -- mostly anyway -- but that's different from centralization by design. Centralized control of ideal crypto is an eventually fixable bug whereas it's a feature of a private platform.
"eventually" and probably "ideal" are both doing a lot of the work in that point, though, which is why I'm not a crypto booster or user myself.
That is not so Scott. Ethereum may turn less energy into entropy in their process than Bitcoin does, but the number is a long way from zero. All cryptocurriencies use energy to create and maintain their operations. All energy production creates some environmental impact.
I'm pretty sure than any currency transfer will involve some energy: Visa, Paypal, bank wire, driving someone's house to give them my gold coins, ...
Numbers would help here. I remember when iPhones/iPads were becoming popular and a poster (at another site) was worrying about the energy consumption. The key insight was that an iPad3 battery held about 10 watt-hours of energy. Using an iPad3 for 8 hours was roughly the same as having a 100 watt lightbulb on for six minutes. Which people tend to not obsess over.
How does Ethereum stack up against the alternatives?
Feel free to interpret "number of trees cut down" as a general shorthand for the overarching environmental impact of leveraging the textiles growing industry, the shipping and transport costs, the various expenses of operating the printers themselves, and hauling the final notes to the various banks that use them. Then repeated for everything that goes into metal coins.
The intention of the question is that if we're going to worry about the environmental points, then at least presenting metrics for both sides instead of just one seems like it's an important part of reasoned argument.
If Ethereum has solved serious issues that Bitcoin hasn't then they shouldn't be trading almost identically still, they should be fundamentally different. Can you get rid of Bitcoin and have the Ethereum network still function? Market signals imply that answer is likely no- this isn't definitive as maybe the easy money aspects which have driven Bitcoin's price have also overwhelmed the differences but if Ethereum is markedly different from Bitcoin then you would expect divergence in their price action. Without that you are basically projecting a disconnect which hasn't happened yet, but are treating it as having happened- either that or there isn't an efficient market and you can be rich by shorting Bitcoin relative to Ethereum.
I understand the question you wrote but it's poorly formed. The network would of course be fine, it's not in any technically way necessary to ethereum for bitcoin to exist. You're implying that they price of the two coins tends to be cyclical, but so are most stocks and no one asks whether Ford could exist if Toyota ceased.
The question is not about if the Ethereum network can technically function, its about the utility and adoption of crypto without bitcoin. Currencies/payment methods- whatever you want to call crypto depend upon networks of trust, and you cannot assume they will function if you remove a major trust node. Your statement about stocks shows that you don't understand- stocks are not nearly as correlated at ETH and BTC are. Car companies will, at times, be inversely correlated as they compete for market share, as one company doing well typically comes at the expense of others not doing well. To take the specific names you mentioned- in the early 2000s to just before the GFC Ford lost over half its value while Toyota doubled. That is the relationship you expect between competitors where one has an obvious advantage over another, that doesn't happen with ETH and BTC.
The cryptocurrency used in all of those third-world countries you've listed is mostly bitcoin. Much of your article basically just defends bitcoin specifically.
And Ethereum caused tremendous damage to the environment before switching. Infinite hostility is still warranted against someone who used to be an arsonist and recently stopped.
Spend a lot of energy on what is, at best, a *currency*, something that can be constructed by fiat (or by proof of stake or by many other methods that don't spend a lot of energy).
That's the best version of events. The more realistic version is that the energy is spent on (1) Ponzi schemes, and (2) crime (like allowing ransomware payments, thereby encouraging a lot of ransomware).
Nobody knew how to build a cryptocurrency that worked until Bitcoin, so it was a new thing under the sun. The fact that you don't like its applications doesn't mean that its heavy energy use is analogous to arson. People routinely make arguments like this about the environmental destruction due to people eating meat, flying, or driving cars, and it works the same way--the real complaint is expending lots of resources on stuff I don't think you should want. Weirdly, people who don't agree with you on what they should want never seem to find such arguments convincing.
There's a prayer I like to remember "Lord, help us forgive those who sin DIFFERENTLY than us"
Plus, there is a whole argument to be made that 1 kW =/= 1kW, since the where, when and how that kW is generated has a huge influence on its cost and utility. Bitcoin is the buyer of last resort, ensuring that an energy project can always find a buyer as long as there is internet (and with Starlink, there always is).
Not really. One bitcoin transaction takes around 1450 kWh in energy. One fiat transaction by my bank... how do we even measure that? The computational time used would be in milliseconds. It's likely at most 0.01 Wh. That would be 100,000,000 times less energy per transaction. Even if I'm off by an order of magnitude, that's 10,000,000x less energy per transaction.
You'd be infinitely hostile to someone who used to be an arsonist, but recently stopped? There is no way your hositility could possibly be higher to someone who is still an arsonist and is for example currently setting fire to your house? Or someone who after murdering their way to supreme leader is currently engaged in a campaign of ethnic cleansing who's causuality count already runs in the millions?
I don't think most people appreciate how big infinity is. It's *really* big.
(By all means continue to be hostile to crypto, I certainly am, but Scott's persuaded me I should be less than infinitely hostile.)
Nobody on the planet is literally *infinitely* hostile to crypto. This is a motte-and-bailey strawman and everyone using this point should be ashamed of themselves.
The argument Scott is making is that we should not be hostile to crypto. But we should be. Scott is wrong. The "infinitely" stuff is a distracting hyperbole that overly-literal people are tripping on.
No, we should not be hostile to crypto. As the article clearly points, it has fair and valid uses all over the world, maybe not just that much for regular occidentals. Reading your previous comments it really feels you, at best, skimed the points in the essay and went straight with your pre-formulated, unchallenged opinion about crypto
That's fair. I came into this article thinking everything about crypto was bad, and Scott convinced me that there are some good use cases for crypto in the developing world i.e. it's a mixture of good and bad. I think the bad dominates and I remain hostile to crypto, but the article moved me from 'entirely hostile to crypto' to 'on balance hostile to crypto'. Infinitely is a hyperbolic way of describing that, but it is a real thing being described. I assume you meant it that way as well when you took up Scott's language in your original comment?
I am not convinced Scott is right about the third-world use cases. I'd be more supportive of crypto if Scott is right about that, but I suspect he is wrong.
Scott demonstrated that crypto is, in fact, being used in the third world. What he did not bother showing is that crypto is better than what they would be using instead; that the third world is *benefitting* instead of being scammed. I mean, I have no doubt bitcoin is better than the local currencies, but I am unconvinced that the bitcoin apps these people use are better than some USD apps they could be using instead.
("So why aren't they using the USD apps?" You ask. My answer is that they think crypto is a get-rich-quick scheme, just like people in developed countries.)
This is not convincing at all, his description of money is wildly wrong, and is trying to convert an analogy into a real property with (bad) rhetoric. His description of 'green' energy is also mostly wrong. You can just build out a solar field over time rather than building a very large one now to take care of future demand, and since solar panels degrade over not that long of time frames (plus incremental improvements in design efficiency) you wouldn't do that anyway. Then there is the flat dumb idea that increasing demand for electricity via bitcoin mining would alleviate price issues, higher demand is not a good way to combat energy shortages.
No, they warrant some large amount of hostility, which is still infinitely smaller than infinity. Your comment amounts to, "environment, therefore BOOO". We can do better than this, and readers of this blog in particular should do better. Give an order-of-magnitude estimate of the problem and of the benefits, suggest alternatives, write a poem about carbon offsets, anything but this.
I mean, the point is 'boo', nothing else needs to be said. You're inventing an arbitrarily high standard so you can debate it, but the argument is really so simple that it's a farce. Proof of work is a joke, no weird arguments about carbon offsets are necessary and they would not strengthen the argument. (Proof of stake.. we'll see.)
I'm just saying that the infinite (or 'effectively infinite', since you don't seem to like that as a shorthand for 'much higher than any other factor by orders of magnitude') argument applies to proof of work. So it's a complete condemnation of Bitcoin only.
Proof of work + longest chain was a theoretical breakthrough that enable bitcoin to work in the first place.
Staking was known approach and has been around for decades.
If proof of work is "a joke", why didn't people just create staking based cryptocurrencies before? Why did bitcoin suddenly blow up when multiple attempts to create digital money failed?
In my mind, there are at least two original contributions in the Bitcoin whitepaper. The first was Nakamoto consensus, and the second is the concept that one can bootstrap a digital currency by having a consensus mechanism maintain the ledger while at the same time incentivizing individuals to participate in the consensus while rewarding them in that same currency.
I think there's an interesting argument to me made about the accessibility of PoW. You could say that it's hard to start a cryptocurrency with PoS because it will necessarily be the developers who start with all the stake at the beginning, by virtue of them being the only ones who know about the protocol. But I don't think this prevents a PoS chain from eventually becoming decentralized, and I wouldn't count it against a chain if their security properties at some point in their history were suboptimal, but it was a problem that had since been fixed.
Another argument in favor of PoW is its simplicity. You can teach a competent student how PoW works in a day, whereas Byzantine consensus takes a whole course.
I remember a time in my life when I was learning about blockchain, and I had averse feelings to proof-of-stake, because I didn't understand the details of how it worked, and I did understand proof-of-work. I still don't know the details of how Ethereum's proof-of-stake works, but at some point I took a course on Byzantine consensus, and I began to feel that my earlier aversion was irrational. I wonder sometimes if proof-of-work proponents I see on the internet are being victims of this kind of mentality, especially when they say things like "proof of stake can never work" (I don't think you are doing this, your Bitcoin maximalist arguments have been cogent).
There is a saying in software security: either your system obviously has no bugs, or it has no obvious bugs.
I don't think even bitcoin is simple enough to be in the 'obviously has no bugs category.' The attack surface for ethereum is orders of magnitude larger. The operational risk of doing something wrong during a hard fork is even larger as well.
There are numerous problems with proof of stake. The easiest one to understand is that it is a form of centralization, because 70% of all Ethereum in existence were created at the premine, and staking will give these people an even higher share of the ethereum. When you combine this with all staked etherem being on a small number of us-run entities, i think there's a very good chance the US regulators say "it is illegal for an ethereum staker to process a transaction that is going to a blacklisted address" and then for all the staking entities to say "ok, we'll do that,' and now, boom, the censorship resistant property is totally dead.
Ethereum and bitcoin have always had very different values and motives from the start.
Bitcoiners have always been focused on one thing: sovereign digital money that can't be stolen directly or through inflation. Money that no one controls.
For Ethereum, this was always about 'world computer' 'digital apps', etc - "decentralization" was "one of many properties." For bitcoiners, it is the only property that really matters, and anything that compromises it in the slightest is not acceptable.
It's not at all obvious that staking is sufficient. The argument that proof of work works for the purposes of bitcoin originally (byzantine fault-tolerance etc) was solid and neat. But it turns out that it was deeply undesirable as an actual physical institution in the world. This became increasingly obvious over time.
of course the people who were making money hand-over-fist on PoW were also the types not to care about the externalities. That's not an argument for you or me being okay with it, it's just an explanation of why it got so big.
There are many people who don't find "boo" convincing. It is not at all self-evident that the environment impact of bitcoin outweighs the interests of the Vietnamese, Ukrainians, and Africans to have money they can actually use.
Well the main argument, as mentioned everywhere else in this thread is, is not "bitcoin versus no money" it's "bitcoin versus USD" (or gold or whatever). So yeah, I think that's a pretty easy one -- and that's before you get into the highly dubious temporality of the claim that it's "money they can actually use" _at the moment_ they have money they can use but, bitcoin being bitcoin, it's hard to say if it will inflate 0.1x or 10x in the next 3 months, and then I guess we should hope they're not holding the bag.
Proof of work is not a joke, it's a fantastic distributed computing algorithm solving a well known computer science problem (https://en.wikipedia.org/wiki/Atomic_broadcast, briefly summarized : how can you make a bunch of independent computers agree on a set of facts as well as their *order*, without any central coordinator ?)
PoW's solution is : make it expensive to declare a fact (and trivially easy to falsify it if it's wrong), so that liars are de-incentivized and the honest prevail. The only problem is that liars have one hell of a deep pocket, and so the "expensive" thing for them is really fucking expensive. But, in the same way that PageRank is not a joke just because it turns out it can be gamed rather easily by spammers, PoW is not a joke just because it turns out its guarantees are catastrophically expensive in real world terms.
This youtube channel https://www.youtube.com/@bitcoinandcryptocurrencyte3219 and its website https://bitcoinbook.cs.princeton.edu/ go into way more technical detail underlying bitcoin, I wish more critics go through it first before they open fire. Cryptocurrency is a genius idea coming from the wild west internet of 2008, its only sin is that a religion has formed around it starting from about 2015-2017.
Proof of work, the concept, is fine and neat. Proof of work as an actual implementation in practice that we use to run a system is (it is now clear) an unfortunate tragedy.
That arbitrarily high standard is barely reasonable debate. If you think it's too high, than with all due respect this really is the wrong place for you.
I get the original comment - it's a poke at bitcoin, and it made its point. But to unironically double down and insist that's the kind of conversation we want to be standard here... no.
Well, the rhetorical point is to say: somehow we have ended up (in my opinion) in a twisted situation where people by default think that "huh, maybe this can be a new currency system" and then other people have to say "doesn't the fact that it intentionally consumes as much energy as possible make it a non-starter?", and how it should be is the opposite: the default stance should be "this system is clearly terrible" and the crypto-enthusiasts have the onus to defend it. It does not seem like "maximizing energy usage is a bad thing" is a stance that needs defending. If it's not obvious, then the interesting conversation is about a difference in values, not a debate about, like, the utilons of defi vs scorching the earth. The "isolated demand for rigor" when disagrees with the article is unfair.
That is, the meaning of the OP (and my defending it) is more like: "what is up with you people such that this isn't a HUGE PROBLEM to you? how do you justify that in your value system?". Scott's article doesn't even mention it. It's the most glaring of the many ways that it feels totally disconnected from reality.
Also you seem to have decided for yourself that the measure of a good comment is how much it's jumping into the debate, and I guess a lot of people agree with that, but there is something to be said for some comments existing for other reasons, such as to "give a position which is otherwise unrepresented a voice", like it's doing here with the position that "crypto's impact on the environment is totally shameful".
You should probably just use the word 'bitcoin', since that energy is mostly being used by bitcoin.
If you think bitcoin is not doing any good at all, talking about the environment is just a hidden way of saying “bitcoin is worthless.” Unless you are willing to acknowledge bitcoin is doing some good (are you aware of it’s use by people in dictatorships to protect themselves?) and then attempt to compare that good with carbon emissions, you’re not really arguing with the premise at all.
If your default stance is “this is clearly terrible” you aren’t remotely open minded. You’ve made a judgement and are only pretending to be reasonable.
If you want to appear reasonable, you could consider, for the sake of argument, asking "what if the bitcoiners are right, then is their project worth this energy it's burning?" This way you can separate the question of "is it bad for the environment" from "is it any good", since i think these two boil down to the same thing.
Here's an article comparing bitcoin's energy usage to major industries. Among other things, it uses substantially less energy than gold mining:
It's disingenuous to compare the absolute energy usage of two industries instead of the ratio of energy to whatever value is provided. There's another thread on here that did that and it's so egregiously disingenuous that it undermines the point of the person making it completely, like they'll say anything no matter how dumb to defend their side instead of caring about being right.
But anyway. I don't have a sense of the value-to-humanity of the gold mining industry, although I have no doubt that it's much higher than bitcoin since people use gold for all kinds of things. But if your point is: because I didn't say so, I'm implicitly okay with the energy use of every other industry... what are you doing? of course that isn't implied by anything I've said. I happen to think lots of energy use is embarrassingly wasteful, but at least it mostly produces something of value that someone wants, so it's gonna be marginally better. I have no doubt that if I studied what gold goes to I'd be able to say "this whole part is obviously stupid" (presumably, the part where it has intrinsic value as a precious metal, and presumably you would agree?) and wish it was gone, but that's not what this comment section is about.
Anyway, yes, bitcoin does seem near worthless; the examples of "use in dictatorships" is so small as to be trivial (I suspect, a lot smaller than Scott thinks it is) and anyway not convincing at all -- the counterfactual "what if not bitcoin" is, and has always been "some other kind of currency", not "nothing at all", and those economies literally exist (although they're kinda lame, like currencies in video games... but still bigger than some countries' GDPs, I seem to recall). So yes, if your conundrum is "how do we build a system that lets us send value to people in dictatorships" and your answer is "it's gotta be crypto", then you're just, like, totally wrong, and buying the hype, as far as I can tell.
Of course it's a hard sell to convince anyone to adopt a currency that's not crypto, the hype is certainly helping with that. But that's the point about griping it on the internet, in hopes of gradually changing public opinion, I guess.
Anyway, as you can see, none of this is an argument about utility of bitcoin versus cost of bitcoin. You really, really want a utilitarian debate, and you're not going to get one, because that's not the position your counterparty has. I think Bitcoin is bad because it's _stupid_, as a solution to anything except an esoteric computer-science problem, and it confuses me to no end that that's not more obvious here. Although I was very happy to see that other very-smart people understand that, e.g. here: https://www.tbray.org/ongoing/When/202x/2022/11/19/AWS-Blockchain.
> No, they warrant some large amount of hostility, which is still infinitely smaller than infinity.
This is not something you should take for granted; the difference between a large finite quantity and an infinite quantity is not necessarily infinite.
I was always charmed by a description of Eratosthenes' calculation of the circumference of the world which observed that he "accurately assumed that the sun was infinitely far away".
My impression is that other, more sophisticated, conceptions of infintiy (e.g. Cantor's transfinite numbers) still preserve this intutive quality, but I can't be really sure as I didn't study them in any detail.
That's only true at a rudimentary level. Infinity, as they say, is not a number, and to deal with it with any rigor you don't treat it as a single symbol so much as a placeholder for a limit. And two placeholders for limits can be reduced to a finite value, as in the reductions of any of the indeterminate forms in calculus such as (infinity - infinity).
In addition to what Scott said: Standard banking uses significantly more energy than bitcoin overall. Almost 50x iirc. And things like ethereum use significantly less. So the abolishing of the traditional banking and the movement over to ethereum stable coins could now reduce total power. Are you now going to switch your position and support the immediate change over because it will reduce power consumption? If not, why not?
If plain energy use is an issue then you presumably have to adopt a full degrowth mindset. Otherwise this is just an isolated demand for rigor. After all, it's not as if bitcoin requires a particular kind of power that's especially polluting. It's the same as any other industry.
Standard banking uses significantly more energy to do enormously more "stuff" (transaction volume). If you tried to immediately scale bitcoin up to do everything the standard banking system is doing, and you could manage it at all, the energy difference wouldn't still tilt the same way, not even close.
Bitcoin does use a whole lot of energy for what it accomplishes. But that's just Bitcoin, basically every other chain is on Proof of Stake, which uses a trivial amount of power. Solana as an example calculated that a transaction used as much energy as a google search
Bitcoin yes, others (like ethereum) no. If you assumed ethereum kept its same per transaction energy cost it would be a net decrease even if it covered all banking transaction. That's not a completely safe assumption. But if scaling does work out are you going to support replacing all banking with crypto?
Depends. With bitcoin most of the indicators go the same direction and only the ambiguous ones "resistance to censorship" and "resistance to remote confiscation" might go "against", but traditional banking comes with a lot of conveniences that crypto doesn't have, so it really depends on whether banking could move more toward crypto in energy budget or whether crypto could move more toward banking in features, as well as the relative prevalence of crime and tyranny, etc, which way the analysis would come out.
Depends on what? Is your belief a falsifiable one based on reasoned logic? If so what evidence would cause you to change your mind?
To clarify what I'm doing: I've seen this argument before and I've never seen it actually defended successfully. So I'm poking a little to see what happens.
I suspect you just don't like cryptocurrency and have seized on the environment as an excuse to justify your dislike. And the fact I point blank asked you whether you'd change your mind if crypto was better for the environment and you still said, "maybe but probably not" makes me more certain in that thesis. But I'm open to having my mind changed.
The rest of the comment was answering "depends on what?" The environmental cost has significant, but not infinite weight. Things like being able to reverse transactions in case of fraud are significant compensating value. Resistance against purely-third-party censorship weighs on both sides of the balance because it enables both virtuous outlawhood and vicious criminality. The reason I can't just give a straight answer is that it *is* a falsifiable set of beliefs based on logic, and so it's hard to figure out the right answer. In particular it depends on the future evolution of both low-energy crypto and traditional banking as they compete with each other. (This is not as simple as "let the market decide". I'm not at all confident the market will choose the right thing in the moment, though in the longer run it will probably create a self-fulfilling prophecy as it often does in such cases.)
Other people have tried comparing the energy used for bitcoin mining to that used for gold mining, reasoning that bitcoin is not money to replace all cash but a store of value like gold. Exact estimates vary for which form of mining is worse, but the two are very similar in scale.
The energy used for bitcoin mining has steadily increased with the price, however, and it will continue to do so.
That probably puts some rough limits on price. Like, bitcoin isn't going to a million dollars this year, if that attracted more miners to keep the profitability constant, it would end up using 10% of the world's power:
To quote the famous "Line goes up" video: "Yes, globally, the entirety of the banking industry consumes a lot of power, and a non-trivial portion of that is waste that could be better allocated. But it's also the global banking industry for 7 billion people, and not the hobby horse of a few hundred thousand gambling addicts."
The energy costs of a single transaction in the traditional banking industry are fractions of a cent. The energy costs of a bitcoin transaction are, what, 20$ at retail electricity prices? That's why moving away from bitcoin offers significant saving potential (as did the move of Ethereum to PoS, which they thankfully did). And before we switch banking to a new unproven system, I would like to see evidence that it does, in fact, consume less energy, and if so, I would encourage banks to try to improve their energy efficiency.
And "just plain energy use" is an issue if the value that is derived from it is disproportionately small, compared to the alternatives. I am in favor of cars that consume 4 or 5 liters/100km over cars that consume 10 or 12, at a similar level of driving comfort. If there were a car that did the same with 0.1 liters/100km, I would be in favor of switching to that. That is not a "full degrowth mindset", that's "being responsible". And I am a little surprised that I have to spell all this out.
It's a sign of the weakness of your position that you and others have to repeatedly return to bitcoin when I purposefully put the hypothetical in other terms. But I do give you honesty points for admitting that even if it were true cryptocurrency were more energy efficient you wouldn't support it.
Or is that not your position? Your last paragraph seems to imply it isn't (in contradiction of your second paragraph). But your failure to engage with my actual hypothetical and its purpose (as well as your snarky end comment) makes me think what you really want isn't to defend your position but just to accumulate a bunch of dunks.
If crypto were proven to be more energy-efficient, I would consider that as a argument for switching. I would still need a lot of convincing that moving all of the monetary transactions of everyone in the world onto a public database is a scalable solution; and that it does not represent a complete disaster from a privacy point of view; and that the so-called stablecoin is actually backed by actual cash, not held up by some smoke-and mirrors algorithm right until someone decides to challenge it.
And yes, I was snarky, because you introduced your "hypothetical" using sleight-of-hand: "Standard banking uses significantly more energy than bitcoin overall. Almost 50x iirc. And things like ethereum use significantly less. So the abolishing of the traditional banking and the movement over to ethereum stable coins could now reduce total power. " - I don't read that as a "hypothetical", I read it as a claim - "we could save energy, if only we decided to do it". And that claim is completely unfounded unless you compare the power consumption per transaction, which you didn't even attempt.
No, you weren't being snarky because of anything I said. You were being snarky because you think you already know the answer and that it's so obvious you shouldn't have to make the case. Combined with the usual attempts at a power move based around shaming the other side.
To wit, you again have to make things up. I said it COULD have that effect. Not that it would. And then later clarified it was a hypothetical. This hasn't stopped your strawman. You are justifying your rather snarky attitude not by something I said but something you made up I said. And you are now defending your putting words in my mouth ("I don't read it as...") to avoid confronting that you're acting poorly.
Which is a long way of saying: less of this please. If you want to have your criticisms taken seriously you would do better to make them cogently rather than acting like a high school bully.
I think the environmental impact is enough to justify considerable hostility to proof-of-work, but there are several other models - proof-of-stake, proof-of-space, etc.
But yes, the amount of electricity used on Bitcoin is pretty scary.
The negative environmental impact is a common misconception. In reality Bitcoin is the best tool we have to protect the environment. With a disinflationary currency, holders are incentivized to save their money instead of consume. We will all agree that reducing consumption is a necessary step with our growing population. When money is debased, you must consume quickly to not lose purchasing power.
I won't make any arguments for or against other crypto projects. Most if not all of them are unregistered securities. Bitcoin is a digital commodity, and in a class of its own. An army tank and a Reliant Robin are both vehicles, but that doesn't mean much. Bitcoin, the digital commodity uses more energy than these other things that are different and unregistered securities, okay? Bitcoin's security is based on energy consumption. This makes it resistant to counterfeiting. Using energy is not bad for the environment. Bitcoin miners do not produce CO2, bitcoin miners produce heat. If you are unhappy with where your local energy grid sources its electricity, let your government know.
Bitcoin mining is a highly competitive industry. To stay profitable, you have to get energy for a very low cost. This forces miners to be creative. Miners seek out stranded energy sources, such as geothermal and hydroelectric. In most cases, renewable energy sources are cheaper. Bitcoin is not stealing energy away from people, most energy used by the network would have been otherwise wasted, or never generated to begin with. Don't even get me started on how Bitcoin incentivizes the buildout out renewable infrastructure by providing immediate profitability.
New businesses are popping up left and right to use methane as an energy source for miners. You know methane? That pesky greenhouse gas that has 80 times the warming effect of CO2? Generators that run off methane are being installed that power bitcoin miners, wherever they are needed! Oil drilling sites that hit pockets of natural gas, should we flare it? No! Boom, free energy to mine bitcoin. Rancid landfills leeching methane into the atmosphere with no capture system due to cost? Start collecting that methane and use it to mine bitcoin, cost problem solved. Making money by reducing greenhouse gases? Now we're talking. When you look at the data, Bitcoin is actually on track to be carbon negative within a decade.
Notice I said making money, not currency. Let's face it, the U.S. dollar is decent, but it's still a fiat currency. Like Ray Dalio says, “Of the roughly 750 currencies that have existed since 1700, less than 20% now exist, and all of them have been devalued.” It is time for the fiat currency experiment to end. It did some good things, but it also did many terrible things. When Bitcoin gets to around $1,000,000, it will become the governor of governments, forcing more responsible monetary policy for those who still issue their own currency.
I realize this all sounds a bit far-fetched and perhaps poorly written, but I'll kindly point anyone who is genuinely curious about any of my claims to some quality sources.
If you think bitcoin has zero value, then it's circular: all that energy is spent is worthless just by your definition of bitcoin as having zero value.
If you don't value censorship-immune, state-free, unseizable money, fine. Lots of people do. At the very least, we find it 'entertaining.'
Bitcoin cannot be seized from a willing holder who has properly stored their keys.
Nothing you can do will take bitcoin from someone who has them stored in a brainwallet with the seed phrase known only to them, unless that person choose to give them to you. You can coerce them, of course, but that person could also chose just to die and thus destroy those bitcoin from the world forever.
Nothing else has that property. There has never been a form of wealth like this.
Mining bitcoin from the methane gases released during drilling just monetizes flaring, it does not stop flaring. And, having fossil fuel companies profit from wasted natural gas through bitcoin mining actually incentives them to continue drilling so I don't see that as a win for the environment at all.
> Having fossil fuel companies profit from wasted natural gas through bitcoin mining actually incentives them to continue drilling so I don't see that as a win for the environment at all.
They already have plenty of incentives to keep drilling anyhow. Are you saying it's bad for the emissions to go down?
And if you're going to consider incentives for energy production, how does that compare vs. the incentives created by bitcoin for clean energy buildouts which can't change their production rate in the evening to match demand?
Once you use a word like 'infinite' it tells me that you are not being a rational, reasonable person open to evidence. But I'll pretend that this is just rhetoric here and what you are really saying is, "bitcoin is very bad for the enviroment and it is therefore reasonable to be hostile to it"
By 'environmental impact' of bitcoin, are you considering:
A) its use to capture flare gasses and combust them effectively, reducing their emission to the atmosphere, including methane, thereby _lowering_ emissions
B) it acting as a reliable buyer of renewable energy, making renewables more price competitive, to the point of even being used to bring the world's oldest hydroelectric plant back online
C) it acting as an initial customer to bring on new sources of energy that aren't cost competitive if they have to be hooked up to the grid?
How would you value A,B, and C roughly, as compared to the fact that yes, people do use energy on this thing?
Lastly, what do you think the equivalent emissions of similar existing financial systems?
I have a suspicion that the energy "wasted" in proof of work systems is nothing more than a tokenization of the energy necessarily "wasted" in the unavoidable bureaucratic processes humans rely on to reach consensus themselves. I'm skeptical (but hopeful) that alternative systems like proof of stake can actually avoid this waste rather than just shifting it into other parts of their overall ecosystem.
Also what if all countries could just make a smart contract not to wage wars or all their money will be forfeited - thus no more wars. Such takes always amuse me. They sound eligthening at first, but as soon as you think about them for literally five seconds it's clear that it will never work and be a terrible idea to try.
Yes war is a consensus algorithm. So is politics. And conventional economy. We've had alternative consensus algorithms other than wars throughout the whole human history and yet the wars still happened. They happened exactly in the situations when the alternative consensus wasn't satisfying. Through the years we've managed to refine our consensus algorithms making using them more and more preferable to war. Replacing them with much less nuansed consensus mechanism of cryptocurrency is going to make much worse
I agree that "what if countries could just make a smart contract not to wage wars" is fanciful and not going to happen. I think this is just as unlikely as "all countries will agree to ban bitcoin." Countries will always follow their incentives, and there's a really strong incentive for lots of smaller countries to escape the dollar empire, especially if the bigger countries ban bitcoin.
Countries will go to war if they believe it is in their incentive to do so. Countries will not go to war if they believe it is not in their incentive to do so. It helps to understand my perspective if you get that Bitcoiners believe that bitcoin fundamentally changes global economic incentives. What I am describing is not a collaborative agreement to stop fighting war, but a Nash equilibrium where fighting wars is now a losing strategy for economic advancement.
You're totally right that there are multiple consensus algorithms and that these have existed for all of human history. What you may not have considered is that these consensus algorithms are arranged in something like a stack, based upon a tradeoff: cheaper consensus algorithms don't reliably provide consensus. The more likely a consensus algorithm is to _really_ provide consensus, the more expensive it is.
Talking it out between the two of us is cheaper than getting lawyers involved. Having the lawyers reach a settlement is cheaper than going to court. Accepting the court's judgement is much cheaper than trying to fight it out in a war. Surrendering is cheaper than fighting to the death.
Conflicts between nation states follow a similar path, but with economics being the last 'layer' before war. As of right now, two things hold:
- economics isn't' that definitive as a consensus mechanism
- success in warfare allows you to rewrite the history of the economic game, changing who owns what, meaning there is a strong economic incentive for winning wars
Bitcoiners believe that in the future, the following will be true:
- credit will be much, much harder to come by, especially for operations like war which aren't likely to provide a return on investment
- most wealth will be ephemeral, i.e. personal relationships, networks, brands, customer trust, and bitcoin, which means it'll be extremely difficult to impossible to steal by means of warfare
So, bitcoiners think warfare will still exist, it won't be nearly as effective as a top-layer consensus mechanism for determining political outcomes. War will be limited to 'who has control over this piece of land here' - which is still, to be sure, plenty of room for violent conflict. It's just much less room than the present.
> What you may not have considered is that these consensus algorithms are arranged in something like a stack, based upon a tradeoff: cheaper consensus algorithms don't reliably provide consensus. The more likely a consensus algorithm is to _really_ provide consensus, the more expensive it is.
I don't think I get any new insights here. Of course, peope prefere to do cheaper consensus algorithm at first and then raise the stakes and use more expensive ways to arrive to the desired outcome if they are not satisfied with the output of the previous algorithm.
I believe, you claim is that bitcoin is going to produce the actual consensus cheaper and more reliably? Why would that be the case? Can you maybe give an actual example?
Like, right now there is the first country with its borders which are acknowledged by the United Nations. Then there is the second country that wants part of the territory of the first one. The second country send an ultimatum to forfeit the land or there would be war.
However in the bright crypto future there is the first country with its accets written in the blockchain. Then there is the second country which wants the accets. The second country sends an ultimatum to transfere the assets they want to their cryptowallet or there would be cyberwar. What's the difference?
> I believe, you claim is that bitcoin is going to produce the actual consensus cheaper and more reliably?
Oh no, the opposite. Bitcoin's layer 0 is an extremely expensive as a consensus algorithm. This is necessary because it produces definite, global consensus on a socially constructed fact. This is why it needs to use that much energy; systems that aren't using that much energy aren't really producing a trustless global consensus. Systems with proof of stake just playing the old game: a group of persons with ownership over a system agree on the state of that system.
An actual example of how i think this plays out, is as follows: Hopefully, (if not for the sake or argument) we can both agree that economics constrains a country's ability to engage in warfare. I think Bitcon will constrain the economics of a nation to prevent them from issuing too much credit. If americans had to pay the financial cost of the wars in afghanistan and iraq in real time, we'd probably have seen them very differently than we did.
Bitcoin, once it's widely seen as a means to escape inflation over long periods of time, constrains a countries economics by preventing them from borrowing enough money to fund the kind of warfare that characterized the early 20th century. The Bank of England wasn't able to raise funds to fight world war 1, so they had to print a huge amount of money and lie to the public about it. If bitcoin had been a thing, i believe deceit would have been more visible, English morale would have faltered, and the war wouldn't have been such a long-grinding, bloody mess. State-backed fiat money lets nation states fight with literally any amount of wealth inside their borders, instead of having to negotiate and letting the citizens keep some of their wealth intact.
A centralized financial system means you reach a consensus of "we all agree that this bank is extremely good at record-keeping and unlikely to steal anyone's money" and then only a few entities (the bank and its governmental auditors) have to continue to expend energy on keeping the ledger accurate.
Also, Bitcoin's consensus algorithm doesn't give you consensus on *anything* other than "these coins were sent to this wallet by this user." It doesn't save you a single joule of energy on the social component of the transfer - whether you can trust the person they're being sent to, whether those funds were transferred intentionally, fraudulently, or by mistake. So I think it's simply wrong to say that the energy Bitcoin uses is saved from other parts of "humans coming to consensus" - it's not capable of affecting the most important parts of that process at all.
As a sibling commenter alluded to, you need to at least partially factor in the cost of the military in maintaining the centralized financial system you're describing
The military is a cost you need to pay regardless of if your financial system is centralized or decentralized. Your coins aren't worth anything unless you can defend the underlying goods and services that they represent. How does Bitcoin reduce the amount of money you need to spend on the military?
There is a bitcoin sticker that says, "Make War Unaffordable."
Any major war you can point to in the last 100+ years was funded by massive amounts of debt. If your opponent can steal from the wealth of their entire populace to fund their war, you can too.
Hard money makes this kind of large scale impossible by dramatically increasing the cost of seizing your citizen's wealth.
To fund the first world war, Britain had to break their gold standard in secret and lie about it to the world, because they couldn't raise the funds necessary to go to war:
How many wars were fought *before* the abolition of the gold standard? Napoleon was perfectly capable of arming a million men and marching them off to Russia without the help of fiat money.
Also, nothing about hard money or Bitcoin prevents a government from taking out absurdly huge loans to fund a war, the loans just have to be denominated in Bitcoin.
(War has gotten more unaffordable lately, but that has more to do with its increased destructiveness and a lack of return on investment.)
> "we all agree that this bank is extremely good at record-keeping and unlikely to steal anyone's money"
Lots of us do not agree that banks are 'unlikely to steal our money'.
Billions of people in developing nations would like to have a word with you about how American banks are stealing their wealth by means of exporting inflation, and making deals with corrupt local governments which take out debt in their names.
> It doesn't save you a single joule of energy on the social component of the transfer - whether you can trust the person they're being sent to, whether those funds were transferred intentionally, fraudulently, or by mistake.
This is a good point.
Advocates of hard money argue that in atmospheres of easy money creation, people's way of thinkin about everything changes. When asset prices are blowing up, everyone gets greedy ad thinks really short term. We believe that he root of civilization is the capacity to delay gratification, and that easy money creation shreds this.
You're completely ignoring that some solutions are orders of magnitude more efficient than others. Yes, proof of work does replace some bureaucratic processes. That does NOT mean "it's all the same, nothing matters."
Sure, but I guess what I am saying is that we should consider the possibility that proof of work might already be maximally efficient. I'm not fully convinced that the alternative solutions which claim greater efficiency actually achieve the same "consensus-reaching power" without just shifting the "inefficiencies" into more external parts of their ecosystem.
But of course, it would be great if I was wrong about that. I'm just not convinced.
^ conflates energy with carbon, misunderstands the importance of decentralization and how it is actually achieved, ignorant of the positive effects on demand on renewable energy technology and baseload generation, doesn't care at all about disadvantaged masses around the world who need a monetary system that doesn't exploit them.
I'm not really interested in a debate with crypto shills, but I recommend you actually speak to some people from the developing world and ask how they transact. Overwhelmingly it is not through crypto.
They really, really don't. Do they warrant hostility? Sure, maybe. Personally I don't find it that compelling, but I think a reasonable person can say "this is genuinely bad". But infinite hostility? Almost nothing in the entire existence of the human race warrants infinite hostility, let alone crypto.
This is a crazy take. All human activity has 'environmental impact' and it's not for you to decide which is legitimate. Bitcoin uses about a thousandth of the world's electricity production, paid for by willing users; and I don't see any grounds for you to oppose it, just as you have no say over the remaining 99.9% of electricity use.
Moreover (not that it changes the moral issue), Bitcoin mining is geographically flexible and incentivises the consumption of low-cost, sometimes stranded energy, so that the electricity mix used is almost always greener than the local grid as a whole.
Read a bit more about the incentives of bitcoin mining. There are unprecedented global implications of a decentralized energy consumer of last resort. We will see massive buildout of low cost energy supply, with positive effects on the globe. Miners are capturing energy from flare gas and methane from landfills, and converting these to CO2 in an economically stable and mutually beneficial way. The ability to monetize stranded sources is driving buildout of hydro power in areas where no energy infrastructure yet exists; there are a few very exciting projects in Nigeria in recent months. This does not even take into account the possible benefits of an open, permissionless, and immutable monetary supply for the globe. This OP, and the comments at large, are remarkable in showing how early we are on the bitcoin adoption curve.
BTW I have no time or sympathy for ‘crypto,’ which is generally a cesspool.
Is the environmental impact greater or lesser than that of the banking system that isn't crypto? What is the environmental impact of the Bank of America or the New York Stock Exchange?
Alternatively, there are many other things which are actively polluting and destroying our environment. I'm not opposed to your principals, but your anger is misplaced. I would ask that you redirect your concerns to things which are actually negatively impacting our environment.
Compared to what? Banks waste a lot of resources buying fancy clothes and fancy buildings so that people will trust them, etc. Bankers commute in cars to jobs that could be automated. Fiat currency with artificially low rates incentivises malinvestment in extremely-low-return-on-assets boondoggles that undoubtedly have environmental impacts.
Proof of stake is still shitty. Staked eth is indefinitely locked up and can't be used for anything else. The security and decentralization are much worse than bitcoin.
Do note that all of these countries may have economies or banking systems that are basket cases but still have, you know, functioning internet infrastructure. Crypto is cool online money but it sits astride a gigantic technological and social edifice that is substantially more vulnerable to circumstance than a good old greenback. And it doesn't do anything an international bank couldn't do in principle; of course, these banks are regulated in PRACTICE, and in the case of crypto, while censorship resistance is theoretically possible, it's quite a bit harder than the blockchain concept makes it seem, and most of its virtues in this regard are a function of its novelty rather than any actual cryptography.
In other words, no, you can't program your way out of society. The metaverse is just a special case of the actual universe.
Just the idea that crypto can step into the fold in the case of state failure which was somewhat suggested by the examples of "high-crypto" countries. Crypto is great in the narrow sliver of probability space where your banking system is in deep trouble but the economy is still halfway functional. Is that a virtue, or is it damning with faint praise?
I think that's actually a lot of countries, eg the long list of countries I cited here that do in fact use lots of crypto. I think with Starlink the number of places where Internet infrastructure outpaces financial infrastructure is only going to increase.
That long list of countries all use less crypto than Vietnam, and that chart gives me no information about how much crypto Vietnam uses relative to, like, the size of its actual economy. Maybe they do! I have no idea though, because chainalysis normalized their statistic to whatever the level of Vietnam is.
the number of countries that fit into that "small sliver" is independent of the their current crypto adoption. If you are right you have just identified the potential market size. No one is claiming that crypto is mazed out on its adoption
Would you like to give a rough estimate of how much crypto they'd need to be using for you to change your mind? I ask only because it looks like some goalpost-moving has been done / is going to be very likely.
It's also totally unclear where the actual data the chart is based on comes from. There's some explanation of the measures used to construct the data but nothing on the underlying source of data.
According to this survey, 32% of Nigerians and 21% of Vietnamese respondents owned cryptocurrency.
However, it's important to note that the survey is "Representative of the online population." It looks like what this means in practice is that survey respondents are recruited via online ads, and then samples are reweighted/stratified to be representative by age and gender.
This means that heavy internet users will be oversampled within age and gender, and this will skew results more in countries where internet access is less equal. In other words, the design of this survey (and presumably other surveys attempting to measure cryptocurrency penetration) is almost certainly going to exaggerate crypto usage everywhere, but especially in developing countries.
What would the value of BTC be in $$ if everyone believed the solid practical use case was poor bankless farmers in Vietnam buying some animal feed from another bankless poor farmer? One surmises far less than $17,000. It's hard to imagine a large number of First World miners burning megawatts to mine BTC out of an altruistic desire to assist Third or even Second World people without access to a good banking system (but prosperous enough to afford Starlink receivers and the monthly subscription, which I assume Elon Musk insists on receiving in dollars).
Strike (a bitcoin company) allows people to send their preferred local currency over the bitcoin network. The price in USD per bitcoin is irrelevant as to its utility in sending money. Strike accepts whatever currency, swaps it to bitcoin, sends it to the receiver via the lightning network instantly and nearly free, then swaps it back to the preferred currency of the receiver. Neither the sender or the receiver touched bitcoin yet it facilitated their transaction. It's brilliant.
I guess. But smartphone banking apps did this years ago and have already transformed Third World access to the financial system in a way that is still in the hypothetical future for crypto.
...I mean, Musk is right there working on decoupling internet access from regional infrastructure, and if you can't afford Starlink you probably can't afford the Bitcoin transaction fees either
What is your definition of a halfway functional economy? Are there economies in worse shape than Venezuela? This doesn't seem like an actual limiting factor in practice
I have definitely heard goldbugs make this argument before. Both ways - either that crypto will still be valuable after societal collapse, or that it won't be worth anything and you need gold.
Citation needed, and in the recent decades we've been pretty successful at programming our way into society being our bitch.
You need barely any bandwidth to transact on-chain, even running a full node is not that expensive, and with brain wallets you don't need connectivity nor even any physical item to transfer an arbitrary amount of wealth out of your authoritarian shithole country.
All of the supposed benefits that cryptocurrency brings the developing world could be solved much more efficiently by letting them use the US dollar, the euro, the yen, the pound, etc. (This was a large discussion in one the last open threads). There already are stable currencies that aren't prone to hyperinflation or confiscation- they're just not widely available to people in say Venezuela for 'regulatory' reasons. (And trust me, people in 3rd world countries really want US dollars- like really really want them).
Maybe crypto will magically their problems. But seeing as its utility has been speculative for a decade now ('in the future crypto will do x!'), I think it's just as reasonable to say 'in the future people in Venezuela or Ukraine or Vietnam will be able to use eurodollars (1) freely, and thanks to [unnamed technological advance] their government won't be able to stop them'.
Or, maybe there's a synthesis where DollarCoin, EuroCoin or PoundCoin blends the two
I'm willing to bet that the US dollar is used 10x more in Vietnam than Bitcoin. The chart at the beginning is normalized to one, there's no absolute scale on the y-axis and it's no proof at all that crypto transactions play a meaningful role in the economy.
I live in Vietnam. Nobody uses the US Dolla here. I don't even know what you'd use it for. People who are afraid of inflation, currency devaluation, and bank safety use gold.
Bitcoin definitely gets used more than the US Dollar.
But nobody "uses" Bitcoin here. It is all just people speculating because they've heard other get rich quick stories.
I agree that crypto would have no utility in the counterfactual world where there are no dictators or counterproductive regulations and everyone in the Third World can efficiently access First World level services. This seems a lot like saying "all the supposed benefits that chemotherapy brings could be solved much more efficiently by having there be no cancer."
I guess my argument is that many future uses for crypto are famously speculative ('crypto's going to do x in the future! Just wait!'). So it seems just as fair to imagine a world where residents of developing countries can freely access the US dollar to pay for goods & services, rather than Hyperinflating Local Currency. That's not any *less* speculative to imagine than typical crypto-talk
I think it's less speculative to imagine that people working on a technological problem will solve the technological problem, than that dictators will suddenly become nice. Even if these two things are both equally unlikely, I think it's useful to be exploring both possibilities in parallel, so that we have two lottery tickets instead of just one.
I am referring to a possible future technological advance that will allow people in other countries to use the dollar or euro more easily, for banking and to pay for goods & services. Imagine someone with the risk tolerance of Travis Kalanick creates a banking app for Latin America that transacts in dollars exclusively. I'm sure the government of Argentina would be Very Very Mad about this, but if tons of Argentines are using it.... are they going to lock up half their population?
So, Uber for 3rd world payment infrastructure, in dollars. I'd still argue that's *more* realistic than everyone in Argentina using Bitcoin or Ethereum for banking, payments, etc.
In stablecoins, the stable part is based on trust in some entity. Presence of an entity that's trusted to devalue everyone's money makes the technical problem simpler, but stablecoins don't seem to try to use that. For example, letting that same entity roll back transactions _en masse only_ is not a significant (or any?) additional vulnerability. Letting that entity stop all transactions from occurring is obviously not an additional vulnerability.
So, Chaum-style cash with such an entity as the "bank" would obviously not have some properties that stablecoins-using-some-variant-of-byzantine-consensus have. But maybe we could have something that's somewhere inbetween that would be just as good, _without the assumptions that PoW byzantine consensus requires_? (Note that in PoS setups, that entity can censor transactions, because they can inflate their stake arbitrarily.)
I'm in Argentina, and there are various competing local crypto apps that use stablecoins pegged to the dollar, but from what I know, most try to use binance the most since they are reasonable afraid that the government will regulate the local ones. You can use a debit card from the app that converts the crypto at time of purchase for $ARS and buy anything at any business.
You don't need a technological advance at all, you need a policy change in Eurozone countries or the US. It would be trivial for a bank to let random third-world users sign up for an online account and receive and send US dollars to any other user of that same online bank (to pick a shitty but still good-enough MVP). Something like that would compete directly with crypto and probably win for most use cases.
The problem is such a bank would get shut down by their host government because allowing easy signups by people who never show up in person and don't have a verifiable identity would immediately make it a hotbed of money laundering and payments for illegal things. The US cares more about stopping that than it cares about helping Vietnamese citizens avoid shitty banking systems.
I've considered this and I basically agree, but I think in practice if a US-based bank were to offer accounts to the citizens of say Latin America, and it allowed them to transact with each other in dollars and store money outside of those countries' purview- those governments would complain to the US so much that it's impractical. Part of the appeal is that the citizens of say Argentina want to store money outside of the government's control, so they can't seize it. This is of course illegal to do under Argentine law, and the government would get very very angry at the US for allowing this. And letting the citizens of Argentina transact directly with each in dollars and not the Argentine currency..... Argentina would be Big Mad. I think that's why the bank idea is unrealistic, and decentralized currencies are more likely
Cryptocurrency problems are pretty much entirely self-created. Thinking they will be solved without creating more I don't think assesses history well. And that someone might someday find a use case cryptocurrency is good for is kind of half the point. Why would those people share profits with present projects at all? Creating new coins is a command line parameter and happens continuously. Ergo, if someone solves these problems they will not share with current coin holders, and all current coins have an eventual value of zero.
I think Scott's main point there is not speculative at all; he's saying it's already happening that crypto is being used in the case of authoritarian governments and crappy banking systems.
Well, that's true but people already use cash transfers and dollars to avoid those problems. The main advantage of crypto over those is anonymity, but even that is dubious in countries like China.
Clearly some people currently think that crypto is more useful and others think that cash, wire transfers, bank deposits, and various other alternatives like airtel minutes are more useful. If crypto has become/is becoming the primary way to send and receive remittances in some countries (as an example) that would be strong evidence that crypto has a valid long-term use.
I haven't been able to find data that seems credible on the actual use of cryptocurrency in developing countries relative to alternatives, for instance for sending and receiving remittances. If you know of any good data I would love to see it!
I wonder about the rate of use of crypto compared to other mean to transfer money. But overall the main advantage of crypto is that it mostly flies under the legal radar. That happens to be also its biggest flaw.
Also, the big cryptocurrencies like Bitcoin are only pseudoanonymous, and realistically, all transactions are public. Actually private cryptocurrencies are a little-discussed niche.
that would be fair if you were comparing two things that don't exist today, but instead you are arguing that something that does exist today is not valuable because it is theoretically possible to solve the problem a different way.
All of the supposed benefits that airplanes brings the developing world could be solved much more efficiently by letting them use teleporters
They have black market dollars, and insane demand for them, in Latin America and Africa and Asia and Russia.... and everywhere else too. Do you know anyone who lives in the 3rd world? Earlier this year I had a long conversation with my Pakistanti contractor about the lengths he goes to use US dollars in his country
I didn't say that they don't have access to USD today. I was replying to your comment that "So it seems just as fair to imagine a world where residents of developing countries can freely access the US dollar to pay for goods & services, rather than Hyperinflating Local Currency."
The proper comparison is the current state for someone in a 3rd world country to use USD vs crypto. As you said right now it is very challenging to to transact in USD in places like Pakistan. Which makes crypto a better option in many cases. How do we know that crypto is better in those cases? Because people are using it.
As nifty775 (him-/her-)self mentions, "they have [...] insane demand for [black market dollars]" — suggesting that supply limitations create a use case for crypto right there, even absent any other advantages.
But people obviously cannot transact in crypto now- we see this most recently with the El Salvador Bitcoin debacle. Merchants refused to accept it, consumers refused to use it, and the whole attempt failed. Famously, 90+% of Bitcoin is held and not used for transactions. It doesn't work as a currency in practice. 'Because people are using it' is wrong- they're.... they're not using it. Crypto is a moderately interesting store of value but has basically failed as a currency at this point.
A stable coin pegged to the dollar backed by a reputable company (e.g. Goldman Sachs .... don't laugh, or Fidelity) would be pretty useful.
It would even be very profitable for the backer because it would basically be a Money Market Fund (on the Internet!) where the provider keeps all the return from the cash (currently around 3% per year).
I do have to wonder why no bank has yet come out with a crypto product that's basically "Tether, but the reserves aren't held by a weird shady company that doesn't want to be audited."
It would be illegal. Banks are required to know who their customers are. They're required to attempt to detect and stop criminal transactions. If you built KYC and the ability to roll back transactions into a stablecoin, it would no longer be a stablecoin. It would be a bank account which happened to be kept on the blockchain.
"It would be illegal. Banks are required to know who their customers are."
Does every major country have a "know your customer" law? Because the stable coin doesn't have to be backed by a US bank. A reputable Swiss, British, Swedish, Japanese, ... bank would work.
It used to be possible to open a Swiss bank account where the bank knew nothing about you except the number on your bank account. This is the "numbered bank account" of Hollywood fame. It was frequently used to dodge taxes, launder money, and accept bribes. You can imagine that other countries were not pleased by this. Under international pressure, they gradually started asking customers for more information, including their name. These days the numbered account still exists, but largely as a marketing gimmick.
I don't think there's any country with literally zero KYC laws. There are probably some where the laws aren't well enforced, or where you can give a kickback to the banking regulator to ignore it. But then we get back to whether or not it's being run by a weird shady company. ;)
"Japan's parliament has passed legislation allowing Yen-linked stablecoin cryptocurrencies, thus becoming one of the first countries – and by far the largest economy – to regulate a form of non-fiat digital money.
The regulations stipulate that only banks and other registered financial institutions – like money transfer agents and trust companies – can issue the alterna-cash. Intermediaries, or those who are responsible for the circulation of the currencies, will be required to adopt stricter anti-money-laundering measures. The rules also define stablecoins as digital money and guarantee face value redemption."
This is literally what Facebook tried to do a few years ago. The government gave them so much shit that they ended up scaling back and eventually giving up on the plans.
The idea would be that Goldman would not be part of the transfers (just like the federal reserve isn't involved in cash transactions). The blockchain would be used for transactions. Goldman would provide creation/redemption of the coins from/to US dollars.
I could be hugely mistaken here, but I don't think there's any specific reason why any country couldn't use those currencies if they wanted to. Perhaps not in name, but many countries have their currencies pegged to the US dollar (or other baskets of currencies/commodities, which I'd say is kind of like a Eurodollar,) for this very reason. I have no clue what's involved in pegging a currency to another, but is commonly done. The downside is you lose authority over your own currency. We've seen issues with this in Europe, where the strong Euro has undermined standards of living and growth in places like Italy, which can't simply devalue their own currencies anymore and power out of a slump. There's also sovereignty issues and national pride and all those things.
Often use of US dollars is illegal. It was in Venezuela for a while and it was in Zimbabwe for a while.
The population won't trust the peg because the peg usually fails and then the folks holding the pegged currency (e.g. Argentine Pesos) rather than the backing currency (e.g. US Dollars) get hosed.
Folks in Venezuela, Vietnam, Zimbabwe, etc want dollars, not something that is worth a dollar today and will be waste paper tomorrow.
Fair enough re pegging, definitely not my area. How do pegs fail?
And, illegal to use dollars according to whom? The government of Venezuela (in your example) or that of the US? The former surely, the latter I'm not sure.
Hypothetically, if a given nation wanted to adopt the US Dollar entirely, would the US agree?
Pegs fail because the government (or central bank) running the peg decides to take the dollars backing the local currency (e.g. Argentine Pesos) and spend them. This is why folks want dollars, not a token that says it is the same as a dollar (until it isn't).
NOTE: During one of the recent Argentine un-peggings from the dollar (maybe the most recent one?), the Argentine government *also* converted all the local bank accounts that were holding dollars to Argentine Pesos at the 1:1 rate, so even holding dollars in the Argentine banking system didn't work. You needed your dollars where (a) you could spend them, but (b) the government couldn't confiscate them.
Dollar holdings are declared illegal by the local government (e.g. Argentina, Zimbabwe) not by the US.
Ecuador uses the US dollar as its national currency. The US doesn't have to agree :-)
Usually pegs aren't 1:1 backed in the first place, realistically, the government doing the pegging buys/sells some bonds from the government being pegged to to control the exchange rate, they do hold a certain-sized pool to do 1:1 exchanges but that's just to suppress small, short-term variations. Unpegging doesn't always happen because the government has spent their pool or can't afford to continue manipulating the exchange rate either, it's because they actually need the exchange rate to change because of monetary or fiscal reasons (e.g. they need to increase money supply, or lower real cost of debt interest). (This doesn't necessarily mean that what got them into the pinch was any more *responsible* than spending reserved money though.)
Yeah I would say it verges on suicidal, at least in the current world, for a state to actually use a foreign currency for its transactions with no option to unpeg.
Any country that uses the US dollar as currency is basically giving up any vote in their monetary policy and accepting huge risks of being forced into either inappropriate fiscal austerity or defaults. It may have looked like a good deal for the people running the country at the time but the people living there won't be enjoying the ride in the long run.
I was here to say this to Nifty 775 - using currencies of countries with stronger economies than yours is a recipe for disaster. I am sure the people in the short run enjoy stability, but in countries where an alternative currency is used by the people informally, a part of GDP growth is given to the country that prints that money. As demand for USD (for example) grows as the Argentinian economy grows, and the USD strengthens - but only the American government can print it, and thus reap the benefits of a stronger dollar. This is a simplification, but just to add to the already strong point of FeaturelessPoint above about giving up your monetary policy.
This is no different from being on the gold standard. For a small country without a strong banking system, the benefit of committing to a functional monetary policy (The US Federal Reserve) can easily outweigh the cost. In addition by dollarizing their economy they can attract foreign investment who don't need to hedge the currency risk.
El Salvador, Ecuador and Panama have done it for decades now. I think one of the quiet benefits is that it forces those governments to live within their means financially
Whatever you think of the infinite revolving tabs lots of governments run, it simply isn't the case that government borrowing is always worse than the alternatives.
Giving up control of your monetary policy makes sense if you expect whoever would otherwise have control of your monetary policy to be terrible at it. This is a rare scenario, but it's reasonable for some countries with a bad history.
If all your alternatives are suicidal, sometimes it makes sense to choose one suicidal option. Ecuador seems to have done pretty fine recently, and avoided some of the issues that Argentina and Venezuela have had. Will they do better long-run? Hard to say, but I don't think it's *obvious* that using the US dollar is a worse option for them.
I don't think you can think of states as singular, responsible agents like that, especially not the ones where people want to use dollars or bitcoin instead.
It guards against other 'suicidal' things, like a dictator taking power and running the money printers directly into their cronies' pockets.
to be clear this is somewhat tangential to the point of this post. The utility Scott raises is for people unfortunate enough to be in a country that is acting poorly. The fact that any country could decide to be a democracy is little solace to someone living under a dictator
One of the key benefits cryptocurrency brings to the developing world IS the ability for them to use the US dollar, in the form of crypto stablecoins. The crypto adoption index includes stablecoins, and I'd bet a lot of the usage in developing countries is stablecoins.
From chainalysis: " users in lower middle and upper middle income countries often rely on cryptocurrency to send remittances, preserve their savings in times of fiat currency volatility, and fulfill other financial needs unique to their economies. These countries also tend to lean on Bitcoin and stablecoins more than other countries"
The dollar is used quite frequently used in many of those countries - but it's really difficult (and expensive) to get a dollar from Chicago to Caracas.
>If you split $1000 and invested it equally in all the top crypto projects of 2015, you would now have $25,400.
'If you entered this pyramid scheme/speculation bubble 7 years ago, you'd have a lot of money today' is a true statement for many types of pyramid schemes and speculation bubbles.
I did, but perhaps I misinterpreted the meaning of these sentences:
>Some of this is that a few cryptos did very well (eg Ethereum) and drowned out the rest doing badly. But even in 2020 when Ethereum’s gains were mostly played out, on average you would have done fine.
I took this to mean that even though most of the 54 companies did badly, if you invested in Etherium in 2020 you would be doing well from that specific investment in 2022, so at least Etherium isn't a Ponzi scheme. Which I took as not much evidence that the other 53 aren't Ponzi schemes, if they did badly for the average investor who didn't get in early.
If instead these sentences means that if you took the 54 projects chosen in 2015, and invested in them in 2020, you would still be doing well by 2020 - then I misunderstood the evidence and that does change my understanding of the situation.
Though I'm not sure how *that* outcome gels with the clause about 'the rest doing badly', it seems like this clause alone implies that the *average* investors in the *average* project did poorly, which *is* the outcome you'd expect from a Ponzi scheme.
(as well as any other venture that didn't pan out, of course. I'm not claiming any of this is *proof* of them being Ponzi schemes, just that I don't see how the presented evidence argues *against* Ponzi schemes. Since I'm interpreting it as saying 'in most projects except for a few stand-outs, early investors did well and the average investor did poorly' - but again maybe I'm misunderstanding those sentences.)
It's true that the average *bank* would collapse if there were a run on it, yes.
But the *value of the US Dollar* would not collapse if there were a run on the banks. If anything, I would expect the value to go up, as credit collapsed and there were fewer effective dollars in the system.
In essence, the banks are still *trading in something* that is in and of itself a valuable commodity. Even if the banks collapse, the commodity doesn't.
The claim against crypto is that the underlying commodity is *itself* worthless, and would collapse in value if people actually tried to trade with it at a normal rate instead of treating it s a speculation asset.
Ie, the accusation is not so much that the exchanges and projects creating crypto are perpetrating scams, but rather that the coins themselves are tulips or beanie babies.
I've often heard that one of the major reasons Bitcoin has done well and maintains value is that the early holders/investors have been willing to maintain huge stakes. If the early investors had tried to sell massive stakes of Bitcoin when the value hit [various points], the value would have collapsed.
It's not very reassuring that there's a potential timebomb hiding in the currency somewhere that may, or may not, go off. Mentioned as a positive in something I read last week was the possibility that the anonymous starter of Bitcoin, who potentially has a massive amount of Bitcoin, may not be able to sell off and tank the price - because he might be dead! Extremely reassuring, especially as that implies we can get locked out of our own Bitcoins if we die, meaning no inheritances for family, including a spouse.
I am not claiming that my reasoning is proof they are Ponzi schemes, and apologize if I gave that impression.
I'm saying that the logic presented in this part of the article is not evidence *against* them being Ponzi schemes, because we could expect to see this same evidence from Ponzi schemes.
It wasn't a pyramid scheme all that time. It was only once he got a reputation for consistent returns that he got a large enough influx of customers to turn it into a Ponzi.
I don't have much knowledge of this domain area, but my guess would be that the median successful scheme (excluding tiny hyper-local schemes or ones that fail quickly) lasts something like 5-7 years, with long tales stretching into decades.
It's a lot easier to keep going if you can have people publicly take large losses and keep shilling you all the same. Arguably the pyramid scheme already collapsed this year (and that after collapsing in 2014 and 2017 as well), and yet here we are.
Amway would seem not to qualify as a pyramid scheme, having lasted longer than many indisputably legitimate businesses and selling large amounts of actual products.
Your definition is partially circular. Amway can’t be a pyramid scheme because it’s lasted a long time?
Anyways, the selling of products was Amway’s way around regulation. When you start looking at who makes money and how, it’s definitely a pyramid scheme.
Short durations are a defining feature of pyramid schemes. The reason it's considered legitimate to quash them is because they are going to collapse anyway rather than produce anything of value. There is not an infinite supply of people willing to invest in any scheme, so eventually they run out of new investors and cannot pay off existing ones. Selling products is something normal companies do, what's unusual about Amway is its salesforce. And the front-line sellers of products making less money than the people at the top is also a normal feature of companies.
The front line workers of Amway don’t make less money than the people at the top, they tend to *lose* money. And the money they lose is transferred to their “upstream”.
"Guy jumps off the Empire State building. As he passes the 90th floor a man leans out a window and asks 'Are you in trouble?' and our plummeting hero says 'Nope! Doing fine so far!'"
I am not surprised that the trolls have shown up. The irony in an article which says "you know, I'm thinking that maybe this isn't all bad, and I'm going to take an objective position to question whether or not there may be a redeeming quality here..." and in a newsletter which is seeking objective reasoning.
We get it, you're going to blind rage against anything "crypto." Your takes are tired and boring, and would be better placed taking on real crimes, not broad and misinformed generalizations
You have not mentioned the problem of scale. From what I understand every other problem of crypto is downstream from the fact that it does not scale. (And any attempt to make it scale detracts from its main advantage of distribution so as to make it worthless).
Can you explain more about in what sense crypto doesn't scale? Are these the problems that are solved by things like Lightning Network, Arbitrum, sharding, or using a token like Solana which is designed to route around these kinds of issues?
(yes, Solana's not doing too well lately - but that's because scale hasn't become much of a problem in the real world yet)
The problem is basically that Transactions Per Second are multiple orders of magnitude worse than traditional payment processors. Things like Lightning Network have significant downsides compared to the raw network, sharding doesn't work well, and anyway these things don't make up the entire difference.
This is a technical problem that seems largely solved by L2s + sharding. This blog post is a pretty convincing (to me) discussion of what's actually achievable https://vitalik.ca/general/2021/05/23/scaling.html. Not 100% optimistic, but at least the naive "TPS fundamentally can't match traditional payment processors" seems to be being addressed in good faith by the 2nd largest existing project.
Ethereum L2s have high transactions rates per second, while also maintaining the security guarantees of ethereum, and generally allowing force withdrawals in the case that the L2 operators stop working. They are also here, working right now in the real world. https://l2beat.com/scaling/tvl/
Is there something in particular you have attempted to use it for and failed?
(Obviously the answer is no; you've never attempted to use it at all. You're just repeating things you heard people say. The rest of us are using it fine, and have been for multiple years now.)
The fact that literally nobody I do business with accepts it *is* a failure. I can’t even attempt to use it if nobody I’m interested in buying goods and services from will accept it as a means of paying for said goods and services.
And I do business with some groups that are ideologically predisposes towards bitcoin and L2 bitcoin payments. None accept it.
I won't say scalability is a completely solved problem, but it's not really a binding constraint today and the rate of improvement on scalability tech is rapid.
As of today, the supply of blockspace far exceeds demand. High throughput chains like Solana or Polygon can process a few thousand transactions per second. And about 80% of the block space is unused. So usage can grow quite a bit before hitting any sort of roadblock.
Ethereum is really the only major chain where blockspace is relatively scarce. And that's pretty much because the Ethereum Foundation has prioritized maximum decentralization and heavily restricted the supply of blockspace so nodes easily run on Raspberry Pis. But even with Ethereum, optimistic rollups (like Arbitrum) are already in widespread use, can process 10X more throughput than the base layer, cost less than $0.10 per transaction, and have the same security guarantees as Ethereum itself.
Beyond that zero-knowledge (ZK) rollups basically allow for infinite scalability, because their blockspace consumption on the base layer grows logarithmically with the humber of transactions. ZK rollups are already being used for single-purpose applications like dydx, where they're capable of handling tens of thousands transactions per second. The only remaining challenge is making them efficient for general purpose compatibility with the Ethereum Virtual Machine. And here, you're talking about maybe a couple years at most. The main barrier being the overhead of generating the SNARK/STARK proofs, which probably will require custom hardware acceleration.
This is a non sequitur, he's nowhere denying that FTX was a scam, just leaving it out of a single statistic and even prominently noting that fact so that nobody is caught unawares that it was not in the list.
Figure out a better way to get a non-cherry-picked list of big exchanges and tell me what you find, I'm interested in knowing.
I think the essence of your comment is mentioning that there are some well-known examples of exchanges failing, and the essence of my comment is mentioning that this happens but is rare, so rare that some randomly chosen list of exchanges over some time period won't have any examples of it.
Ah, but your bank is FDIC insured because nearly all of the the banks collapsed almost simultaneously.
If you counted bank failures that were bailed out by the government then banks would fail with alarming frequency.
I'm not saying crypto exchanges are reasonably built, but I AM saying that they are probably as reasonable as fractional reserve banking... they just don't have the blessed protection of a government that can print money... yet.
I'm not sure that's the relevant comparison. See the analogy to higher education, or to Ponzi schemes denominated in USD — we're not trying to calculate exactly how relatively safe crypto exchanges are compared to stock exchanges, or using dollars in general is compared to using crypto in general, or whatever.
Rather, Scott's point, as I read it, is something more like "crypto scams aren't as common as perceived to be" / "crypto use doesn't guarantee loss of all your savings", or maybe "crypto has costs — like being less convenient and more scammy than USD — in exchange for decentralization, and the costs aren't so high as to prevent many of its use-cases".
His point definitely *isn't* "crypto exchanges are just as safe as US stock exchanges", I would think.
I think Scott was quite clear that crypto is not as good as traditional finance in the US. So that's not really a useful comparable. A better one would between banks and/or exchanges in countries like Venezuela
But quite some share-selling companies did. Enron and Wirecard did even in our time, so highly regulated and extensively audited. To quote the famous German banker Carl Fürstenberg: “Shareholders are stupid and cheeky. Stupid because they buy shares, and cheeky because they still want dividends" and "Net profit - is that part of the balance sheet the board can no longer hide from the shareholders" (which applies to most joint-stock companies, so ... )
I do agree with the overall point, that outright scams are in the minority of respectable crypto projects.
But I still think eg the analogy with universities doesn't hold, because of the significance of the two major exchanges that failed. A more fair analogy would be the alternative world where say Oxford (Mt Gox) lost everything due to a "hack" (maybe stolen by owners?) and Stanford turned out to be a total scam.
More concretely, on this particular list I wouldn't be too surprised if 30% losing their funds within 10 years. I would put 90%+ probability on the majority not losing their funds in 10 years though.
Weighted by percent-of-market, Mt. Gox was the largest exchange ever, right? Like, it was larger than several of the current top-10 put together, I think.
So by far the biggest thing ever in crypto was a scam, and you managed to exclude it, and to say that most of the exchanges are not scams. It seems at least worth mentioning in the article! "The biggest exchange ever was a scam, yes, but that's no worse than higher education". Try making that argument, see what it sounds like.
Mt Gox and FTX are both widely known as within the top 2-3 biggest exchanges by volume of their time. And anyone who thinks we're through the current run of large exchanges going bust (Tether/Binance especially) is... an optimist, to say the least.
Even assuming you can avoid depositing in a fraudulent exchange, there's the second order risk of crypto going through huge boom and bust cycles as fraudsters inject leverage into the system to pump up prices.
The theoretical winning investor from 2015 either lucked out and picked a reputable exchange from that time that is still around (are there any?), or has managed their keys themselves. The latter is risky enough that in general software engineers are not trusted to do it themselves without automation / dedicated support.
Broad misinformed generalizations are a feature of the blind rage against crypto.
There was a time when the United States entire stock market collapsed, not only a single excange. The system that replaced it investigated Bernie Madoff for 16 years and decided he wasn't doing anything wrong.
You're woefully misguided to suggest that a centralized exchange (which is not necessary and generally frowned on in crypto) is somehow representative of all aspects of crypto. This has nothing to do with what the article is about.
It's like someone saying the stock market is all bad because of Enron
Vietnam is super into crypto because Axie Infinity (a once popular Play to Earn game) focused on them for whatever reason. I'm guessing there's some "(amount of people with access to internet) / (income level that makes tens of dollars per day meaningful)" ratio at play
Axie suffered a massive hack (and got sort of re-equitized afterwards) but yeah bloom is off because the game itself is bad and the internal economy doesn't scale and once people stopped making money at it and started cashing out instead it all collapsed.
Interesting. I definitely wouldn't have put Vietnam on the list of "unstable countries where you need a shadow bank" the way that Ukraine and Venezuela clearly are, and that Pakistan clearly could be. (I'm less clear about Kenya, Nigeria, and India.)
As a "crypto person", as soon as I saw Vietnam dominating Scott's chart I thought "Oh dear I'll bet that's just another localized crypto Ponzi", and unfortunately my bet is Thomas is correct. Axie is (IMHO) very much a net-negative flash-in-the-pan crypto Ponzi (though quite likely built with good intentions!) and sadly other past countries that dominated similar charts were usually places where some Ponzi or the other had sunk in its teeth: Axie was originally big in the Philippines, and I don't recall exactly but I think I'm remembering Zimbabwe? https://newsbtc.com/news/bitcoin/bitcoin-based-pyramid-scheme-flourishes-zimbabwe-economy-thickens/
Despite all this, like Scott I'm a believer in the real potential for this tech in places with lousy financial infrastructure, like most developing countries and the USA. I have a crypto friend in Nigeria (whose reputation makes, eg, using credit cards very difficult) who argues pretty convincingly that crypto/stablecoins are achieving real adoption there. Sample article: https://www.bloomberg.com/news/articles/2022-08-10/the-most-curious-nation-about-crypto-is-nigeria-study-shows
Still, for the reasons Scott again described, even real adoption in (eg) Nigeria is likely to come with a bunch of outright grifts. Crypto believer though I am, I don't know if we're ever going to get past that combination. At best it will be like spam email: an annoyance, harming some, that most of us do manage to more or less get on top of.
In particular, identity verification and the "hybrid" applications (e.g., voting) are non-obvious, have clear value, and really do make use of the blockchain decentralization in a valuable way.
I am extremely bearish on "3: the identity ecosystem", I don't see how you can meaningfully build an immutable system that's compatible with the "right to be forgotten" and other EU data protection regulations. These are likely to expand into the US too.
I am extremely bearish on "4: DAOs". Companies are amongst the most complex and ambiguous human social structures, and the idea that you can meaningfully encode them in a smart contract seems naive to me. (More generally, having actually tried to build something in this area, the idea that you can replace courts with code also seems extremely dubious to me.)
I'm interested in Liquid Democracy but I think it's a political dead-end for this generation. If we can't get people to trust paper-voting with recounts, how will we get them to trust some opaque ZK-SNARK-based technological solution? While in principle if we were all able to manage our own keys, and willing to give up some of the traditional voting properties of repudiation and resistance to compulsion, it's possible to construct a theoretically sound system, I don't see a way of solving the operational security problems at a national scale. (If a foreign state actor hacks your voting key instead of your crypto key, do they get your vote? Securing digital systems is incredibly hard.)
The right to be forgotten doesn't oblige your bank to erase your transaction history when asked. Anything you put onto the blockchain is immutable by its nature, so it's hard to imagine a reasonable expectation of erasure!
Beyond that, the blog mostly focuses on building persistent identity that isn't actually tied in any way to your ordinary human identity.
> Anything you put onto the blockchain is immutable by its nature, so it's hard to imagine a reasonable expectation of erasure!
Right, that's my point. The right of erasure exists absolutely in EU law already, regardless of your (or anyone's) opinions on what's "reasonable". That means by definition a business can't put anything on-chain that has a right to be deleted. Under GDPR, that's a lot -- specifically any "personal data" you gather when operating a service. It's simply illegal for an EU business (more precisely any business in the world collecting data on EU residents) to use a technology to store data that cannot support deletion requests.
And bank history is perhaps a bad example here; the Banking Secrecy Act (in the US) requires that payment processors preserve transaction history for 5 years, and then delete it. Again, this regulatory framework is incompatible with blockchains.
In both cases you can in theory make an argument that in a true DeFi app the user is putting their information directly on-chain, and there is no "Controller" (in GDPR parlance) or "Money Transmitter" (in BSA parlance) that would be regulated by those laws. Maybe you'd get away with this, but if there's any company operating the chain-backed service they will have problems.
I think it's questionable to assume that the regulators would allow an end-run like this. For example I think it's entirely plausible that the EU would ban blockchains (or specific usages) if there were widespread GDPR breaches occurring where there was no company on the hook for enforcement. Imagine, say, citizens are using a DeFi app, and then the inevitable security breach happens and millions of people's healthcare, banking, or other Personal Data gets leaked. "It's distributed, there is no-one to blame" is not going to go over well in practice.
I think it is important to draw a distinction between crypto-currencies (e.g. Bitcoin, Etherium) and *exchanges* where you give a stranger your money (in US dollars, or Bitcoin, or whatever) and then they run off with it.
Giving your assets to a stranger who runs off with them doesn't make the asset a scam.
This is fair but I do want to point out that as far as I can tell it's pretty rare for exchanges to run off with your money. Yes it's a big deal when it happens and gets a lot of news, but as I mentioned in the post I found a list of big exchanges and none of them have done that. The two big examples are Mt Gox and FTX but there are lots of exchanges and 2/X isn't "most" or even "many".
I still wouldn't put my money on a crypto exchange, of course, but that's not because there's a *high* risk of disaster, just *enough* risk.
Celsius Blockfi Voyager FTX MtGox could all be considered CEFI or centralized finance, where because dealing with blockchain directly is beyond the technical ability or pain threshold of the masses you delegate to some single organization to do it for you, and that becomes a vulnerability point. Similarly all the hack stories target similar centralized pain points such as exchanges and bridges. True believers would tell you that true DEFI (decentralized finance, regulated by code) doesn't suffer these issues. They do have bugs that frequently get exploited resulting in large amounts of assets getting lost, but am at least somewhat sympathetic to the argument that those are growing pains and once you work out the bugs maybe they become stable trustworthy ecosystems.
I'm struggling with the two lines of problem. On one hand you have a system that's too complicated to use (and has some bugs that may cause you to lose everything you put into it) for most people. On the other hand you can trust someone else to handle the technical stuff for you, but you have to give them complete control over your money.
That seems like a system that's going to have a very hard time expanding to any kind of general use.
Back when Bitcoin wasn't worth very much in dollar terms, I lost 3 Bitcoin in an exchange hack. Fortunately, they were very honest, went through a bankruptcy proceeding, and made users as whole as they could (I got 1.5 Bitcoin back).
I think I had 2 Bitcoin in MtGox when it went kablooey. They keep sending me strange emails requiring me to take selfies while standing on one foot and register blah blah blah by this date, etc. on the claim that I'll eventually get something out of their bankruptcy. I think they mostly are just trying to make it as hard as humanly possible to claim so that few people will. It's pretty much worked with me, even though I could REALLY use 2 Bitcoins (my entire crypto portfololio now is less than half of one).
So anyway, I finally learned to not keep cryptocurrency in exchanges, both because they're more vulnerable than non-custodial wallets and because f*ck the state, the latter of which mostly explains why I'm interested in crypto anyway.
What percentage of crypto, by value, was in FTX and Mt. Gox when they went down? That seems more relevant than the sheer number or fraction of exchanges that have gone down.
I would also consider the absolute amount of money lost. For Mt. Gox the dollar value is pretty low (because of the price of Bitcoin at the time). For FTX the customer losses appear to be around $8 billion.
I'll note that the US stock brokerage industry in the 1960s arranged for several industry funded bailouts of bankrupt brokerages to keep the customers whole. The folks in charge figured that if the industry got a reputation where customer money wasn't safe at brokerages then that would be bad for everyone in the stock industry. Regulation came later.
And $8B of lost customer money even in an ecosystem of, say, $1T is bad. Random users don't look at this as an expected loss of 1%. They look at it as, "My money can vanish even if *I* am safe and prudent."
I'm not sure what percentage of crypto was HELD IN MtGox when it went down, but at the time more than 70% of transactions in Bitcoin were done THROUGH MtGox, so it's likely that a pretty good chunk was held in balances there. The total loss was in the hundreds of millions, not billions, of US dollars. My own loss was, IIRC, in the hundreds (I think I had two Bitcoins in there). Of course, my gain right now if I was renumerated in Bitcoin at 50% as a creditor would be about $17k.
The dollar amount was small because Bitcoin wasn't very valuable at the time, but the initial reports were that something like 750,000 customer bitcoins went missing.
In 2014 there were around 14 million bitcoins, total. Many were not circulating at all ... a wallet assumed (?) to be Satoshi Nakamoto's holds close to 1,000,000 bitcoins and hasn't transacted in years ....
So, 750,000/14M = 5% of the total in existence and maybe 10% of the bitcoins in actual circulation. The dollar amount doesn't entirely capture the size of the loss.
You know, Wikipedia claims that ~20% of all BTC that have been mined to date have already been irretrievably lost, meaning nobody knows the key that would allow them to be transacted. Given that a loss of information over time is inevitable, entropy and all that, and historically stuff like ordinary detailed financial records gets lost at a pretty fair rate -- plus the fact that the total number of BTC is limited -- we can conclude that eventually all bitcoins will be lost. How long would it take? That 20% of them are lost after a mere ~10 years is not a great sign.
I had the idea for a short story (which I never wrote ...) that went something like this:
In the distant, but not too distant future, much of the world uses bitcoin as a currency. It is at least as used as the dollar is/was now. Also, because of what you said, much of the mined bitcoin has been lost.
Then, not too far after our story begins, our hero (or some agency or cabal or whatever) finds the passkey/whatever to one of the 'lost' stores of bitcoins. And now they have currency worth 10%/25%/50% of the existing currency. Without needing to counterfeit it or anything ...
Imagine if "someone" discovered a lost stash of US$/gold worth several trillion dollars today...
Having said *THAT*, in practice what the folks running the show may well do at some point is to uprev bitcoin to a newer version where coins that don't move for some period of time (10 years? 20 years?) are re-assigned proportionately to those wallets that are still in use. It isn't like we haven't seen these protocols modified over time...
Luckily exponential decay only asymptotically approaches zero. Bitcoins aren't infinitely divisible but they are pretty divisible, and I imagine the rate of loss will go down as tooling improves and people get more careful.
I think that Ukraine having high concentrations of crypto use may have more to do with foreign aid being laundered than any type of regular use by the hoi polio.
I'm vaguely aware of some conspiracy theory stuff, around FTX, that it was being used for donations/funding going to Ukraine and then the Ukrainian government using it for kickbacks to officials in the American government out of that aid.
I've been unable to find any source that offers evidence for the claim. It's all just "the US government gave money to Ukraine. Other people gave cryptocurrency to Ukraine, some of that facilitated by FTX, and FTX personnel also donated money to politicians. QED, the donations to politicians are a laundered return of a portion of the US government aid."
It's not so much that there COULDN'T be any there there as that there's no particular reason to suspect there's any there there. The more likely explanation is the usual/obvious one: Bankman-Fried and Salame were trying to grease the rails for a favorable regulatory environment by giving money to politicians.
Crypto is a really cool research project that went viral ~20 years too early.
All of the major issues are either already solved or a path to solving them is somewhat predictable.
But now bitcoin is giant! We can't just say "okay, XCash fixes all the problems we know about, let's play with this for ten years and then release YCash" until we've fixed all the environmental, usability, privacy, safety, contracts, regulations, etc., problems. Because none of the people who use Bitcoin want to lose all their investments, and humans are bad at solving coordination problems.
Hmmm...I wouldn't have put "you can't create a new token and claim it will solve all of crypto's problems" high on the list of crypto issues, but I see your point.
Also, I feel like there's a ZCash joke to be made here somewhere.
Yeah, lots of people are _trying_ to make new tokens, but none of the ones that are clear improvements on Bitcoin come anywhere close to it.
The joke is mostly just that ZCash is a minor variant of Bitcoin that improves its privacy but basically no one (only a market cap of $950 million!) moved to it.
ZCash also had a trusted setup process and an owner who took a stake.
The most important aspect of bitcoin, that can’t be recreated, is the absence of anyone in charge of it. This aspect seems strangely invisible to a lot of people...
The Bitcoin developers are in charge of it, and this has already caused a split in the chain once (BCH vs BTC) when people couldn't agree on what the developers should do.
This is a kind of confusion. Which developers are "in charge?"
If any of these developers proposed a change that didn't have large scale consensus among the node operators, and put this change into the GitHub repository, all the other developers - and there are thousands - would just immediately go somewhere else.
The BCH hard fork was a good example of this. Someone wanted to make a change to the protocol. They tried to build consensus, but they failed to do this, so they gave up and created their own hard fork.
Among bitcoiners, the question "what should we do" is answered, by default, with "change nothing, unless there is a sufficiently compelling reason to change it that you can get the overwhelming majority of node operators to agree to the change." This doesn't mean nothing changes! There have indeed, been a number of changes, but these changes went through years long processes to build consensus among a huge number of people.
Bitcoiners are intensely jealous of the single most important property of bicoin: don't let anyone control it, ever. This means a strong stance towards leaving things totally unchanged.
Everyone else, who wanted to "make rapid changes", to "iterate" and "fix problems" got frustrated and left to work on other projects. This is Good. Bitcoin isn't for them. Most people couldn't understand the reasoning behind 1 MB blocksizes, saw a barrier they didn't understand it, and wanted to remove it.
1) the meta point: a year or two ago, some of us were saying all crypto was basically scams, and a lot of people were saying it wasn't. Since then, it's come out that major crypto projects stole billions of dollars from people. You should be giving us at least some bayes points here.
2) the population - crypto's a well-known scam area, so the sort of people it draws are scammers. Spend any amount of time in crypto -adjacent circles these days and you meet the sort of people who get into it - it's almost entirely empty scammers (SBF and Caroline Ellison were famous for being some of the most honest people in crypto). Even if the underlying tech had good usecases, it being almost entirely run by scammers is still bad.
3) you argue about the government resisting pretty halfheartedly. But governments are only really halfhearted about things they don't really care about. They're a lot more unambiguous about things that actually threaten them. If people started seriously using crypto to try to undermine the CCP, say, the CCP would effectively crush it pretty fast.
1. I think you're doing exactly the thing I warn against in the second part of this article. In the past year, the vast majority of crypto projects have gathered some extra evidence of *not* being scams! I think I, with my "some projects are scams but most aren't" perspective, would have earned more Bayes points than a "every project is a scam" rock (even though I would fail a few important cases like FTX). As I mention in Footnote 2, if you use dollars to represent Bayes points then this is definitely true.
2. I'm not sure how true this is. If it is true, I don't think it's necessarily a disaster. Suppose there are 1000 people working on cold fusion. 999 are scammers. 1 successfully invents cold fusion. Obviously in this situation the set of these 1000 people and the cold fusion industry in general is massively good for the world no matter how much the scammers outnumber the inventors.
3. I'm not sure this is true - I don't think the government is halfhearted about being against drugs, protests, or tax evasion. It's true that an infinitely powerful dictator with 100% buy-in from all other elites and army units who is totally unconcerned about economic and PR repercussions can always crush whatever he wants. But most dictators aren't even close to that. Witness the protests in Iran, where a government faced with an existential threat to itself is flip-flopping and embarrassing itself as it tries to navigate intra-elite disagreements and PR issues. Or China staking Xi's reputation on Zero COVID and then saying never mind. I agree a dictatorship can always choose to go all in on crushing dissidents, but I want to make that choice have as many downsides as possible, because in the real world once something has enough downsides most people including dictators shy away from it.
Re 1, I don't think this is a good metric. What's the failure rate for explicit scams? And what's an acceptable failure rate? Crypto may have had only 2-5 major cases of exchanges collapsing and taking customer money, but that's 2-5 more than the stock market has had in its much longer history. It could also mean that despite the rhetoric, a lot of people still trust do trust crypto and haven't pulled out of most of the ponzi scheme parts of it.
So I'd rather rely on specific, preregistered questions. The obvious one: a few months ago some of us were saying EA should be more worried about its funding and inspirational characters being so involved in crypto, and others in ea were pushing back. On this specific preregistered prediction, we were right and the crypto boosters were wrong.
Re point 2, I'll agree with the title of the post in that we shouldn't be maximally hostile to crypto - it is possible that some of the usecases in countries without reliable banking are good enough to make up for the downsides and scam risk. But this leaves the question of how hostile we should be, and I still think we should be significantly more hostile than we are now. In your cold fusion example, it would make sense for some careful VCs who do a lot of due diligence and are good at figuring out scams to invest, but not for ordinary people or careless VCs who rush in without any investigation. Our current situation is much closer to the latter (and there's also other arguments for this, like crypto's market cap being unjustifiably high even under optimistic real world use projections).
I would have thought 100%, depending on how you define "failure".
> Crypto may have had only 2-5 major cases of exchanges collapsing and taking customer money, but that's 2-5 more than the stock market has had in its much longer history.
When you say "the stock market" and "exchanges collapsing and taking customer money", what do you mean? Does it count when there was a run on a bank pre-FDIC? Does it count all stock markets in the world or only the NYSE or all US-based stock markets, or what? It would be helpful to have a real comparison class here where there are real numbers!
> So I'd rather rely on specific, preregistered questions. The obvious one: a few months ago some of us were saying EA should be more worried about its funding and inspirational characters being so involved in crypto, and others in ea were pushing back. On this specific preregistered prediction, we were right and the crypto boosters were wrong.
Do you have a link to a place where this prediction was pre-registered, so that we can see what precisely was predicted?
So it sounds like you preregistered a claim that >50% of crypto projects are scams. Do you have evidence for that. You mentioned 2-5 major exchanges, what percent of crypto volume does that account for?
"but that's 2-5 more than the stock market has had "
This simply isn't true - the early 20th century was absolutely littered with investment scams. Narrowing the criteria to just 'exchanges' is just an arbitrary distinction. There isn't a rational reason to exclude any firm that is fraudulently telling investors that they are buying something and stealing the money.
the problem with cryptocurrency is that at some point the thing needs a gateway to the real world to have utility, and that is the vulnerability point where governments can crush it if they put their minds to it. Sure you can send coins P2P between friends and nobody will know about it, but if businesses aren't allowed to accept crypto under penalty of prison/shutdown, if banks can't take them, if you can't go to a neighborhood shop to convert your fast devaluing pesos to bitcoin, how can crypto ecosystem survive? Right now crypto is being tolerated in these countries because it's not yet a big threat to the state, but the day it becomes one (e.g. too much of economic activity moving beyond ability of state to tax it either directly or through printing money) then they will move to crush it and they will succeed far more easily than you seem to imagine.
1. There are two different definitions of "scam" going around here. One is an intentional stealing of money, where those running the scam know it's a scam and lie to everyone else. The other is a project that's poorly made, but not intentionally a scam. I personally think FTX is more of the second kind. Had they remained liquid they would have continued shambling on for years to come, enriching their employees and making poor financial decisions. I believe that the underlying value of most (not all) crypto is based on poor financial planning. Given this, the frequency of failures that lead to losses is going to be very high, even where it's not obviously a "scam" and may not be intentional. I think the definitional difference is where Shaked (and other crypto detractors, like myself) are disagreeing with you.
2. Any investment space filled with scammers, even if they aren't a majority or whatever metric you want to use to evaluate, is going to scare off normies and further entrench a scammer base. It's like your posts about a neutral social media site coming to be overrun by those rejected by other sites, rather than remaining neutral. I also think that comparing crypto to cold fusion is more than just a stretch. The benefits of perfect crypto, if it existed, would be far less than cold fusion.
3. This could be a much longer post, but frankly no government has been fully against drugs, protests, or tax evasion. The most obvious example is that rich people do drugs and evade taxes and often get away with it, even in well-run countries. It's like high class parties during Prohibition that served alcohol - often the politicians were there too!
The CCP tried to ban bitcoin mining, but even there they haven’t stamped it out entirely.
As for scams, yes I agree with you. Bitcoiners argue that everything that isn’t bitcoin is a scam. I’m willing to trust some stable coins, and that’s it.
Was SBF really "famous for being [one] of the most honest people in crypto"? Lots of people thought well of his EA efforts and political involvement, but I don't know that he was regarded as especially honest.
No. Alameda was pretty notorious for being slippery, creating projects with predatory tokenomics, and being general mercenaries. Literally weeks before FTX collapsed there was a widespread scandal in crypto circles because it was revealed that SBF was secretly lobbying for a bill that would have heavily regulated DeFi and favored centralized exchanges (like FTX).
That being said, the prevailing wisdom was that SBF was ripping off FTX customers by giving Alameda special access to the FTX matching engine or even front-running customer orders. Nobody expected that they were literally stealing customer deposits. Not because SBF was so honest, but more because everyone thought Alameda was hyper-profitable (it turned out they were in fact totally incompetent and burning money), and doing so would be stupid.
Inside crypto, the impression was that he was a shark, a shrewd player of the game with no ideological pretense. However everyone thought he was making so much money from his legitimate businesses that he would have no reason to scam anyone
>the meta point: a year or two ago, some of us were saying all crypto was basically scams, and a lot of people were saying it wasn't. Since then, it's come out that major crypto projects stole billions of dollars from people. You should be giving us at least some bayes points here.
That's like saying "20 years ago I said that stock exchanges were a scam, and ever since, the S&P500 crashed in value 3 or 4 times". It did, but if I held a S&P500 basket 20 years ago, it'd still have gone 300% up. Million of peoples lost money in 2008, 2020 and 2022 (me included), it's still not a scam.
Appreciate the reasonable take. Here are some counterpoints.
1) Scams have happened absolutely, but they are not defining of the entire industry.
2) This is misguided. The argument here is basically saying "Bandits are running wild, robbing stagecoaches and stealing the money from the banks. See how bad banking is!"
3) Yes, but... fact is that hope does exist in places which are otherwise a vast wasteland of hopelessness. That the battle is uphill is no reason to give up. For people with little else to loose, human nature will compel them to fight like hell, even if the chances are slim
My first thought reading this article was "what do crypto do that is both 1) moral and 2) not already done by Western Union.
Which I'll now amend to "what can stable crypto do that is both 1) legal and 2) not done by Western Union".
And it seems the answer is nothing. So basically any evaluation of stable crypto relies on evaluating the utility gains from people in dictatorships more easily breaking laws vs the utility loss of criminal more easily breaking laws.
Western Union, for what it's worth, is also an extremely common vector for scams (witness the top of every Craigslist page) with an opaque and (at least 10 years ago, haven't checked since more competition emerged) often expensive fee schedule that depends in part on arbitrage between two currencies.
The criminals breaking laws with crypto are — AFAIK — mostly breaking laws like "You there, putatively free and responsible adult! Don't ingest things that a slow-moving and hidebound government doesn't like, based more on perception and tradition than any systematic evaluation!", which I find it hard to get upset about.
But putting that aside, WU isn't decentralized, which means it's much easier to lean on, ban, or otherwise control; and it's also just not very convenient. I've had to use it sometimes and I hate it.
A lot of criminals breaking laws with crypto are laundering money stolen in hacks, accepting ransoms for ransomware, and similarly scummy things, they're definitely not all noble outlaws.
Correct. A good anonymous online currency, which crypto may be getting close to being, reduces the ability of governments to control people. That has bad effects, such as making it harder to catch kidnappers, and good effects, such as reducing the ability of governments to punish their political opponents or enforce bad laws such as the War on Drugs.
As I pointed out more than a decade before bitcoin was invented:
FWIW, I have in fact sent money to someone living in a totalitarian dictatorship, via Western Union. It worked fine. Although it probably would have been somewhat faster, cheaper, and involved less physical walking, if we'd have used a cryptocurrency.
Allow you to transact when Justin Trudeau says you shouldn't be allowed to. But also allow things like no middle man escrow that aren't possible without some kind of similar protocal.
Crypto is also easy for a malevolent AI to use, and should be banned/destroyed as an AI safety net (if you believe that a self-directed AI is possible).
This is honestly one of things about crypto that concerns me. But on the other hand a malevolent AGI could also file a Delaware C corp and open a bank account
Bank accounts can be frozen, and corporations require documentation, and both of them would currently require faking human credentials. Plus the need to get $ in the first place.
Mining (or stealing) some crypto is a purely computer based activity. The most likely vector I can predict is guessing the password for "dead coins" and claiming them.
This makes no sense. Mining requires massive amounts of energy and "guessing" the "password" for dead coins requires such a massive amount of time and energy that you'll spend the rest of the universes lifetime to do it.
Bitcoin could be useful since you could hack personal computers and steal "alive-coins" from people or you could hack other things and launder your wealth through bitcoin. I'm not sure how easy it is to stop laundering in the regular case, I'm guessing that an AGI would be able to figure it out.
Generally I think this is the wrong approach for trying to defend against an AGI. If you are fighting a malicious super intelligence you have already lost, focusing on defenses when we've gotten to that stage is a waste and banning crypto would be almost impossible and also super bad for other reasons. Focus instead on how we can align AGI.
Agreed that having to fight a malevolent superintelligence is generally-bad, but see also the example crypto hacks here https://gwern.net/fiction/clippy (and in real life) to see why the strength-of-the-cryptography alone couldn't cut it.
Coming from Vietnam, I read your “theories” about crypto use case there and know immediately I don’t have to read the rest of your article. Sure, our government is corrupted. Sure, we don’t trust our banking systems. But no reason to believe crypto is better. And, why bother with choosing which unreliable systems to put your money into when your daily wage could be just several dollars anyhow? And for the rich, the idea of borderless money exchange system makes it tempting because they can use it for money laundering.
I'm unclear on what being from Vietnam even has to do with this user's argument — "no reason to believe crypto is better" doesn't depend at all on being Vietnamese, and s/he seems to agree with your characterization of Vietnamese banking.
See comment from Thomas Johnson above, Vietnam was a popular breeding ground for a "blockchain game" called Axie infinity, which recently suffered a "hack" and large loss of capital from that.
I also live in Vietnam: they use it because it became a well known "get rich quick" scheme a few years ago. That is the only reason I've ever had anyone talk about it here.
Nobody uses it for remittances. Those are cheap and easy to do. Nobody uses it for shadow banking. There are gold shops on every corner of you're worried about inflation. Nobody uses it evading currency controls. The currency controls mostly don't affect normal people because they have built in exceptions for education, medical expenses, selling your house and migrating abroad, etc.
The banking infrastructure is more advanced than in the US. Electronic funds transfer a between people have been safe, free, and instant for years and years. So they're not using crypto for that.
It is slightly annoying to get a credit card for international purchases (e.g. Amazon) because there's no national credit reporting infrastructure so banks are loathe to give out unsecured loans. But crypto doesn't really help here either.
Deposit insurance is relatively new and relatively untested. Banks have a poor track record of how they handle fraud by staff (if a bank manager forges your signature and steals all your money, the bank says it's up to you to pursue the manager instead of making you whole).
There is a generalised "low trust in everyone and everything that isn't family" that is mostly unfounded when it comes to banks. But the alternative is real property (gold, starting a business with inventory, buying land) and not crypto.
I also would guess those unbanked numbers are now out of date. Covid resulted in a sudden, massive push towards cashless payments and I've anecdotally seen a large increase in people opening bank accounts who never had before.
Many wear it. A single gold ring is 3-7 ounces, which is $3000-8000 worth of gold, which is 1-3 years of salary. But also yes people hide it in their houses or give to a trusted relative to look after.
Most people are more worried about their scooter being stolen than that someone will break into their house and spend time looking for hidden gold. I can't say I remember hearing a news story about it, actually.
Plus you can buy a safe for $60. It weighs 45kg and is going to deter any but the most dedicated of robbers.
On paper, Bitcoin/Ether could work as a store of value (scarce and fungible). In practice, I don't know if it is too early or simply gold is a good enough alternative.
The chart you posted doesn't give a number or percentage of Vietnamese people who use crypto. It just says that Vietnam uses crypto more than any other country. If you take any invention and rank countries by how many people there use it, some country will come out on top, and I don't see how the fact that it happens to be Vietnam in this case has any bearing one way or the other on whether the technology is actually useful for anything.
Still trying to double check your links (I'm having trouble even *loading the website* for your first project, BitAssets), but I already noticed that you accidentally swapped the links for the list of top exchanges and top stablecoins, and your source lists 13 stablecoins, not 10.
Also even assuming your numbers are accurate, saying "only two out of the top 10 stablecoins failed in the last two years" is **insane**.
Thanks. I've corrected the mis-link. The 10 vs. 13 is because I only counted dollar-based stablecoins so I could compare them more easily. I've added an explanation of that into the post.
It's also worth noting that cryptocurrencies are centralized in practice, if not in theory. In 2016, the Etherium devs literally hardforked the currency just to freeze one guy's money, and everyone went along with it. The crypto world is (currently) controlled by *different* people than the legitimate economy and they have different views, but they are no less censorious, given the opportunity.
It depends on how you define centralized. ETH classic is still running. The only reason that ETH is more valuable is that as you said "everyone went along with it". People were persuaded not forced. Decentralized doesn't mean that there is no voluntary coordination
It's a vivid demonstration that value is ultimately social and no amount of fancy tech can save you if noone likes you. The same argument also justifies all the government efforts which Scott rails against.
"Your money can be taken if the economy as a whole all forms a consensus to go along with it" is very different from "your money can be taken if one guy you've never heard of at Treasury phones another guy you've never heard of at BofA".
If you're selling the crypto as something that can allow an oppressed, unpopular minority to evade a government, then saying "don't worry, nobody can change the rules without majority support" isn't really good enough.
Crypto *does* allow the majority of global users to resist the idiosyncracies of a small country that only has a minority, but if the US or China started to pressure Ethereum developers into cooperating I wouldn't be certain the system would resist.
>If you're selling the crypto as something that can allow an oppressed, unpopular minority to evade a government, then saying "don't worry, nobody can change the rules without majority support" isn't really good enough.
Nothing will ever be good enough, this is an impossible bar to pass. If everyone in the world don't want to exchange with you, you're fucked, no matter what government, no matter what tech.
A system from which you can be banned at the whim of one person is worse than a system from which you can be banned at the whim of a minority, which is worse than a system from which you can be banned at the whim of a majority, which is worse than a system from which you can be banned once every person you could exchange with has decided to ostracize you.
Centralized banking (in a democracy) is a mix of the first 3 (One person will decide to fuck you over, but he derives his power from the government, a small minority, which derives it's power from the majority). ETH Classic is the last one: as long as someone else is still willing to use it, you can trade with him.
The difference is that currencies have network effects - they are useful in proportion to the number of other people who use them.
If the local fifth grade class starts using bottle caps as currency, that may be fun for them, but it doesn't increase their ability to buy from the local vending machine.
Similarly, if someone trying to escape from Russia needs to get money in a hurry, they'll have an easier time if you send them a coin like ETH that other people are using and they can therefore easily sell for rubles.
Your end case is intriguing. Let's say there were, indeed, only two people willing to trade ETH with each other. For what would they be trading? Why would A give B 1.0 ETH? What would he get in return?
Scott's argument in the original post here is that crypto is painful, but worth the cost in order to gain the benefits. If the cost is higher than expected or the benefits lower, that may change the calculation to a different outcome.
The original Ethereum from before the fork still exists as Ethereum Classic, and you can still buy it. The ability to fork a cryptocurrency (which anyone can do, even you!) does not make a cryptocurrency "centralized". It's just the opposite, in fact, since you have to convince actual people to support your fork before it can be worth anything.
t's a vivid demonstration that value is ultimately social and no amount of fancy tech can save you if noone likes you. The same argument also justifies all the government efforts which Scott rails against.
Either we have very different definitions of "decentralized", or the goalposts are moving rapidly to the other end of the field. If someone claimed friendship was centralized because it was possible for everyone on the planet to *individually* decide not to be your friend, you would question what they thought the term "centralized" meant.
A hardfork is extremely difficult to coordinate. It basically involves convincing all of the relevant nodes in the network that they should point to the updated protocol. In a proof-of-stake system (like Ethereum post-merge), anyone validators moving to a hardfork risk having the entirety of their funds slashed if the fork doesn't succeed.
Does crypto completely insulate you against any centralization risk. No of course not. If literally every other person in the network against you, you're toast. (I.e. what basically happened to the DAO hacker who threatened the existence of the entire project immediately after it launched.) But the idea that crypto is "no less censorious" than PayPal is ridiculous. It's simply inconceivable to imagine there being an entire network hardfork to shut down OnlyFans because the NYT ran a scandalous front-page story.
Small quibble re: your analysis of the "Reinventing The Regular Financial System" complaint – I think some who make this complaint are arguing that crypto is reinventing itself out of all its unique advantages. As a cartoonish example:
1. People claim that smart contracts / DAOs / etc remove the need for fallible human administration: "code is law!"
2. Those systems all get hacked.
3. Said people now realize that fallible human administration has some real advantages, and they are even less equipped to implement it than existing institutions are.
To use your metaphor, it's like NASA saying "Turns out that access to a breathable atmosphere makes things much easier; we're going to move the ISS to a grassy field in Virginia."
Of course, many believe in the decentralizing potential of crypto without having "elimination of all fallible human administration" as an end in itself. For those people, this is all part of a learning process, a pendulum swinging back from a noble experiment, a working out of details.
But if you go too far "Reinventing The Regular Financial System", you will in fact reinvent all the fun entirely out of crypto.
Even in the legitimate world, the irreversible Zelle payment system has become a major vector for scams and people are trying to change it to stop the fraud. It turns out that ordinary people consider not losing their money all the time to be a major usability concern.
> why would anyone trust their life savings to such a system?
Because we don't trust the centralized systems to be honest or fair. We think they are stealing from everyone's savings by printing their money and giving it to their friends.
I agree that most people don't want this system. And therefore, most people won't buy bitcoin for a while. It'll primarily be held by giant insitutions, and then there'll be bitcoin backed banks, and what most people will end up using will be something like "fiat bitcoin".
The world will move back to something a lot like the gold standard, with a few better properties like:
- anyone in the world can start their own bank or be their own bank, if they want to
- it's trivial to pull your funds out of a bank
- banks can show both proof of reserves and proof of liabilities to the public, the risk of bank runs is dramatically lower
You are ignoring the root problem we are interested in solving.
You trust banks and governments not to screw you. If you feel that way, and you can’t imagine why someone might not feel that way, then bitcoin will remain a seemingly worthless endeavor.
Everything that came after was people who didn't understand bitcoin trying to 'improve' on it by creating what is more or less their own privately operated money.
This is definitely pure ignorance, but honestly the biggest surprise for me of this article is that developing countries are *most* of the users of crypto. I was aware of the obvious use case there, but I guess I hadn’t realized that the world had come so far in internet access that it was actually possible for so many people to own crypto in the developing world. The fact that more ppl own crypto in Africa than North America is really surprising to me. Its kind of a white pill in a way as well.
The obvious explanation is that the numbers are garbage.
A quick sanity check confirms this. Coinbase alone (which mostly serves the US) has 98 million customers. The *entire population of Kenya* is 55 million.
Sanity check of the sanity check - there are 250 million Americans over age 18, so if your number is right, about 36% of US adults have a Coinbase account. Seems unlikely to me.
I think the big graph led by Vietnam is about percent of people who use it, rather than absolute number. I later quote some other numbers on absolutes.
Yeah I was just thinking that. As a 27year old white guy college grad in a major city, I’m probably the narrow demographic that is most likely to own crypto. Yet I only know a handful of people that do, and half of those just have it leftover from buying drugs on silkroad a decade ago (some of these guys are very rich now lol). I feel like that number coinbase gives is garbage, or to put it less crudely it’s likely highly misleading.
The first website I found that claims to have information about where people are using websites from suggests that almost exactly 50% of Coinbase's traffic is from the US. Unfortunately they wanted me to register to find out the percentage of traffic from countries other than a particular five (and I can't tell if those are the next four most common, or just four big countries that it shows for all websites).
In any case, would it be weird if 1/6 of people in the US use Coinbase while 1/3 of people in Nigeria do, and if 1/6 of people in Mexico do, and 1/3 of people in Kenya do? Because that would already get you as many users in Africa as North America. (I assume Canada is a rounding error compared to many African countries.)
Honestly I think 1/6 of people having crypto in the US seems insanely high. Im 27, and even though I’m the demographic of ppl who you’d expect to own crypto I only know a handful of people that do, and half of them it’s just leftover from when they bought drugs with it almost a decade ago.
Also Looking at internet numbers, it looks like only 40% in Nigeria even have internet access. So I doubt 1/3 of the country has crypto. I feel like it’s more likely that coinbase’s number is misleading than anything
That's not what your source says. The linked article claims that 32% of Nigerian respondents to the 2020 Statista Global Consumer Survey claimed to use crypto. The GCS is reasonably high-quality as online surveys go, but it's still an online survey in a very not-online country.
I'm not sure what you mean by coinbase mostly serving the US. I'm not american, I don't have a US bank account, and coinbase works perfectly for me. Do you have any statistics on what countries coinbase users come from?
2- And it's been a pet peeve of mine for some time: I really feel like the western collective perception of the third world hasn't updated for ~20 or 30 years (if not more). When I think of kazakhstan, I think of goat herders in yurts. Not whatever this is https://en.wikipedia.org/wiki/Baiterek_(monument). I could do the same for Azerbaijan and the flame towers. Africa have less vanity architectural project (or not as urban, cf https://en.wikipedia.org/wiki/African_Renaissance_Monument), but has modernized tremendously compared to what the previous few generations knew of it. We're stuck in the past (or at least, I am), and not just with regard to Africa. If I had to sum up south America in a few words, I'd immediately come up with "drug cartels and marxist guerilleros". Only then would i ask myself "wait a minute how long has it been since I last heard of FARCs & such?"
It's easy to get misled if you just go on old stereotypes and don't bother to look up the facts.
I was recently in a debate with right-wingers over border control where one person recommended accepting all Cubans and denying everyone else, apparently under the assumption that this is the 80s and Cubans are boating across to Florida and not realizing that *a lot of the people showing up at the Mexican border today are Cubans". They *are* the migrant crisis that conservatives rail against (along with Venezuelans, Haitans, etc, of course). (And of course, that's before you get into obvious issues like the fact that this policy would result in everyone claiming to be Cuban.)
If you are in a country with a developed banking system and not in a group that payment processors are likely to act against, crypto is not just some neutral thing that is only of interest to other people. It can still be used to facilitate terrorism and ransomware and have direct negative impacts on you.
CAN'T be done with other parts of traditional banking (at least assuming that everyone has access to a smartphone at all times), probably not much. In terms of things that AREN'T handled by other parts of traditional banking:
1) There are probably still a lot of vending machines and laundry machines that can only be paid for in cash
2) In practice in the US a lot of people don't have bank accounts
3) Credit cards charge substantial overhead that can be avoided with cash transactions
4) This might change if I started using venmo or paypall, but I don't currently have another convenient way to pay a friend $5.
You seem to be asking me to justify things that I was never claiming. I am pointing out another kind of consideration that seems pretty much overlooked by Scott's post. He seems to portray crypto's regulation-resistance as more or less a pure good. I'm pointing out that the mere existence of regulation-resitanant financial technology does come with intrinsic downsides.
The US government does, in fact, have laws about carrying around large amounts of cash without declaring it to the government, in order to make it harder to facilitate terrorism and drug deals.
Some of the high profile stablecoins that lost their pegs were basically more convoluted Ponzis, or at least very Ponzi-esque.
In that they would maintain the peg by printing and selling tokens, infinitely if necessary, to bring in more capital.
Generally nothing of use seems to have been built by the “builders” in the last couple years.
There were like 900 companies promising 20% interest with ZERO risk, but we still don’t have an actually decentralized prediction market.
I think people are right to conclude “crypto” is mainly a scam, even if the base use case of payments is still useful. People could have built something cool but they didn’t.
The problem with the space is that anyone can promise anything.
Bitcoiners have been saying for years, "this is a global revolution that will likely take decades to play out. Just be patient. It will take years for bitcoin to first become a long-term store of value, and as it rises, its volatility will decline. Only then will it become a reliable unit of account."
Meanwhile it's already a faster, cheaper medium of exchange than VISA, using the lightning network.
In most spaces, there are leading businesses with PR agencies and brands that are defined and managed.
There is none of that for bitcoin.
Most people aren’t used to interacting with a giant network that has very well defined values shared among a huge number of people, but with no official press releases and with an even larger crowd of people with different values all claiming to speak for it.
You can find all sorts of dumb hot takes on the internet if you care to look. Why not look at the actual evidence? In the real world, the lightning network is a disaster and there's no sign it will ever take off.
> It will take years for bitcoin to first become a long-term store of value, and as it rises, its volatility will decline.
Note that this hypothesis has failed so far. Per https://charts.woobull.com/bitcoin-volatility/, bitcoin's 60-day price volatility has bounced around the same general range since about 2015, despite the price increasing a couple of orders of magnitude.
I need to point out here that Bernie Madoff was clearly a case of nominative determinism, given that he made off with his investor's money. As such, I would cut the man a little bit of slack.
> Crypto Is Full Of Extremely Clear Use Cases, Which It Already Succeeds At Very Well
Yep. And in the US a lot of use is driven by people like migrant workers or relatively underbanked communities. A lot of the critics are, to be frank, privileged upper middle class types who basically say, "The system works FOR ME. Why would anyone need to go outside it?" Yeah, okay, if you make six figures at a respectable job and live in a major city then crypto's use cases are less obvious to you. And the ways it does get used are most likely to be concealed back office because customers don't like change. This doesn't mean they don't exist. (You see a similar thing for stuff like check cashing or non-traditional banks.)
I was at a blockchain thing a few weeks ago and there was only one speaker from what I'd call the first world. Most of them were Eastern Europeans, Africans, and South/Southeast Asians. That's not a bad thing.
> Big Crypto Projects Are Very Rarely Scams
Yep. The vast majority of crypto projects are not fraudulent. And the scams are just normal scams that are being done in crypto. That doesn't mean it's not a problem. But it's not anything unique to the crypto space. What's happened is that regulators aren't competent at regulating crypto. Very often the stuff being done is already illegal but the US government just hasn't built capacity to catch it.
Seriously, the government's really bad on this stuff. And it's worse because the credentialed classes are the least likely to be familiar with it or its use cases. I think the government's going to choose to leave it unregulated (eta: or I should say poorly regulated, as in computer programs regulated by a bunch of accounting majors) and wait until people with master's in crypto studies become available to hire rather than give up their hiring standards. But we'll see.
Meanwhile, plenty of people can avoid the fraudulent areas. I have. Now, the issue is that for a market to be safe you shouldn't need a background in it to avoid scams. But that's usually done by the government and see previous point.
> Crypto Is Valuable Insurance Against Authoritarianism. 6259 writes: there are no other rights in substance without the freedom to transact.
Sort of. Decentralized projects CAN be built this way. They don't have to be. China has its own cryptocurrency. And they built in a bunch of monitoring tools. While building separate systems can be a valuable form of support and changemaking the technology does not substitute very well for the social and economic component. At the same time, it moves the needle in what I'd normatively consider the right direction.
> Yes, The Crypto Financial System Is Just Reinventing The Regular Financial System Except Worse In Every Way, And That’s Fine
It's not worse in every way. It's better in some ways, worse in others. It's a tradeoff and having the option is better than not having the option. This is in addition to your further "in space" points which I agree with.
> Crypto is an interesting technology that had one terrible piece of bad luck: its standard-bearer, Bitcoin, went up in value 10,000x over a few years.
Yep. One of my worst failed predictions is I thought cryptocurrency was going to decline relative to other uses ten years ago. I expressed on this very blog a long time ago that the worst thing that happened to crypto was the huge influx of random money. I compared it to someone who inherits a billion dollars at 18 and how that skews their life path. It became trendy and that caused issues.
I agree with you too about the awkwardness that this money did fuel some genuinely good development. But on the whole I'm glad the tide's going out. Assuming things don't get too bad the reallocation is deeply necessary.
Wait what? I live in one of the two hearts of the undocumented worker community (SoCal), and I've dealt with them (and hired them) plenty, and nary a one was interested in crypto. It's dollars in cash they want. Where do you see all these migrant workers wanting to be paid in BTC? Do you mean "a lot more than one would have naively expected" (which could be a dozen), or a lot in absolute numbers (which would have to be millions)?
It's that they use bitcoin for near bank transactions. They deal primarily in cash and then use crypto for things like sending remittances or storing money (or sometimes even cashing checks) in ways that aren't under the mattress. Often the crypto senders have cheaper fees. If you go to corner stores in their neighborhoods you'll often see bitcoin ATMs or crypto remittance counters alongside more traditional fare.
You can find numerous studies which show that it's a decent sized minority of the market that's growing quickly.
Does it change your mind at all that the most popular crypto remittance companies have a user experience rather similar ways to traditional incumbents? They have desks open in the US and Mexico (or wherever). The person walks in and submits their money (often physical currency) which is credited to their account and then accessible in Mexico. The client has the option of keeping the money in dollars, pesos, or crypto and will say so at the desk.
I'm an empiricist. I would test this hypothesis by driving down to 1st Street and looking into the first few bodegas I saw. I could ask the gardener next time he comes with his mumchance crew but (1) they talk too fast for me, and (2) I try not to annoy or stress them out by asking personal questions, because while I know they know I know they don't all have papers, it's courteous not to bring that up even indirectly.
Yeah Cash + Western Union is typically what an unbanked undocumented worker might use for remittances. I can't imagine trying to convince i.e. a day laborer to get a crypto remittance set up for his family in Oaxaca.
I think it would be helpful to go back to just about a year ago, at least as I unreliably remember it. Two relevant things come to mind:
1. If you don't watch sports this won't land as hard, but FTX was a prominent ad buyer of the Super Bowl, and ran ads with about a dozen sports and non-sports celebs endorsing it. They also bought naming rights for the arena where the Miami Heat play (deal now being unwound, I see). Saying "Just FTX" heavily underplays how big their public footprint was. One would be nuts not to, as is said here, "update on that".
2. I notice not a mention of NFTs, which over about six-month period went from idea to controversy to general collapse -- in fact, collapsing so hard that it's barely surprising that we've all forgotten about them. Sure, they're not coins, but they were in the ecosystem. But if you're talking about "what would you have done in the crypto space a year ago", all that stuff would be on the list.
It's perhaps notable that he picked lists from 2015 and 2020, which are both pre-FTX and pre-NFTs (or at least, pre-big public knowledge of either). But still, if there's some reason that the big use cases in 2021-2 were much more risky than the big use cases in 2015 and 2020, that's an interesting change.
I'd take those claims re Ukraine with a handful of salt. Prior to 2022, you could just send SWIFT without any hassle. In fact, UA banks prior to war were anything *but* sclerotic, copying a lot of useful innovations from European neobanks.
This is awesome. Thank you so much for writing this.
Any thoughts on the claim that “bitcoin is different from the rest of cryptocurrencies” because no one is in charge of it? Even the SEC and CFTC heads seem to agree that bitcoin is different.
I don't understand enough about how eg the Ethereum Foundation "maintains control" of Ethereum to have an opinion on the difference. I would be happy for someone to explain this to me.
Any blockchain cryptocurrency operates on a basis of some theoretically-decentralized class of agents collectively validating and authenticating the transaction history for each unit of currency. To oversimplify somewhat, any transaction agreed upon to be valid by a majority of the system's validation power goes through, and any transaction agreed upon to be invalid gets rejected.
If the validation authority is spread out among a variety of independent actors who are generally incentivized to act in good faith and no large bloc of validation power is coordinated to subvert the agreed-upon protocol for which transactions "should" be considered valid (except perhaps to implement a widely-agreed good-faith update too the protocol), then it's very hard if not impossible to abuse the authentication process to do something like arbitrarily issue additional coins to some ingroup, steal or delete coins owned by some outgroup, block certain transactions the ingroup disapproves of, etc.
The two main solutions to how to distribute validation authority are proof-of-work (validation authority is distributed proportionately to computing power devoted to some activity, usually coin mining) and proof-of-stake (validation authority is distributed proportionately to coins held by would-be validators). Bitcoin is proof-of-work, and Ethereum recently moved from proof-of-work to proof-of-stake.
If the staked coins are widely distributed among disparate classes of people with little shared interest except for their financial stake in the cryptocurrency, the proof-of-stake should work fine. The criticism of Ethereum here is that Ethereum's founders and early investors are suspected to hold a solid majority of Ethereum available for staking (about 70% of the total amount of Ethereum in being was initially allocated to founders and investors, and I don't think it's known with any confidence how much has since been sold or resold), and that about 64% of Ethereum currently staked for validation is held by a handful of organizations (three big crypto exchanges, some collectively-owned-through-blockchain thingy I don't really understand called Lido Finance) and a large number of "unlabelled" staked coins that might actually be mostly held by Ethereum founders and some major investors likely to follow the Foundation's initiatives. So if the Ethereum Foundation wants to abuse the protocol, the number of actors they would need to persuade to cahoot with them may be pretty small.
I'm less familiar with the arguments for how Bitcoin's proof-of-work validation authority is immune to similar risks. A quick glance at stats about current mining activity as published at https://btc.com/stats/pool seems to indicate that 80-85% of current Bitcoin validation authority is shared by the five biggest mining pools (Foundry USA, AntPool, F2Pool, Binance Pool, and ViaBTC).
Proof of Stake vs. Proof of work is a good point which is orthgonal to what i originally meant, namely, the absence of a 'bitcoin foundation' that is doing development and then 'coordinating hard forks'.
Bitcoin mining is very different from proof of stake for a few reasons:
- switching costs for miners to move between pools are nonexistent; this is not true for staking
- anyone can start up a new mining pool and it only requires miners
- mining requires extensive investments _outside_ of bitcoin
meanwhile, with staking, the process of validating eth transactions is much more complex due to 'miner extracted value', and the staking process ends up rewarding people who are already the biggest holders of Ethereum.
The Ethereum Foundation decides how changes to Ethereum's code will be made. They raised from the initial sale of ether, and now that ethereum has changed to proof of stake, it's possible they will be accused of running an illegal security.
There is no equivalent entity for bitcoin. Changes that happen to bitcoin happen only after a sufficient number of bitcoin nodes signal support for a proposal.
Yes, the Ethereum Foundation does try to build "community consensus" around their changes. But the fact still remains there's a specific entity with specific people that propose changes, and then a large audience that can either say 'yeah, we will go along with this', or can maybe say 'no'. Nobody has any idea what the latter case looks like, with the possible exception of 'Eth Classic.'
Meanwhile, with bitcoin, lots and lots of people said 'we can improve it', did their hard forks, and these failed. There was an event in 2017, called 'the block size wars', in which the operators of major cryptocurrency exchanges (like coinbase) worked together with the largest manufacturer of mining hardware in an attempt to get everyone to adopt a change. Users said 'no thanks'. So Bitcoin has already shown it is resistant to attempts by coordinated, wealthy parties, to change bitcoin for their own purposes. Ethereum hasn't demonstrated this, and arguable the one real change that the Ethereum foundation did do was hard-forking after the DAO hack, breaking the idea that 'code is law.'
The Ethereum foundation having his position means there is a group which has the capacity to do things like, change Ethereum so that KYC compliance is built in at the base layer. It is entirely possible that they would do this, especially e.g. if told by state authorities, "if you don't do this, we will jail you for running an illegal security."
Some people would reject this proposal, of course. This already happened once before, with "ETH Classic" being people who split off from the main Ethereum chain after they disagreed with the decision, taken by the Ethereum foundation, to Hard Fork Ethereum in respond to the DAO heist.
The existence of stablecoins and DeFi protocols makes this kind of split impossible: stable coins are all going to follow the leader and be worthless of other chains. If a change is proposed by the ETH foundation to add a whitelist of allowed addresses in at the base layer, I think a lot of people will go along. The people with the most Ethereum staked up are going to want to play ball as well. I think this means there's a decent chance ethereum ends up being owned by some government.
Being infinitely anything seems excessive. The more sensible version of this headline is just that you're not hostile to crypto, just as you haven't exhibited hostility toward space tech.
One thing to consider when talking about cryptocurrency: a financial disclosure.
I know you’re not promoting or commenting on any specific technology here, but since this is in the realm of “number-go-up” stuff, it’s generally a good idea to have a general disclosure about holdings/etc. I can imagine reading an essay about meme-stocks by someone I trust, and then finding out later that some significant fraction was of their net worth was in meme stocks at the time, and that eroding my trust somewhat, even if they really had no intention of trying to convince anyone to buy meme stocks.
Similarly here, I’m aware from previous comments on ACX grants that you have held cryptocurrency in the past, and it’s probably worth disclosing in some way here.
(Maybe I missed it, in which case disregard this comment and apologies!)
I'm trying to figure out what happened to "Gems" another on your list from 2015, and I can't find anything about it. Do you really think that the people who "invested" six figures into Gems back in 2015 are happy now?
It seems like you are using an insanely strict definition of "scam" in order to justify your position, but a neutral observer would come to very different results. The real questions are "did the project succeed? are the people who FOMO'd into the ICO happy now?" Whether the project managers *explicitly* rug-pulled or just quietly walked away or were criminally incompetent and went down in flames, the end result for the so-called investors is the same, and there is no way that you could advise people to invest in the old ICOs with a good conscience.
Yes, my standard was "I googled the company and checked if there was news about it being a scam".
90% of all startups fail. I don't want to define "scam" as "failed startup" or else 90% of the tech industry in general would be scams, which I think doesn't match the connotation.
What people mean by "scam" is context dependent. The crypto ecosystem *is* full of garden variety scams, but if someone says something like "don't invest in ICOs, they're a scam", what they really mean is "near 100% chance of losing your money".
As for whether tech startups are a scam or not, it's possible. I'd say they are less scammy on average, but there are certainly some that nearly everyone would consider a scam (e.g. Theranos) and the rest is a spectrum. But it is *irrelevant* because the government forbids ordinary people from investing in startups anyway (and for a very good reason!).
The people investing in startups are wealthy funds that aren't risking much on individual companies and have expertise in helping companies to succeed and at least historically have done due diligence to figure out which companies actually have promise (though in recent years, due diligence fell out of favor due to bubbly-market conditions).
"though in recent years, due diligence fell out of favor due to bubbly-market conditions"
Speaking of FTX, I strongly recommend reading an article by a writer for Sequoia which was one of those who invested in it, because the description of how the partners were charmed into throwing money at Bankman-Fried thanks to one Zoom call has to be read to be believed. Short version: Sequoia was looking for investment opportunities in crypto, Bankman-Fried appearing to be making money hand over fist, and they wanted in. The article is only from September of this year, but the difference between Then and Now makes it wonderful reading in "how the hell could anyone have fallen for this?" way, the reporter is such a gushing fanboy about Bankman-Fried that he surely must be waking up in a cold sweat every night now hoping it was all only a nightmare:
"As Covid-19 descended, Michelle Bailhe, a young gun at Sequoia Capital, and veteran partner Alfred Lin were starting to closely examine the crypto space.
…Bailhe spent months researching the space full time, focusing her energies on the exchanges. She met with every founder and every company that would have her. And she built a map—a landscape, as such a document is called at Sequoia—of the entire market.
…The problem, as Bailhe saw it, was that FTX didn’t appear to need any money. She was correct, but what she didn’t know was that SBF was starting to think about raising money anyway.
…FTX did need money, after all. And it needed that money from credible sources so it could continue to distinguish itself from the bottom-feeders who came to crypto to fleece the suckers. So, in the summer of 2021, when FTX started to raise its Series B from a who’s who of Silicon Valley VCs, Bailhe and Lin hit the “Don’t Panic” button. “Embarrassingly, we had never tried to reach out to Sam, because we figured he didn’t need us,” Bailhe admits. “I thought they were just minting money and had absolutely no need for investors.” Learning otherwise, they quickly contacted SBF and organized a last-minute Zoom call between him and the partners at Sequoia—at four California time on a hot July Friday afternoon. Bailhe was adamant, putting her reputation with the other partners on the line: “I’m like, ‘No, it’s worth it. Cancel your afternoon.’”
The Zoom went well for all concerned. SBF looked relaxed as he answered questions, talking, as he usually does, in complete paragraphs about topics of extreme complexity. Ramnik Arora, FTX’s head of product and another ex-Facebook engineer, remembers the meeting clearly: “We’re getting all these questions from Sequoia toward the end. He’s absolutely fantastic.” Arora locks eyes with me, and I am mesmerized. Arora is intense—calling to mind a Bollywood version of Adrian Brody.
“Unbelievably fantastic,” he says, shaking his head.
Bailhe remembers it the same way: “We had a great meeting with Sam, but the last question, which I remember Alfred asking, was, ‘So, everything you’re building is great, but what is your long-term vision for FTX?’”
That’s when SBF told Sequoia about the so-called super-app: “I want FTX to be a place where you can do anything you want with your next dollar. You can buy bitcoin. You can send money in whatever currency to any friend anywhere in the world. You can buy a banana. You can do anything you want with your money from inside FTX.”
Suddenly, the chat window on Sequoia’s side of the Zoom lights up with partners freaking out.
“I LOVE THIS FOUNDER,” typed one partner.
“I am a 10 out of 10,” pinged another.
“YES!!!” exclaimed a third.
What Sequoia was reacting to was the scale of SBF’s vision. It wasn’t a story about how we might use fintech in the future, or crypto, or a new kind of bank. It was a vision about the future of money itself—with a total addressable market of every person on the entire planet.
“I sit ten feet from him, and I walked over, thinking, Oh, shit, that was really good,” remembers Arora. “And it turns out that that fucker was playing League of Legends through the entire meeting.”
“We were incredibly impressed,” Bailhe says. “It was one of those your-hair-is-blown-back type of meetings.”
…The B round raised a billion dollars. Soon afterward came the “meme round”: $420.69 million from 69 investors."
i see this "90% of startups fail" heuristic get thrown around a lot, and it's way too simplistic. This article is a good start to unpack the question a bit: https://www.failory.com/blog/startup-failure-rate
also, there's a reason why VCs do DD (or at least are supposed to do DD. a lot of them didn't in past few years and are paying for it now) and retail investors don't get to invest in start-ups. ICOs were marketed to the unsophisticated masses with near total freedom to lie, that makes them basically scams in my book just from a process point of view (and yeah, the 2020-21 SPAC era is cut from same cloth).
On the bright side, at least the SPACs let you cash out for $10, so you only lose money if you buy in higher than that. The real losers of the SPAC boom are the sponsors, who lose everything if a deal falls through.
the reason why SPACs got popular for a while was because most people didn't cash out at despac but bought into the hype. Especially retail investors. Most professionals were playing other side either as sponsors or the merger arb crowd who just did what you describe. Nowadays every one just wants their $10+interest back and deal doesn't close and SPACs are dead.
Can someone explain how crypto as a hedge against authoritarianism works in practice?So if you’re in Venezuela and your government prints too much money, what do you do exactly to get around it? Can you pay a neighbor for a television through Bitcoin?Buy groceries with crypto? How exactly? Do you use an app or what? Or do you just put your Venezuelan currency into crypto and sell when you need money?
You mostly just don't hold local currency. As a business owner you accept it, because the government would be mad if you didn't, and also it's how they pay their employees, but you work hard to exchange it for almost anything else as fast as possible. When Venezuela's inflation started getting bad initially, I remember the USD and the Brazilian Real were notable for being in high demand in Venezuela.
On the ground level of exchanging cash, it largely works like Venmo. You just transfer it to them via your phone. Phone banking is absolutely huge in a lot of low-income countries, because nearly everyone in the world has a cell phone and cell service. Local tech companies build their infrastructure around this.
Real life, not many individuals where I'm at, and definitely no stores. The tools for accepting payment in USD are good enough that it really is pretty hard to break through without a compelling desire for decentralization.
Digitally it's about who you'd expect, my VPN, modafinil importing, and video games. It's honestly funny that the US leads so much in crypto tech development, because we will probably almost never be a primary userbase for it. But I guess it's a decent way to continue leading in the international service economy, literally building the financial exchanges of the developing world.
Since you are kindly answering basic questions, here's another one: Do you have to keep your crypto in Coinbase to make this work? If you keep it in cold storage, how do you send it?
Sure. So let's say you're in Venezuela and the government prints too much money. Now, unless the world has completely collapsed this has relatively little effect on the rest of the world. The government knows this and has to put in place capital controls, seize bank accounts, prevent people from leaving, prevent people from accessing banking abroad, etc etc. None of this will work as well against decentralized assets. Whether that is crypto or a bunch of gold bullion. The government can, theoretically, go house to house seizing your gold or your crypto. But this is a much higher bar and so much harder to do. Not to mention it's pretty easy to hide a thumb drive.
So you have an asset which still holds value and which you can transact with in a quiet manner. This is probably better than just having ration coupons and funny money of dubious value. Now, let's say you want to do something. Buy a tv. Firstly, if both people have crypto then you can transact in that. You can either do it peer to peer (transmit from your wallet to theirs) or through an exchange. Usually an offshore one. This works basically like a bank transfer.
If they do not use crypto then you can exchange your crypto for bolivars (at a probably insanely good rate) and use that. There's a variety of things from crypto exchanges to credit/debt cards to atms that would allow you to do that.
You don't even need to make it obvious that it's crypto. Often hyperinflating regimes are desperate for foreign hard currency. So you could, for example, sell your crypto to an American. The American would give you dollars. You can bring the dollars into the country and pretend they're remittance payments or whatever. And then you can trade your dollars for bolivars and spend the bolivars.
Because of its decentralization cryptocurrency acts like physical dollars or commodities like gold. Except it's very easy to hide or move. This makes it appealing to criminals in the same way that physical cash is. But it also makes it appealing to dissidents. Also in the same way cash is.
Crypto as a hedge against authoritarianism works in three ways, none of which are foolproof nor unique to crypto, but crypto provides an additional route to circumvent authoritarian policies and make them at least marginally harder to enforce.
One is that transactions conducted through crypto are harder to monitor, trace, and audit than electronic payments through the traditional banking system. So if the Men in Black want to figure out who's been donative money to some particular dangerous radical, they can get a court order and subpoena PayPal, Venmo, Apple, JP Morgan Chase, BofA, etc and get a list of everyone who sent him money. But if you give him money via a direct bitcoin transfer, then the MiBs need to somehow figure out that the source wallet is yours and the destination wallet is Curtis Yarvin's or whomever's.
Another is insurance against simple kleptocracy. If you've got money on deposit with a particular bank, then a suitably autocratic government can pass a decree instructing the bank that "your money" is now "our money" and should be transferred to the treasury's or the President's nephew's personal account for safekeeping. That's a lot harder to do with directly-held crypto, since they'd need to know you have it so they can go looking for it, and then they need to somehow "persuade" you to give over your wallet info and credentials to them.
The last is a workaround for prior constraint of purchases. If the government wants to forbid commerce in a certain good or service, or at least limit it to specific regulated channels, then they can order conventional payment processing networks to refuse to process payments to anyone known or suspected of selling such things. Crypto decentralizes the transactions enough to make it nigh on impossible to exercise prior restraint, and anonymizes it enough (see point #1) to make it tricky to punish forbidden transactions retrospectively.
Similar advantages can be gleaned through using physical cash (especially foreign cash) or valuable trade goods like precious metals, but crypto allows anonymous and difficult-to-trace payments to be transacted electronically at a distance instead of needing to be handed over face-to-face or via dead-drop.
Crypto is of course vulnerable in these cases to rubber-hose cryptanalysis, and if you don't hold the crypto in an offline wallet, then whatever exchange you use is potentially vulnerable in the same way a bank or online payment provider would be. For residents of third-world authoritarian regimes, online crypto exchanges are often beyond the reach of local enforcers by virtue of being based in the US or Europe, but such exchanges are emphatically not beyond the reach of American and European law enforcement agencies.
Private currencies spring up all the time--think of hawala networks, for instance. They also have the advantage of circumventing corrupt or dysfunctional (or honest and law-enforcing) state financial systems. And they also typically have a private authority who's accountable if the private currency gets looted or otherwise collapses. The relevant question, therefore, isn't, "what's the advantage of private, non-governmental financial systems over governmental ones?", but rather, "what's the advantage of *strongly decentralized, collectively managed* non-governmental financial systems over centralized ones?"
And in fact, this question has a history. When Napster and its descendants became popular as music piracy vehicles, a lot of the same sort of people who now tout cryptocurrencies as the future of financial systems began touting "P2P" as the future of data management systems. What they gradually discovered over the subsequent few years--although it really should have been obvious from the beginning--was that the *only* appeal of decentralized systems over centralized ones is the lack of a legally liable party for the government to target. In every other respect, it's a lot worse--and it turns out that when escaping legal liability is the goal (and all the disadvantages of dealing with a sleazy, beyond-the-law black market are still less bad than the alternatives), there are plenty of simpler solutions than constructing horribly clunky decentralized systems (centralizing in a sleazy out-of-the-way jurisdiction being an obvious example).
P2P networks went away, of course, as soon as the music industry adapted and made their product available at a competitive cost. Western financial systems, like recording companies before them, are naturally slow to give up their old ways (and old profits), but they're ever-so-slowly beginning to catch up--and when they do, cryptocurrency will quickly join P2P on the scrapheap of bad technologies briefly made attractive by a few transitory quirks in legal and commercial circumstances.
Scott, I assume you're looking for more than what Venmo/Zelle currently provide, then--what properties (apart from immunity to government regulation, of course) are you looking for in future bank-blessed media of exchange?
I still believe in the original cypherpunk and crypto-anarchist arguments for P2P systems, mesh networks and cryptocurrencies and I have been mentally rolling my eyes for years at the people claiming that these things are dead, that they’re going to die, that they aren’t practical, or that Netflix replaced them. To me the time since Bitcoin was invented (2008) seems very small and I have been impressed by how much its adoption has increased since the early days. It could have had near-zero adoption so far and still have a user base as small as it did in 2010 and I would still expect cryptocurrency to become widespread and have immensely valuable applications some day. Tokamaks were invented in 1951 and we’re still not using nuclear fusion to produce our energy, but it’s going to happen eventually. Quantum computing was invented in 1980 and we still aren’t doing anything useful with it, but that’s going to happen too (and not just using it to break cryptography; there will be other applications, and valuable ones). Same for nanotechnology.
A lot of cryptocurrency companies are scams? Well, a lot of nuclear fusion companies and quantum computing companies are scams too! So what?
It’s just going to take much more time than this, multiple decades, half a century and more, that kind of time. 2008–2022 is a very short time period. If most of the technical problems with cryptocurrencies or nuclear fusion had already been solved and people were still not adopting them, then I would update negatively based on that. But the technical problems remain. There are huge amounts of research that need to be done, huge amounts of code that need to be written. The transaction fees must be made smaller, the technology stacks need to be drastically simplified, usability needs to be hugely improved, native user interfaces need to be created for more platforms, everything requires much better security.
If an existential catastrophe doesn’t happen first and prevent this from happening, the world economy will eventually run on peer-to-peer blockchains with smart contracts and public-key cryptography and zero-knowledge proofs, atop mesh networks. I am highly confident (80% probability) in this (in the entire conjunction, that is, with sufficiently broad interpretations of “blockchain”, “smart contracts” and so on that include technologies inspired by them or sufficiently similar), and also highly confident that it will take less than two centuries to get there.
It’s not just the cryptocurrency systems themselves that need improvements: our computer hardware and operating systems need serious security improvements, if we’re going to be relying on them to a much greater degree to run the world economy. Those security improvements will happen, but it’ll take time, much time!
The arguments for why it is superior technology are just plainly correct. Nuclear fusion is plainly a superior way to produce energy for reasons of physics. Cryptography and peer-to-peer systems are superior for reasons of computer science, mesh networks are a superior way to make computer networks. The arguments have continued to seem as correct to me as they seemed when I originally learned about them and many of the technical arguments were empirically borne out. For example, the (critically important) game theory arguments for why decentralized oracles should be possible were correct: the markets on Augur did resolve correctly. People think of Augur as a failed experiment, but the reason people didn’t use it is that the Ethereum transaction fees were too high and that usability wasn’t good enough. And these are problems that will be solved eventually! The markets DID resolve correctly. That is very impressive and important and is what really matters! Augur successfully created a system that gets information about the external world inside of a blockchain in a completely trustless manner. There used to be people who thought that was impossible, you know? There also used to be people who thought proof of stake could never be secure. Who thought that Bitcoin would get 51% attacked if it scaled. Who thought you couldn’t solve Zooko’s triangle. Time and time again, game theory and cryptography were proved to be highly capable and able to do—reliably, too—things that people thought were impossible.
Problems of scalability, usability and backward compatibility are not new concerns. We have known since the beginning that those things would need to be solved, but also that they can be solved.
Look, public-key cryptography was invented in 1970, and we are STILL using silly signatures made on paper with pens. Because the usability problems have yet to be solved in a sufficiently thorough way to ensure widespread adoption. This does not change the fact that public-key cryptography is fundamentally superior signing technology and that it will eventually fully replace written signatures. This will just take TIME. It has only been FOURTEEN years since Bitcoin was created. That is a very small number of years. Cryptocurrency has already been unreasonably successful, much more so than it should need to be to convince us that the original arguments for why it is a promising technology were indeed as correct as they seemed at the beginning.
Your faith is touching, but as someone with a fair bit of technical background in both cryptography and quantum computing, I can tell you that 1) cryptography-based cash, like pure peer-to-peer technology, has a forty-year-long history of being touted as the Next Big Thing, only to fail completely to catch on for lack of a compelling value proposition; and 2) quantum computers can only solve a very limited set of problems more efficiently than classical ones, and are therefore highly unlikely to be very useful beyond breaking cryptosystems.
In the case of technologies that have the potential to solve really important practical human problems, boundless optimism that engineers will eventually overcome the barriers preventing widespread adoption is understandable. However, in the case of technologies that fundamentally have very little benefit to offer us, such optimism seems like a terrible waste of psychic energy.
>cryptography-based cash, like pure peer-to-peer technology, has a forty-year-long history of being touted as the Next Big Thing, only to fail completely to catch on for lack of a compelling value proposition
This is just mocking a tech for not being fast enough. Cryptocurrencies were not more than a glint in David Chaum's eye in the 1980s, in the 1990s there were (failed) startups, in the 2000s there were blog posts, open source programs and all around niche non-academic interest, and in the 2010s and beyond there was a worldwide network that you can use to pay for coffee. This is undoubtedly progress, even if in fits and starts. The roots of the internet were in 1960s ARPAnet, yet it only toppled governments in 2011.
The idea evolves too : the cryptocurrencies that were touted in the 1980s and the 1990s were actually just centralized protocols with the banks as a central arbiter as always, starting from ~2005 the idea of merging P2P and cypto in one cocktail quietly began to be toyed with.
>However, in the case of technologies that fundamentally have very little benefit to offer us
I mean, it's fine if you personally find it hard to understand what's so attractive about crypto, but others find it massively attractive and fundamental. If cryptocurrencies become mature tech then you're "only" a cheap and robust Internet away from complete collapse or massive erosion of state power. A system that has been a human reality for ~10000 years, and it will be choked and deprived from one of its central and most important privileges that it has been consolidating for about the past 2 or 3 thousand years. This requires solutions to other hard problems like decentralized power and decentralized internet, but crypto is a piece of the puzzle too.
>quantum computers can only solve a very limited set of problems more efficiently than classical ones, and are therefore highly unlikely to be very useful beyond breaking cryptosystems.
I want to understand more about this and I'm not a physicist but I'm not afraid of (reasonably light, like first-course level abstract algebra or number theory) math, and I'm not afraid of moderately heavy computer science. You have a recomendation ? Scott Aaronson keeps piquing my interest with his "Quantum Computers are not simply magic parallel computers" remarks but I never really understood what actually *is* quantum computers to my satisfaction.
Regarding those early cryptographic cash systems, the main feature they offered was anonymity--but it turned out that wasn't attractive enough for them to gain any traction, for all the reasons that critics of today's cryptocurrencies cite. Again, the problem wasn't that the technology hadn't advanced to the viable stage, but rather that the features weren't attractive enough to drive widespread adoption. Bitcoin's main innovation, IMO, had nothing to do with cryptography or distributed systems technology, but rather with finance: by creating a financial instrument with the scarcity properties of a collectible (i.e., large but strictly limited supply), it set ideal conditions for an investment bubble to form once it reached a relatively low threshold of investment.
Regarding Quantum computing, it essentially allows for probabilistic computation under rules of probability that are very different from the standard ones. This allows it to solve certain mathematical problems that happen to be at the core of the most widely used asymmetric cryptosystems, but beyond that its application appears to be very narrow. (These asymmetric cryptosystems all rely on a certain kind of strong mathematical structure, which quantum computing seems almost tailor-made to exploit. But that structure is only relevant to a very narrow class of computational problems.)
To add more detail, in case you're interested: quantum computing is good at solving the "hidden subgroup problem"--that is, if a function is constant on some subset of an exponentially large (Abelian) group, as well as on each coset, then a quantum computer can find the subgroup. It turns out that both factoring and discrete log--the problems on which the hardness of RSA and DH are based--can be reduced to hidden subgroup problems, and are hence efficiently solvable by quantum computers. But the applicability of the hidden subgroup problem is necessarily limited--general search problems, for example, don't include hidden subgroups.
Forty years is a small amount of time too, but I was talking about decentralized currencies based on blockchains, not merely cryptography-based cash. Cryptography-based cash is older and obviously will catch on eventually, of that I am practically certain.
We’re still using passwords for authentication, you know? Our societies have been slower at adopting public-key cryptography than we would like. That doesn’t mean it isn’t going to happen anyway, eventually. Of course it’s going to happen. Our currencies and financial systems are going to be based to a much, much greater degree on cryptography, eventually. Look at how long it has been to get from client-side certificates to WebAuthn. And we still mostly aren’t using WebAuthn to log in to websites yet! We’re still using passwords! It takes TIME. The usability problems take time to solve. It is not a mystery why a fundamentally superior technology has not been universally adopted yet when the usability problems have not yet been solved. But they are solvable and the benefits to solving them are way greater than the costs, so they will be solved, eventually. Human societies from 200 years in the future (if no existential catastrophe before then) won’t be using silly passwords for authentication, the silly ACH network for transferring money, silly stock exchanges that are only open for trading for eight hours a day on weekdays, silly IP addressing, silly coal plants to produce their electricity, silly written signatures. Human societies from 200 years in the future will be using public-key cryptography, fusion power, distributed hash tables, defi and smart contracts. But it will take TIME to get there, because there remain a lot of technical problems that need to be solved.
"1) cryptography-based cash, like pure peer-to-peer technology, has a forty-year-long history of being touted as the Next Big Thing, only to fail completely to catch on for lack of a compelling value proposition;"
Satoshi built on the inventions of the past and combined them in a unique way to remove their downsides (https://medium.com/@nelsonmrosario/the-bitcoin-white-paper-references-857f001f4878). Proof of work, a difficulty adjustment, and a decentralized ledger combine to create an asset that is digital, scarce, global, censorship resistant, and can be teleported. It's gold that is scarcer, more divisible, easier to store, easier to verify, and can be beamed around the world. These properties are immensely valuable, but it takes time for people to grok.
P2P has never went away, of course, even for music. Understandably, it's more prevalent in shitholes like Russia, where streamers weren't particularly excited to go in the first place, but very quick to pull out. And for movies/TV shows it's probably as big as ever, even in the West, due to crazy proliferation of subsciption services.
Sure, but now that it's clear that it's not a revolutionary general-use information management technology, but rather a specialized tool for evading legal accountability for illicit distribution of content, it's a lot less technically interesting.
I can see how having a currency outside of the one controlled by the current government could be useful, and accept that in particular circumstances that could be crypto, but most of the time you'd be better off getting USD and keeping it under a mattress.
But perhaps your mad government won't let you get USD, but will let you on the internet, and haven't caught up enough to restrict Tor. In that case, crypto could work if you're savvy enough to use it properly, you don't expect unreasonable gains, you avoid the obvious scams and rug-pulls and get lucky avoiding the non-obvious scams, don't engage with the wrong smart contract or DAO, manage to balance the security and accessibility of your keys, you steer clear of NFTs and don't get hit by a phishing attack...
If that's you, you might get some utility out of crypto for... buying... something... that is perhaps more crypto... um...
The list of "best new crypto projects" you've linked contains:
- a spreadsheet
- somewhere to buy NFTs
- a batshit idea for NFTs that represent your ideals in a never-to-be-realised society that will be forgotten about by March
- two projects too complicated for the article to explain
Getting USD isn't always great, even if your government doesn't care. Paper USD tends to trade at a premium, which screws over your exchange rate. Remittances average a transaction fee of 6%. As long as your community is willing to use crypto as a form of exchange, it's probably easier than traditional currencies under most dictatorships these days.
Remittances have fees because running a lot of bricks and mortars locations in the recipient country so you can actually cash out is expensive. If all you care about is a Venmo-clone or whatever, then you can easily have negligible fees. And it's not like it is easy or cheap to cash out of cryptocurrencies, even in the best of circumstances.
Digital remains high due to money laundering regulations, unfortunately:
"Most forms of cross-border funds transfer require the cooperation of a bank at some point in the process. An MTO, for example, needs accounts at banks on both ends of the transfer corridor. However, in response to stronger anti-money-laundering (AML) standards, banks have been terminating or restricting their relationships with MTOs.
From the perspective of a bank, mobile payments create similar risks. As is the case for virtual currencies like Bitcoin, mobile payments systems can be used to conceal nefarious activities (see here). Meeting the Know Your Customer (KYC) standards that banks demand (and governments expect) is expensive. As a result, these factors may continue to throttle the speed with which cost-competitive technology firms make inroads into the remittance business."
He describes a best case scenario where streamlining those regulations drops the cost of remittances to merely 5%. USD transfers are constrained not just by local regulations, but by US regulations on banks.
Agreed. For people who can't download an app that's not on the app store or something, decentralization is meaningless. Even the most basic measures by their goverment could effectively block them from accessing crypto. Honestly I feel like paper money is more "decentralized" in the sense that it is truly accessible for everyone(and it doesn't even need internet).
"If Nancy Pelosi’s text messages are any guide, Democrats have joined libertarians in the “actually pretty worried about the government becoming an oppressive dictatorship” club."
That part made my jaw drop, because Bit...sy, you *are* the government. Who the hell do you think is going to be the oppressive dictators? Take a look in the mirror and then work on *yourself*.
(Good grief, I know political parties live on "we are pure angels, our opposition are raging devils", but this takes the cake).
As for the magic beans - if Vietnam can make it work, good luck to the Vietnamese. But so long as it's been treated as 'useful for illegal purchases', the blackmail spam that keeps turning up in that one work email account of ours always demands payment in Bitcoin, and people are treating it as "buy now, make a zillion percent return, then sell before the suckers wise up", I'm going to stick with the currency of my nation, thanks all the same.
I don't think this is an unreasonable fear. Nancy Pelosi is claiming that the Republicans are going to do some kind of coup or voter fraud or something to win elections they don't deserve to win, and then once they seize power they'll do some combination of suspend the Constitution or use gerrymandering/voter suppression/the Supreme Court to lock themselves into power forever and end checks and balances. I think weaker versions of this claim are plausible and stronger versions a bit paranoid so far, but it seems like the sort of thing they *could* do and I don't think that the Democrats being in power now makes it impossible or even much less likely.
I have no trust in the Democrats (or Fine Gael/Fianna Fáíl if they could get their snouts out of the trough long enough to be that kind of large-scale corrupt) or the Tories or Labour or any political party in the world you care to name virtuously restraining themselves from doing this teeny little thing that sure, maybe if you look at it from one angle it's kinda dictatorial but since we're the Good Guys it doesn't count.
I mean, look at the to-do around Twitter and Hunter Biden's laptop (and I'm wincing about that because I don't want to know what Hunter Biden's dangly bits look like so if they censored that I'm quite happy about it). The Democratic party in power is happy to exert authoritarian restraint on free speech. Gerrymandering electoral districts is equal-opportunity. Running attack ads about how your opponent eats babies ditto. And the Democratic Party had no problems at all with Supreme Court judgements enforcing decisions against the will of a lot of the population when the judges and the judgements went *their* way.
Back in the Obama days, the Democratic partisans were rejoicing about the whole "demographics is destiny" angle, presuming that they would be in power forever and ever due to that. A one-party state forever is pretty much the definition of an oppressive dictatorship, even if its proponents assure us they will be benevolent dictators.
I'm not at all claiming that Democrats will never do authoritarian things, just that when they claim Republicans might do authoritarian things, they're expressing a reasonable worry!
I suppose it depends on how one defines "reasonable". It's unfair for me to be picking on American politics, so I'll give you an example from my own country.
I do not think it is at all reasonable for politicians from the two mainstream, and currently co-governing God help us all, parties to be stoking fears about a third party as "if they get into power, oooh watch out" and that third party has/had actual ties to actual terrorists.
So Nancy Tweedledee declaring Donny Tweedledum is going to oversee the authoritarian dictatorship of doing away with free elections does not impress me, because for every "well what about Jan 6th/Russian asset/piss-tape" claim from the Democratic side, there's an equivalent "well what about BLM protests/CHAZ and CHOP/mandated vaccination" from the Republican side.
Point of order: a one-party state forever is not the definition of an oppressive dictatorship. You can have a one-party state in which power comes and goes *within* that party according to the party membership (this is how the PRC is supposed to work, although not how it actually works, and AIUI how the Japanese LDP actually works), so it's not definitionally a dictatorship. And "oppressive" definitionally requires "oppression" of some sort, which is not *in theory* required for a one-party state to endure.
A majority of one-party states *are* oppressive dictatorships, but e.g. Japan has been de facto one-party since 1955 (the LDP has been out of power for four years in that period) and is both not really a dictatorship and not especially oppressive.
So you would be happy to live in the glorious future state where the Dear Leader/Leaderino/Leaderinx gets 98% of the vote in the perfectly democratic and free elections forever?
My scepticism is in part because I'm sure that there has been Democratic vote-fiddling as well as Republican vote-fiddling in every election those parties have ever been involved in, because people are people. I'm not claiming the Democrats *or* the Republicans are corrupt on a national scale, but I'm sure that individuals at whatever level have at times done things to tilt results their way, be that gerrymandering, finding 'lost' ballot boxes, or pouring money into campaigns for the worst candidate on their opponents side:
The entire point of elections is to have a choice. If your 'choice' is "you can have any colour so long as it's black", then it doesn't matter if the party engages in the ritual of holding an election or just declaring the results they want, since the votes are in practice meaningless: you can choose Approved Candidate #1 or Approved Candidate #2 is not a choice, be it Japan or places where I am given to understand Republicans won't even run candidates because they don't have a snowball in hell's chance.
And what does it mean "win elections they shouldn't have won", anyway? Stacey Abrams is very loud on that, does anyone accept she is correct? Maricopa County flipped red to blue, and on the surface that looks dodgy until you dig into it and find out that a mere 5,000 vote switch was enough to do this. Suppose there was an equivalent county where they flipped blue to red, on what looks very dodgy and suspicious grounds: do you imagine Nancy would consider that "an election the Republicans should not have won"? Suppose it were then proven to be legitimate, as in Maricopa, where a small shift did make that difference?
"They shouldn't have won that election" means nothing more than "We wanted that seat".
I don't dispute anything you've said in this latter comment, and agree with your broader point.
I'm just saying that your claim earlier that one-party states are *definitionally* oppressive dictatorships is not actually true; one does not logically imply the other, and while there is a strong correlation IRL it's not even 100% (there are one-party states that are not oppressive dictatorships, and oppressive dictatorships e.g. Saudi Arabia where the dictator doesn't even bother with a party or elections).
I'm not a huge fan of one-party states, but I am a big fan of precise language.
I think we'll have to agree to differ here. Slavery is still undesirable, even if the slave-owner is a nice civilised master and treats their slaves well.
Not that one-party rule is the same as slavery, but a bad thing is not improved by being implemented kindly.
In an unusually lucid post a couple years ago (pre Jan 6), Moldbug proposed a takeover scheme of that sort, which, according to him, wasn't even egregiously illegal. However, he concluded that there's neither will nor vision in the GOP for something like that, which has been borne out so far, and there doesn't seem to be a good reason to expect this to change in the foreseeable future.
"You are the government right now" has never been an obstacle - the Republicans were yelling about election fraud in states where the governor, legislature, and secretary of state were all Republicans, because something something Deep State. Heck, in 2016 Trump was yelling about fraud in states where he *won* because he thought he should have won by *more.*
At least the Democrats have the justification that a fringe group of Republicans really did try to overthrow the government.
"At least the Democrats have the justification that a fringe group of Republicans really did try to overthrow the government."
And Republicans have the justification that rioters were allowed free rein to set up their own no-go zones and kill people, with the city governance standing there letting them do so, and sympathetic media coverage at the time and afterwards:
If the worst associated violence with the entire BLM phenomenon wasn't any kind of justification that the Democrats were allowing anarchy and rule by mob, then it's no justification that a bunch of nutjobs tried 'occupy Congress' tactics.
One of those two specifically said that they wanted to stop the election from being certified and attacked a specific place in pursuit of that goal. The other one was protesting police brutality, and then the police decided to throw a temper tantrum and say "fine, we won't enforce *any* laws here if you hate us so much." (And also they faked radio messages about the Proud Boys coming to attack protesters for some reason? Because that would definitely calm things down? I have no earthly idea what the Seattle PD was thinking.)
Like, the BLM protests were certainly more destructive due to sheer scale, but I'm just talking about motives - if you're going to talk about how your enemies want civil war then I'm going to pay attention to the people who are actually saying that they want civil war.
> then the police decided to throw a temper tantrum and say "fine, we won't enforce any laws here if you hate us so much."
I've started hearing this over the last few months; do you have a source for it, or some idea of where it's coming from? My impression at the time was that the protesters did not want the police to come into the CHAZ/CHOP, not even to investigate a murder, and would have violently resisted any effort by the police to enforce laws in the area. And that the decision on the part of the police to not force their way into the area, was intended to de-escalate the situation. So I'm curious about where this alternative narrative comes from.
I don't know what the regulatory restrictions or implementation difficulties are, but man, I really want DeFi to be a legitimate way to get a loan for a car or a house. I love the idea of the early Local Bank, where the community pooled their money to help each other buy the things they need, and it seems so possible to create that in crypto.
well, P2P finance platforms like Prosper or Lendingclub were what you describe in early days, and then they discovered that many many more people wanted to borrow than to lend so the funding side became near totally institutionalized, and then even later they discovered the credit quality was actually pretty shit because in their rush to grow they didn't do proper underwriting, and now LC stock price is down from ~150 to 9, and Prosper still hasn't managed to go public and nobody talks about it anymore. Less familiar with dev world options like Grameen but results seem pretty mixed there as well.
The problem, like everything in crypto, is that the "crypto" part doesn't actually add anything. You're just talking about a bank with an extra-convoluted funding mechanism, and the "bank" part is doing all the heavy lifting.
No, I specifically think it would be great if individuals could make small contributions to, say, a mortgage that they believed to be a safe investment. Something like Kickstarter, but with a contractually obligated return on your money. There is, at least, a distinct difference here between a decentralized and centralized version.
This was the dream with peer to peer lending. The way it shook out it mostly ended up being institutional money making the loans. Which is honestly probably for the best. Do you really want to be responsible for repossessing your neighbors car?
Yeah, I'd call that an implementation difficulty, but it doesn't really feel like it should be insurmountable. Getting it going probably looks a lot like starting a dating website, but you substitute "individuals willing to lend" for women.
"Yeah, I'd call that an implementation difficulty, but it doesn't really feel like it should be insurmountable."
So if you want the community benefits, you have to be willing to do the Little Red Hen part. And if you have to repossess your neighbour's car, then *you*, Antilegomena, have to go knock on his door and ask for the keys while he's pleading with you that he needs it to get to work, he's behind with the payments because the kids are sick and you know the cost of medical treatment, and his wife is crying on the doorstep beside him.
> Crypto is a few hundred interesting projects, plus a long tail of thousands of scams.
I think your arguments fall short.
By calling some of them "not scams" I think you are focusing only on the most blatantly fraudulent aspects and glossing over the pervasive "let's create an asset bubble" vibe that is foundational to all crypto, and that most people are talking about when they say it's all a scam.
Crypto relies on both technological concepts AND collective belief in a particular instantiation of that concept. (E.g. in bitcoin as opposed to some equivalent fork of bitcoin.) It is that collective belief, and the behavior required to maintain it, that can't lose its smell of scamminess, and that people might rightly avoid for ethical reasons.
Personally, although I see some technical value in cryptocurrency, I find it unethical to participate in the MLM-like bubbles of any of them. Doing so is still necessarily trying to profit at the expense of the people who come in later.
If you agree there's some technological reality, doesn't it become a combination of real value + selling-to-the-next-guy-later, which is what all investments are? I'm not buying index funds because I want those sweet dividends, I'm buying index funds so I can sell them to someone else after they go up (which they'll presumably do indirectly because of the dividends)
Stock buybacks seem to be the more common form of giving Real Value to stocks these days, which is kind of funny to think about since it means stocks are almost just a really circuitous kind of loan.
(1) I don't think so, and (2) I also don't think that makes it ethical.
1. There is real technological value there, but buying units of a particular instantiation of that technology isn't an investment in the tech, it's an investment in that particular instantiation of the tech. The value of that particular instantiation is driven almost entirely by bubble dynamics and not the underlying technological value. So I don't think it's like investing in an index fund. When you buy stocks you are helping money to be allocated to productive uses. When you invest in commodities you are helping to make sure that supply and demand for the commodity match up better. Buying crypto accomplishes neither. As far as I can tell, the value being created with crypto looks like it's much smaller than the amount of money being spent on it - that would be what makes it a bubble, and unlike most of the popular ways to invest money.
2. Do you ever participate in viral internet chain bullshit that says stuff like "send this to 10 of your friends"? I don't, because I think it makes the world worse to have the sorts of people who are willing to do that instead of the sorts of people who are not. Cryptocurrency looks kind of similar, in that it's standard in that sphere to have a model where people are financially incentivized to spread adoption. I don't want to live in a world that selects for hyper-aggressive/contagious memes, so I try my best to not create that world. Even if it were in service of something valuable, I'd be really reluctant to participate in anything that uses those kinds of tactics.
Tulip bulbs in the Dutch Republic circa 1636 actually had a real tangible value. Not a real value anywhere near their price, but the value wasn't strictly zero.
The difference between crypto and stocks is that stocks represent shares of a business with an underlying revenue stream, and you'll at least potentially get some of that money over time via dividends or stock buybacks. Obviously, there is a layer of zero-sum gambling on top of that as people compete to *predict* the net present value of that cash stream, much like how a prediction market fluctuates day-by-day as people guess about the underlying probability. But the underlying value *still exists*. With crypto on the other hand, the fundamental value is zero in most cases.
For a crypto Layer 1 platform, like Ethereum, the cash flow is the ETH burned to pay for transaction fees on the network. With sufficient activity, the token becomes deflationary - this is in a way similar to stock buybacks.
DeFi projects engineer their tokenomics to achieve the same effect, more or less succesfully, but there is no fundamental reason why tokens cannot accrue a revenue stream, aside from the SEC making life difficult for any project that gets too close to being an actual security
Can you really separate "real value" from "selling-to-the-next-guy-later", like that? (This may be a misinterpretation of what you're saying, but I'm running with it...)
You mentioned Warren Buffett in a locked post; that's not what he does. He buys things things that he thinks should be worth more than other people think they should be worth, and waits for those other people to realize that they were wrong. Sometimes he waits a long time, although not as long these days, now that he has a reputation.
Would you honestly be OK with an investment that you believed was nigh-worthless, as long as you could sell it to some sucker and make a profit?
Or do you perhaps believe, somewhere deep down, that those index funds become more valuable because progress is real, and the economy grows because more human value is being created, and that the world of 2030 will be better than the world of 2020 which was better than the world of 2010, and so forth back to the Stone Age, and that the index fund is a little piece of that world?
I think I'd express even a little bit more skepticism, but I agree with the overall premise that it's not all scams.
On "Crypto Is Full Of Extremely Clear Use Cases, Which It Already Succeeds At Very Well", I think this simplifies down to "Crypto lets you avoid state financial regulations (for now)". Sending crypto to a Russian is easier than Paypal because you don't need to do KYC / Anti-money-laundering checks, which in your specific case is probably a net good, but in general most people in the US don't support removing those checks (I claim). Sending remittances is better using Bitcoin because the government can't tax them / inflate their value away.
I'm generally here for a bit of civil disobedience and think it can be just to ignore unjust laws. And I strongly agree that giving people protection from government incompetence causing hyper-inflation is a positive thing.
On the other hand, (not an economist) I note that most countries consider it very important to control monetary policy. (The EU being a counter-example that sort of proves the point, given the challenges post-2008). While the libertarians / gold standard folks hate this, controlling the money supply is the way to avoid runaway inflation, and so if countries lose control of their monetary policy, it's unclear to me that's a good outcome. So this could be a situation where a little bit of crypto is a good thing, but if we get too much of it, small economies might be dominated by crypto which could be politically destabilizing at the national level.
"Big Crypto Projects Are Very Rarely Scams" seems like a low bar to me, though I think it's a fair point to argue against the "all crypto is Ponzi" position you're explicitly highlighting. Going back and checking out the "Most Promising Crypto Projects Of 2015" is informative; I don't see much that's amounted to anything in there. This is my big complaint about web3; so many projects launched, so few actual meaningful products. (The Pirate Bay and Prediction Markets being the two product categories I do think are meaningful, both in the "avoid government regulation" family.) I do see some solid use-cases for NFTs (I did some prototyping here in 2018 before NFT meant trading "bored ape" GIFs) around digitizing assets that are currently illiquid but which could be traded given a market -- but this is hard. (Houses are a great example of a bad idea that people sometimes think would work for NFTs, but I think there's possiblity around short-term commercial debt for example).
"Crypto Is Valuable Insurance Against Authoritarianism" I think this is the best ethical point to argue on, but I think that politically it's a weak one. No state is incentivised to allow "insurance against authoratarianism" when it also allows you to use the darknet and avoid taxes. If we look at TOR, it's boosted by the US State Department as a weapon against illiberal states, and opposed by just about every other branch of government (CSAM, drugs, etc). _Maybe_ there's a case here that given enough regulation of the on-/off-ramps of domestic usage, the US could come around to considering Crypto as a TOR for finance, weaponizing it to undercut regimes that dont share its values. I haven't thought too much about this.
"Yes, The Crypto Financial System Is Just Reinventing The Regular Financial System Except Worse In Every Way, And That’s Fine" -- recently I have been wondering if there is a more general principle here. Maybe it's a good idea to periodically give a localized exemption to a broad class of laws, and see if the results are dominated by A) the harms we would predict, or B) new value we couldn't predict. For example, I think there's a strong case that Uber/Lyft (in some jurisdictions) demonstrated that taxi medalions were drastically harming consumers, and should be abolished. But we'd have never found that out without someone ignoring the rules and running the experiment.
Similarly, I think the crypto fiascos are very strong evidence that all of the financial regulation we have is actually doing good work, complex and painful though it might be. Without the SEC but with the modern internet, we would have a hellscape of boiler-room scams and ponzi, and everybody would be losing their shirt, instead of collecting a cool 10% per-annum for decades on end.
Without the A/B test though, it can be hard to be sure! The big challenge is getting a meaningful test, without also harming innocent bystanders.
Companies wouldn't be trading the NFT, though, they would be trading a representation of the debt used to fulfill payroll. And, I've come full circle back to "this is more onerous than what we currently do" and I've gone cross-eyed.
Can somebody give me the Simpleton's Guide to NFT, because I've tried to understand it and keep bouncing off since it seems absolutely stupid? Granted, that may be because of the art trading stuff, if there is a reasonable/sane reason for this thing, explain it to me!
TLDR: an NFT represents a digitized, tradable ownership stake in some unique asset.
Fungibility means "instances are not unique" or "thing can be exchanged for another thing of the type". So dollar bills are fungible, because it doesn't matter which dollar you have. In modern markets, commodities are fungible too; a bushel of wheat or barrel of oil are fungible, (eliding some details about grades/types of the commodity) and this enables futures trading.
A non-fungible asset would be a unique asset like a house, or a used car. You can't simply trade one for another without knowing anything more about the asset, they have unique characteristics that determine their value. You care which one you own. You can also think of this as the asset having a persistent identity.
In crypto, a normal token is like a dollar; they don't have identites. (In Ethereum, you "create a token" by publishing a smart contract that conforms to a standardized structure called ERC20, and which keeps track of the token balance for each Ethereum wallet). The system does not keep track of which token is which; like dollars in a digital bank account, or water in a tank (ignoring atoms). You could create a FavorToken and use it to track favors between friends; but this wouldn't record the specific favor that was done, just who has accumulated more or less favors. You couldn't use a fungible token to represent ownership of a car or house, nor a personal loan for $1000, nor a mortgage.
There is another type of smart contract in Ethereum that does keep track of individual asset identites. It's called ERC721. The smart contract defines a broad type of thing, and each token has a unique ID that identifies instances of that thing. So if your asset is "non-fungible", i.e. has an identity, then you can create one non-fungible token per asset.
So you could mint a HouseToken that keeps track of which wallet owns a particular house. Or CarToken that tracks who owns a particular car. Now your asset has been digitized, and you can transfer ownership of that non-fungible token as part of a transaction (say, I give you 1 ETH, you give me your Car-token).
You can attach other data to the NFT too. For example, cryptokitties added some unique data for a "genome", and then some off-chain logic to render that unique genome into a cute image. So each cryptokittie is unique, and can be bought and sold.
Other recent examples of NFTs are IMO dumb; "owning" a GIF or image is stupid because these things are digital and can be trivially copied, and there are very few places where your notional ownership is recognized. (Maybe there will be more in the future). But the optimistic case for NFTs is that as more and more things are digitized, the human desire to own a scarce object will cause us to create digital entities that are artificially scarce, therefore expensive, therefore high-status.
As well as using NFTs to artificially scarcify digital resources, it's possible in principle to use a digital token to represent common-law ownership of a real physical asset. You can write a contract that does this, at least in the US. But there are some clear problems with this for things like a house; if my wallet gets hacked and someone steals my house-token, does that mean the hacker owns my house now? The courts probably wouldn't see it that way. This is an area that is under active research.
Thanks, that's a lot clearer than "These nine hundred people all 'own' this artwork because they bought NFTs, even though it can be copied by any idiot with graphics editing software".
Agree with most of what you said, except that: No, Sillicon Valley Cannot Be Less Than Infinitely Hostile To Crypto.
And the reason is sanity. They can't change their minds on it now, very few people are that strong.
Can you imagine being aware about bitcoin and crypto since close to the beginning, on top of the tech news, understanding the technology, at least at a high level, and deciding to pass? Then watching the number go up year after year after year? Madness. It HAS to be a scam.
And this is not just about missing out on any generic investment opportunities, there are always lots of those that don't drive people crazy, because it's not "their area". They aren't "supposed" to know about it. But with Bitcoin they were indeed supposed to get it. But they didn't :(
For bonus points, can you imagine being very knowledgeable about technology *AND* about finance, and not getting into crypto? Would you become the biggest crypto-hater in the world? It makes me sad every time I see his posts.
Scott probably already knows this, but attributing the "space pen" to the space program is basically apocryphal. Quoting wikipedia:
>The claim that NASA spent millions on the Space Pen is incorrect, as the Fisher pen was developed using private capital, not government funding. The development of the thixotropic ink cost Paul Fisher around $1 million (equivalent to $8.6 million in 2021) [...] NASA never approached Paul Fisher to develop a pen, nor did Fisher receive any government funding for the pen's development. Fisher invented it independently and then, in 1965, asked NASA to try it. After extensive testing, NASA decided to use the pens in future Apollo missions. Subsequently, in 1967 it was reported that NASA purchased approximately 400 pens for $2.95 apiece (equivalent to $24 each in 2021).
I think if you are making a space pen, you are part of the space program. I agree it was not made using public money. My only point was that people are spending lots of money to make space versions of things we can do on Earth, which it seems like Fisher did.
Fair enough, especially because the only non-space-program motivation Fisher could have had is that "yeah but it works *in space*" was excellent marketing, which kind of follows the exact point you made in the following paragraph.
One point you don't touch on is that unfortunately Governments, regulators, financial institutions etc. do have tremendous recourse in cutting off crypto, just like they do normal banks. It's a public ledger, so all transactions are visible, and governments could, if they wanted to, Blacklist crypto wallets. Unlike physical currency you fundamentally need an offramp in order to spend crypto on most things, and if your wallet is marked as unspendable evil terrorist money that it is a felony to take money from, it's permanently useless as nobody will ever accept it for cash.
See below an example action taken against the IRGC - I am not a fan of the IRGc but it could be done to anybody.
I don't know much about crypto, which I find difficult to understand well, and--surprise!--that makes me wish it would go away (so I won't feel so left out). My technical understanding is no better now, but this post has made me more aware of how my underlying biases have limited my judgment, and I appreciate the argument.
kudos to you. No seriously, very few people in these comments have been able to consider that both "crypto is useful to some people sometimes" and "cryptos is useless to me" can be true
I also like to think I understand the technical aspects well, but I don't know of any major technical concerns that are unlikely to have solutions. Are you concerned about scaling?
IMO, the legal/political/social aspects are far more concerning for long term crypto adoption.
The problems aren't technical (at least not in a world where people are wiling to hardfork the code to make improvements or switch to a different coin). The problem is that what it is trying to do is fundamentally a bad idea.
1. The basic problem Bitcoin is trying to solve is dispute resolution. In the real world, we resolve disputes using reputation mechanisms, the legal system, etc. But online criminals can't avail themselves of the legal system, and would like something better.
2. Satoshi's only true innovation was coming up with a system for dispute resolution via Competitive Coal Burning and then setting up a system where users would indirectly pay for said coal burning via transaction fees and mining reward-induced inflation.
3. The cost of "mining" isn't a bug. It is a feature. Really, it is **the** feature of Bitcoin. Any change to the system which reduces the mining overhead means that the amount of money required to hijack the dispute resolution system is also lower, making it less secure. Alternatively, you could move to a centralized or de-facto centralized system as some cryptocurrencies have done, but then you lose the entire reason-d-etre of bitcoin (see #1).
4) Therefore, use of cryptocurrencies is *inherently* costly. This isn't a problem that can be designed away with fancy technology. The *purpose* of the system is to be as wasteful as possible, with users paying for that waste. However, all users get charged, regardless of whether they care about 1) or not.
5) This means that for users that do *not* care about dispute resolution via Competitive Coal Burning and would rather resort to the legal system they know and trust, bitcoin will never be cost competitive with centralized systems, because of the coal burning tax.
6) This means that to the extent cryptocurrencies are used at all, they will tend to only be used by criminals and other undesirables because anyone who can use the normal system will (as it is much cheaper). This in turn means that the system will tend to be politically easy to ban, since there is little legitimate usage. (So far, this has only partially come true because a series of speculative bubbles have led ordinary people to throw money into it for no good reason. But the government *has* done its best to regulate the space and less scrupulous countries do ban it entirely.)
Note that none of this is a technology problem. It is a *goal* problem, and thus applies to *any possible bitcoin-like system*, no matter how clever.
This is a fundamental problem that is rarely spoken about in bitcoin circles, and when you bring it up in places like stackexchange and reddit, you just get downvoted out of the conversation without anyone ever actually addressing the issue.
Ultimately bitcoin's security can be at best *equal* to the energy spent, as Level 50 says. This cost is currently being paid almost entirely by the block reward, but this can not go on forever because of bitcoin's "halving" rule which is touted as a critical feature by those who do not understand the implications. If you look into the future as the block rewards go to zero, this means that all of the mining must be paid for by transaction fees, which means that the fees must be higher than the value of the transactions you could reverse in the mined blocks. This gets complicated, but if you are interested here is a recent NEBR paper that goes into some detail...
Again, this is very complicated and it is very hard to have rational discussions about this in the normal places so I am happy to go as deep as anyone wants to into the details.
Also note that this is not my fundamental objection to bitcoin - just a technical one. I will start another thread for that one! :)
They are no longer "trustless". Without PoW, there's nothing stopping people from forging arbitrarily long chains. I'd say it falls under the "become centralized" option.
For Bitcoin POW systems I mostly agree with everything you've said up to your point 4 and 5, where I think you suggest cryptocurrencies are inherently more expensive than other payment networks or dispute resolution methods. The legal system can be extremely expensive (the "lawyer" tax) and it seems plausible there are some agreements that can be done more cheaply via blockchain based payments or smart contracts. Is the "lawyer tax" always less than the "coal burning tax"? I doubt this is true for all applications, and definitely not obviously true to me.
Additionally, not all financial transactions are the same, and the cost, speed, and availability vary widely, especially for international transactions. This is a big part of what Scott's post is about: there are currently competitive use cases for cryptocurrencies right now, and they're finding use despite the huge host of problems with the networks. I don't disagree with your skepticism (and there are some nonsense ideas like BTC will entirely replace other currencies) but when there are examples of legitimate use that don't have great alternatives it's hard for me to accept the claim that the only large use case will be for illicit purposes.
As a last thought, I don't think you can just dismiss POS as "centralized" and so equivalent to other centralized services. POS systems probably are more centralized than POS, but "centralization" is not really a binary property. Compare Ethereum vs. Visa (or Western Union or something). Ethereum uses a POS system but it's more decentralized by any useful measure, and can again be a plausible choice if a given centralized service doesn't offer the exact service you want or give you the guarantees you need.
What legitimate use cases? Coiners talk about them all the time, but they never seem to materialize in practice. If crypto is really so good, why does noone even use it in El Salvador?
I'm also not so sure about Ethereum being more decentralized. But I guess the hard part would be coming up with an objective way to measure centralization in the first place.
Brief thoughts from someone (me) who runs a magazine trying to be the 'Wired of web3', called Culture3 (http://culture3.xyz/)
Tether is definitely not 1:1 backed by high-quality liquid assets like, e.g. Circle's is.
But I don't get excited by the argument of 'crypto is a use case, only for developing economies like Vietnam, so I wanted to share a couple more use cases
- NFT ticketing is used by UEFA (eg for the Euro 2020 (2021) football tournament, by singers like Lewis Capaldi, and by Ticketmaster, who have made 5 million NFT tickets so far: culture3.xyz/posts/nft-ticketing
- Decentralised data storage is a data storage solution that will outlast AWS. I admit that today it is expensive (less than 1 terabyte is stored on Ethereum), but it is used today, and the cost is only going down: culture3.xyz/posts/decentralised-storage
- Arpeggi is a company fixing a major problem when it comes to music sampling, which has become problematically concentrated industry: culture3.xyz/posts/arpeggi
- Dequency is a company disrupting the $3bn sync licensing industry, where it takes 9 months minimum for royalty payments to be received: culture3.xyz/posts/dequency
- Golden is basically niche wikipedia, and it is better because, well, imagine if you had an easy way to a) compensate and b) coordinate people documenting research about ivermectin, at scale: culture3.xyz/posts/golden
- Less tangibly, within 15 years, most property deeds will be on blockchains. In the UK, Mishcon de Reya ran a blockchain prototype which reduced the time it takes to transfer a house on the UK land registry from 22 weeks down to 10 minutes. In the real world, American cities are using blockchain companies to manage their land registries: culture3.xyz/posts/nft-real-estate-okada-propy
Fundamentally, these blockchain use cases come down to one thing, in my view: when data should be shared between parties, like real estate, music sampling, any form of licensing, or anything else.... then there is usually an unambiguous use case for blockchain
Separately, and more ambiguously, I think web3 is well-positioned with many cultural trends, that I won't go into (unless requested). There's already enough above for me to be slated for!
You say you're not interested in crypto use in Vietnam, and I'm the opposite. I'd really like to read about crypto use in Vietnam, or any other country where there's interesting usage. (It might also be a hook to write about non-crypto cultural stuff happening in another country.)
I wouldn't (and didn't!) say 'not interested'*. I just think there are better ways to convince people who don't live in (eg) Vietnam that crypto is useful
*We have an article coming out soon about basically this thing in the context of Latin America; I get what you're saying
That Medium link sounds less like "they stole our tickets" and more like "we tried a dodge in order to make profit, it failed".
"This gave us the idea for a simple way to make the non-transferable NFTs transferable and, on March 23rd, we successfully bought 200 tickets with the plan to sell the surplus tickets for profit (and hoped our purchase would push EthCC to use a better mechanism design next time).
With their pride hurt, EthCC decided to do what we honestly thought was unthinkable for a crypto-native organization. They went against the on-chain sale mechanism they designed and unilaterally invalidated our tickets:"
I feel you are using a bit of a straw man. My argument is not that there are no bad examples of NFT tickets. My argument is that there are multiple really good examples.
What would a "really good example" look like? Are there *any* cases where people did things with the tickets that the organizers didn't like and/or got hacked, etc., and the organizers decided to follow the blockchain anyway?
Right now, I see multiple examples where the organizers ignored the blockchain and none where it mattered, so it seems pretty clear that in practice, the blockchain is just a marketing gimmick and doesn't actually serve any purpose.
I take your point about the signal - appreciated - but this article says nought about the NFT tickets, and I think the signal of UEFA using them is still very strong overall. Also worth noting that my argument is that NFT tickets better than other ticketing mechanisms, not that NFT tickets will solve governance problems.
(Many crypto folks would say that crypto can solve those problems! decentralisation; onchain. But this obviously relies on very many assumptions that are highly contestable.)
An interesting essay from one of the best writers out there. Unfortunately, it's not much more than a magnificent sleight of hand. This essay makes five interesting points which all fail in very interesting ways. I'll pick them out one by one.
I suppose this is the first decent defence of crypto I've read in a while because it simply bites the bullet. It admits all of crypto's flaws straight up and argues not that they are going away (first old trick) or that they are not really flaws (second old trick) but that they are worth accepting in light of crypto's benefits. This is an unacceptable bargain but I'll come to that later.
First off, this essay attacks a very naive view of crypto: it's all a scam. It needs to do this to succeed. But this is not what sophisticated critics of the crypto industry think. This is the filtered version by people who can't grasp nuance. What crypto critics really assert is the crypto industry is fundamentally unnecessary and everything it has come up with is a version of unnecessary: smart contracts and nfts aren't necessarily fraudulent. They just have no actual utility compared to viable alternatives.
Second, the main argument is that crypto is some sort of hedge against authoritarian governments by allowing common people a degree of financial latitude. This is wrong on two counts: the first is that the fact that people in broken financial systems resort to crypto tell us very little about crypto's utility. In the seventies, the Irish used pubs instead of banks and wrote their debts on tissue paper. Venezuelans began to employ jewelry and gold as media of exchange. People have found different solutions throughout human history. Crypto is merely the latest and not a particularly good one.
Second, we have direct evidence, beyond philosophical theoretizing, of a country that went fully on crypto. El Salvador adopted Bitcoin as its official currency last year. The country is now not only at risk of default and in serious financial crisis, Bukele is also more authoritarian. He has used the crypto transition to centralize power and crack down on dissent. There's no reason to think of crypto and authoritarianism as natural antagonists. They are,in fact, well suited for each other. A permanent, public, pseudonymous database which is constantly updated is a dictator's wet dream.
Also, economics is always political. Someone is always in charge. There are no power vacuums. If you surrender your financial sovereignty to crypto, you surrender it to people, hackers, whales, shadow banks, and institutions that have no legal or political responsibilities to give a damn about you. At least a central bank and a government have notional duties to do that on paper.
Third, comparing the crypto industry to space is extremely disingenuous. I'm not a big fan of the space industry: a lot of it in my opinion is people trying to execute crappy science fiction stories in real life. But to dismiss it all as a sort of more expensive, less efficient simulacra of planet earth is to do a great disservice. Because of the space industry,we have gps, we have transformations in the communications industry, we have geostationary satellites. And those are just direct innovations. There are also indirect innovations like treadmills and scratch resistant glasses and better insulation, among many others, that were downstream of NASA fundamental research. Put more obviously, there are things we should be thankful for in the modern world that happened because of the space industry before and without which we had no alternatives. What's the same for crypto. What's the GPS level equivalent for that industry. In thirteen years, what can we point to tangibly and say this happened because of crypto and changed millions of lives forever. Everyone who hasn't pulled the wool so far up over their eyes knows the answer to that question.
Finally, the argument that there's just a small sliver of crypto that's rotten and this is comparable to everything else is a very very generous interpretation. It is Bill Gates foundation level generous. Everything in crypto, strictly defined, is criminal activity of some form or the other. Ethereum and Ripple are unregistered securities. Every major exchange is insider trading and wash trading. Every stablecoin is guilty of legal misrepresentation. And these are the ones that are not engaging in outright fraud a la FTX.
Is our financial system perfect? Nope. Is it great? Nope. But is it infinitely better than crypto? Absolutely. Will that change? I'd put money on Xi Jinping becoming president of the USA before I put money on that. And for all the extreme libertarians out there, there's cash and there's gold. They don't come with possible surveillance. And they are LINDY. Also, be a normal person. It seems to work for some reason.
Many people in these comments have made the claim that crypto is mostly scams so I don't think that is a straw man argument. It just isn't the argument that you are making. If I were The Venezuelan I'm sure that I would have found it very valuable to be able to transact in gold. Not as good as some other option (that isn't available) doesn't mean something has 0 value
Vietnam: Has China-like capital controls but has not yet banned crypto. 'Nuff said.
Crypto projects: several other ways of looking at it. The same dynamic exists for pyramid schemes, for example, or successful multi-level marketing schemes. Past performance is not a predictor of future performance.
Ukraine: also a center of cyber crime, including ransomware - which is itself a major cryptocurrency use case.
India/Pakistan: both have capital controls. Hmm - likely your index is describing capital controls resulting in "cryptocurrency adoption". Or a recap of China/South Korea from 2015...
This is the first very good article you've posted in a long while, very happy you knocked it out of the park here.
Small nit though, much of the 'decentralized' aspects of crypto are essentially meaningless because people do things like e.g. letting the exchange own their wallet so they don't have to deal with the hassle of owning their own keys, even though that defeats the entire point of cryptocurrency. The most infamous example of this is NFTs just being URLs to JPGs hosted on some random server somewhere, most often an AWS instance, which detractors of crypto like to point out ad nauseam.
Yeah, I think of this as "the decentralization technology is ready and available when people need it, which is great, but so far at least in developed countries they don't"
Do your return calculations take into account costs such as transaction costs, holding costs, theft and loss ? Or do they, nonsensically or dishonestly, assume those are all 0 ?
How many exchanges/holding outfits have disppeared, taking their clients' money with them ? That's not reflected in prices, and you've got to account for that. That's a kind of theft/loss. There are other that must be accounted for too.
You're making the same mistake as people who estimate the cost of their iPhone to be purchase price - resale price. There's also the cost of repairs, AppleCare...
You can count them on the fingers of a single hand, and like Scott points out, if you were prudent and weren't looking to juice extra yield out of your assets you would safely hold them on a hardware wallet with close to 0 risk aside from a straight up robbery
> if you were prudent and weren't looking to juice extra yield out of your assets
That's a problem, isn't it? In the centralized finance system, you don't need to "juice" extra yield because you have a full range of choice between interest-bearing savings accounts and equity investments.
In fully decentralized crypto, however, there's no way to earn (real-terms) yield. Yield comes from an interaction with the real world, and that interaction is a point of centralization and regulation. Once created, such yield can be transported (e.g. from a hedge fund to a decentralized-finance secured token-loan platform), but that only obscures the original source.
Cryptocurrencies seem to have real value as a medium of exchange, but that's just one of the functions of a currency. You don't want to store your assets in an ephemeral medium, just like in yesteryear it would have been silly to keep your life's savings in traveler's cheques.
MGM -- say more about why it makes sense? (I come from a developing country with a corrupt govt and prevalent MGM, but it still doesn't make sense to me)
Circumcision is helpful in preventing STD/STIs. It's particularly valuable in countries with low levels of condom use, sex-education, and health services and those where HIV is prevalent (those don't exactly correspond to failed states, but they're mostly developing countries like the ones Scott says benefit from cryptocurrencies).
Google "HIV and circumcision" (or just read the Wikipedia article on it) for more info.
>When something goes up in value 10,000x, it’s hard to think of it in any other context. Whatever it was before, now it’s “that thing which went up in value 10,000x”. And so both crypto believers and detractors have treated crypto primarily as a thing for going up in value
One minor caveat is that Bitcoin was *designed* to make number go up - the increasing difficulty of mining and the hard limit on the number of coins in existence means that it was deflationary from the start. And (speedrunning yet another bit of finance history) deflation means that people hold their money instead of using it.
Someone who's doing cryptocurrency development needs to invent an answer to "how do we algorithmically decide how big the money supply should be?" Or perhaps even more deeply, "how do we bootstrap a crypto project aside from giving a worthless token to people and promising Number Goes Up?"
"And (speedrunning yet another bit of finance history) deflation means that people hold their money instead of using it."
People buy TVs even though they decrease in price over time. People will spend a deflationary asset/currency, just with a lower time preference. Less immediate consumerism and more thoughtful long term thinking about how to carefully spend money seems like a good shift in mindset.
I didn't see anyone deal with the first graph yet, so if so, they probably got it better than me.
Saying that, I have no idea what that chart is pretending to show. Thanks Scott for the source link, and what follows is not about Scott's commentary, but the graph just confused me more than anything.
Countries are scored on a scale of 0 to 1. All right, that's not a problem, people do that all the time, but...
"Our methodology
The Global Crypto Adoption Index is made up of three metrics, which we’ll explain in detail below. We rank all 154 countries according to each of those three metrics, take the geometric mean of each country’s ranking in all three, and then normalize that final number on a scale of 0 to 1 to give every country a score that determines the overall rankings. The closer the country’s final score is to 1, the higher the rank."
Why is it a geometric mean of three ranks? Why normalize those ranks? Smarter people than me, feel free to let me know.
But my real problem, is they don't actually describe how they weight the data. It's PPP weighted (somehow), I get that, but then suddenly in the third rank its weighted by PPP and internet access. When I first read their methodology I was shocked India was so low. But that makes sense, Indian internet coverage is pretty high. But then looking at their top level results, 'all' of the variation comes from the third category:
Category 1: India - 2 Vietnam - 4
Category 2: India -3 Vietman - 2
Category 3: India - 72 Vietnam - 3
This is not a description of 'regular joes' using crypto as a replacement for banking. This is a description of a very wealthy few not having any other option how to get their money out. Let me know why I'm wrong.
When you discuss the one advantage of Crypto (decentrality), you have to understand that even this one advantage is guaranteed in the same way that regular cryptography is safe from attack through large semiprimes: It's not guaranteed, it's only very expensive. It's security by economics.
As long as one party controls more than 50% of the network's hash rate, they have potentially total control over future entries into the blockchain, which is essentially the key to the entire vault. Controlling >50% is indeed expensive for large networks like BTC so it has held firm, but it's much more feasible (and really happening) for any number of smaller networks, potentially leading to a higher-order of centralization of the big networks getting bigger because they're safe from attack. Also, since BTC is "the thing that went up 10,000x", everybody wanted in on it and bought tons of ASICs, whose price is highly correlated to the price of the coin it's supposed to mine. If and when BTC has gone back down 9,999x, reaches some kind of stable price point, and the Ponzi demographic has lost interest, all that mining hardware can be had for very cheap (you can already check ebay for listings), making such an attack much more attractive. Even today, the 3 largest pools already make up ~60% of the hash rate.
Proof of Stake can be discussed much more easily: The 51% attack is already baked into the design. If you own 51% of a proof of stake coin, you own the entire network.
So that's two levels of decentralization (distributed ledger and multitude of secure networks) secured not by mathematical proof, but by mere economics, which can drastically change on a whim.
The risk with someone having >50% of the hash rate in a Proof of Work coin is that they can hold blocks in reserve, and only transmit a longer chain when someone else manages to find a block, thus mining every block going forward. Proof of Stake coins don't necessarily have this same risk.
Cardano's Proof of Stake algorithm, for example, pre-determines which pools are allowed to mint blocks in which time slots, and it does that days ahead of time. Even if you controlled 51% of the ADA in existence, 49% of the blocks are still going to be mined by other pools.
It's also worth noting that having control of all blocks mined still won't let you violate the rules of the protocol. You couldn't just print yourself more Bitcoin, or steal Bitcoin from someone else's address. Your newfound power is basically just the ability to choose not to include certain transactions (effectively a type of financial censorship).
(If guess if you outright double the hashing power of everyone else on the network, you could potentially scam people by making a big transaction and then undoing it later through a blockchain re-org, but that's even harder and more expensive to pull off than the "simple" 51% attack)
I don't think this changes my mind on crypto, but I am mulling it over. Right now, it feels akin to living in a world where I was almost bitten by a snake, I know people who have almost been bitten by snakes, know a few that *have* been bitten by snakes, one of whom died, and many of the people that I know know of someone who knows someone that brings a snake around with them that keeps biting people. It's usually the same dingus doing it, and nobody talks to them because of it.
These are very interesting snake facts. They fit an important ecological niche, which is generally in places that I am not. That has value, and provides a net benefit to the environment. But, I still don't like snakes.
Scott, you know if you lease out your newsletter to a crypto booster, you're supposed to tell us, right? Blink twice if you're being held against your will. More generally, I agree with most of the points, but the opening strawman joke is (slightly) funny because the anti-crypto position is mostly a strawman.
Speaking for myself, I'm only 80-95% anti-crypto. Remittances and working around failed states is valuable, but I question whether you really need crypto for that. Look at Wave in Africa for a great example of a non-crypto fintech for underserved populations. Most of the other use cases seem like BS. There are actually tons of scammers attached to crypto (this running list is great: https://twitter.com/web3isgreat), and I don't think citing scammers elsewhere is much of a defense.
"It used to be 100X worse" isn't very convincing either. The web worked well pretty much immediately, even if only to put up text and blinky tags. We've been waiting what, 12 years since Bitcoin and 7 years since Ethereum launched? When is something compelling supposed to come along?
I'll be interested to see if this all changes over time. Maybe at some point the next generation of crypto or some future version of Ethereum is awesome. But I'm not holding my breath, and I think at this point crypto is a big money sink and a distraction from innovation that creates real value.
Bitcoin's two strongest features are avoiding monetary debasement and protection from payment censorship. You covered the Paypal example for the latter, but I'm not sure you gave enough credit for the former in this post.
I'm not impressed with this so far. We've had the worst inflation in decades and Bitcoin has still lost orders of magnitude more than the dollar. I agree it's a potential hedge against the US experiencing hyperinflation, but I think this is very unlikely and am not too interested in hedging it.
"We've had the worst inflation in decades" -- that would be since ~April 2021.
And as Scott points out in the article (and plenty of others point out in the comments), the fact that Bitcoin has gone up 100000000x is a point _against_ it. That's not how a useable currency behaves.
I didn't say it was a GOOD thing that Bitcoin has gone way up rather than "lost orders of magnitude more than the dollar" over that period. I just pointed out that it's the former rather than the latter.
Defining the period matters. The dollar has lost half its purchasing power since 1992, and 97% of its purchasing power since the Federal Reserve was founded in 1913. That kind of stat is often used as an argument against the utility of fiat currency. Shorten the period and use a period of low inflation and that argument becomes less persuasive.
I agree that Bitcoin gaining so much so quickly specifically and trading at such volatile pricing in general is a bad thing for those of us who are interested in cryptocurrency as a stable store of value/unit of account, and reliable medium of exchange, rather than for buy low, sell high speculation.
Scott was clearly referring to the period of the last 16 months.
Losing half of your value over the course of decades is not detrimental for a currency. If I know what a sandwich cost in X and don't have to update more than once a year (ideally not more than 10%), then X is doing an okay job of being a currency.
Right now, the US dollar is doing the worst it has done by that measure in 40 years. And yet, it is still doing better than bitcoin has at almost any point in its history.
Going back to the broader point, yes, debasement is real. But most of us don't live for more than 2-3 30-year periods, and there's very little reason to think that Bitcoin will hold its value over long periods. If you don't want your savings to lose value, invest them in something productive.
Slow, controlled inflation is a *feature* in "fiat currency", not a bug. And I say this in the most serious, un-cynical way possible. Deflation is terrible for actually-existing economies, for everyone except the few who are sitting comfortably on a pile of F-U money.
Purchasing power increasing over time is good for economies. It's better when goods and products get cheaper over time rather than more expensive over time.
“Freedom of speech is hollow if you can’t pay the print costs for your magazine. Freedom of religion is hollow if you can’t pay the rent on your church. The freedom to protest is hollow if you can’t pay bus fare to the protest site.”
In which Scott nearly realizes why civil liberties are better safeguarded under socialism than capitalism.
I don't think it's contradictory to say both that the government should not be able to prevent you from building a church, and that the government should not be forced to buy you a church with taxpayer money. I agree that if the government does not give you money to do things, you may exercise your rights less than you would otherwise. I take both positive and negative rights seriously but think that in the process of balancing them it's fair to treat the negative rights as more compelling sometimes.
It's important to distinguish between "rights" - positive things that every person in the society is supposed to have and "priviledges" - positive things that only some people in society have.
If we say that being able to publishing a media outlet is part of our RIGHT to freedom of speech than everybody who can't, lack this right. And freedom of transaction doesn't solve this issue unless everybody is wealthy enough or is guarantied to be subsidied by the goverment.
What freedom of transaction is required for in our society is to preserve the PRIVILEDGE to the freedom of speech that more wealthy have over less wealthy. And this does not have to be a bad thing! But it is much less heroic and virtuous sounding.
Then again, to continue the point that the (banned ?) user was making, how hard is it for an adversarial entity (not necessarily the gov) in your examples to kick it one step back ?
They won't prevent you from paying the printing costs of your magazine, they will make it hard for you to earn them in the first place, they will pay better writers and buy more popular magazines that can justify your oppression in more luxurious words that you can't even begin to understand. They will pay a more competitive rent for your church so the landlord evicts you, they will buy all the buses available at the time of the protests and fill them with their cheerleading goons. None of those are illegal activities. None are prevented by cryptocurrencies.
Pitching socialism as a solution is very misguided in my opinion and an easy trap that a lot of anti-capitalists fall into, but if you charitably substitute socialism with just "not capitalism", and essentialize capitalism to "A system that allows and encourages unlimited and unchecked wealth growth", you can't escape the conclusion that you don't *need* a government to oppress someone under capitalism. Capitalism is so democratic, even oppression is no longer the exclusive privilege of the government. Capitalism hates monopolies so much, even the monopoly on violence is not spared its reach. And the redistributed capabilities for violence and oppression are not equally spread across a population, but extremly narrowingly. So that, in effect, you have a mini-government next to the actual government, in the form of rich people, using money and the huge influence associated with it as its executive branch.
Understanding Capitalism as a feedback loop where money leads to more money (as long as they are invested with enough savvy), and keeping in mind that money is a reification of power and physical influence in human societies, then your argument leads us that any society where not every group has the always-gauranteed ability to feed, protect, reproduce and transport itself, is in the exact same trap you're describing. Inequality is the root of all authoritarianism.
Freedom of religion is not about paying rent on a church, you can always have your services in your own home. Freedom of religion is the government or some other body not being able to tell you "you can't go to your services in the building you own".
Now, in some cases (like Covid) maybe the government or some other body can *ask* that you don't go to services, but if you get "you can't go to services because singing hymns means you might spread Covid" but then "of course you can go protest unmasked in crowds in public because racism is a bigger threat to your health", then that is not freedom of religion.
At least Catholicism has worked out discipline about assisting at Mass remotely, but I did think it was hard on denominations that wanted/needed to go to church on Sunday and were told "No, public gatherings are a health risk" (and then turned on the TV news and saw streets packed full of protesters who were not being told "No, public gatherings are a health risk").
I think you are ignoring the real world performance of money market funds. It was news when primary reserve fund broke the buck and returned .98 on the dollar.
The other thing to note is banks do two different things: maturity transformation and facilitating transactions. Crypto doesn't really do maturity transformation. Furthermore use in transactions is at odds with being a good investment and capacity is very limited.
The problem isn't that there are some interesting and good use cases for crypto. There definitely are, as you highlight! The problem is that it appears a big reason why people use crypto isn't to actually "use" it but instead to treat it as a growing asset. And when that's the reason why most people are putting money into an asset, we normally call that a bubble.
Think about all the legitimate reasons to buy tulips, and how difficult it can be to use tulips for those reasons when there is a tulip bubble. That's crypto. The legitimate uses are actually harmed by the speculation, and there is an awful lot of speculation. You helped your Russian friends buy plane tickets, and that's great! Except had you done that when Bitcoin was crashing because of the speculators leaving, well, that might've been an additional headache.
I guess what I'm saying is, your second point about how much money you could've made really, really undermines your other two points, and is also not a good reason for supporting crypto (even if it does prove your point they're mostly not "scams" in the traditional sense).
This is a fair point. But, you can use these blockchains to send stablecoins just as easily as the volatile assets, so you can opt out of the speculation entirely if you want.
And to preempt a few obvious counters:
1. There do exist decentralized, censorship resistant stablecoins (see DAI, LUSD, etc), so you really can retain those properties.
2. There are (or at least could be) stablecoins for essentially any asset. In fact, there are stablecoins that aren't "pegged" to any other asset at all - some would consider these the only "true" stablecoins. See RAI for an example.
For Americans wondering what it's like having your currency collapse and needing to use crypto, I recommend Robert Kroese's Mammon trilogy (also has asteroid impacts and other disasters).
I think calling cryptocurrencies "decentralized" is inaccurate[1] to a sufficient extent that it papers over the major weakness. It's not like what gold bugs say about gold, in that you've got inherent value in your pocket that doesn't depend on *anybody* else -- no bank, no other individual, no communication network. Cryptocurrencies only work so long as you have sufficiently wide and fast Internet communication that you and the person on the other side of the transaction are in reasonable contact with the blockchain. If you *don't* have that kind of Internet connection, or your connection is compromised (e.g. under goverment control), then your cryptocurrency is useless.
This isn't going to be a problem if you're in a small country with a weak government and much of the Internet infrastructure is controlled by benign or at least neutral governments outside your own, so that can work in Venezuela or small African countries, even Ukraine or Russia. But I'm dubious that this would work if China or the US went full-on fascist and decided to stamp it out. The Internet unfortunately has a delicate fixed physical infrastructure[2] that is trivially easy for the government to control, if it really wants to[3], and it could hardly fail to really want to if cryptocurrency were threatening its grip on political power.
That doesn't take away from your point that cryptocurrency has reasonable somewhat niche use cases, e.g. for small countries with weak governments and disastrous economies, or for uses (like prostitution or gray market drugs) that are more the subject of modest social disapprobation than outright criminalization and zealous prosecution[4]). But extrapolating from there to the notion that if Hitler is cloned and wins the 2024 US Presidential election and decides to nationalize the entire US economy and set up Konzentrationsläger for Untermenschen that you'll be able to laugh it off if you have $100,000 in crypto in a cold wallet is...naive, I suggest. Clone Hitler will not forget to have his new Brownshirts take over the Internet backbone servers before putting Congress under house arrest.
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[1] "Distributed" is more accurate, because it emphasizes the lack of a central authority *but* the crucial requirement of relatively unrestricted communication between the participants.
[2] It doesn't actually have to be that way, IP was originally *designed* to work well with a highly distributed network, but in practice too much of the Internet has become centralized for the sake of efficiency, e.g. Wikipedia lists a mere 15 Tier 1 networks worldwide, and only 6 within the US (AT&T, GTT, Lumen, T-Mobile, Verizon, and Zayo). Anybody think Verizon or AT&T are out of reach by Clone Hitler if he wants them to do anything in particular with respect to the packets traversing their network? It's an old standard of computer security that if the black hats have physical possession of the computer, nothing on it or which passes through it is secure.
[3] Although you could always hope to enlist the amateur radio community to provide TCP/IP over radio. I'd be happy to participate myself -- for a nice cut of your crypto transaction heh.
[4] What happened to Ross Ulbricht is an illustration of how much protection clever Internet technologies give you when the government *really* wants to nail you. He was 100% confident that using Tor and BTC made him untraceable. Oh, and in case any NSA spooks are reading, I totally did not imply that Tor could be broken, nope nosirree bob. Safe as houses.
> Venezuela’s economy has been in slow motion collapse for the past decade. The average inflation rate during the late 2010s was 53,798,500%
I believe this is wrong, that's the consumer price index, not the inflation rate (https://tradingeconomics.com/venezuela/inflation-cpi). Won't claim to really know what a CPI is but they seem to be much bigger numbers, so I think you made a mistake here
My dumbass understanding from reading the wikipedia page is that a CPI is computed on some basket of goods in a base year via some method (method left vague because the methods seem to vary based on which particular index, and also still escape me), and then the ratio of the price of that basket in some future year to the price in the base year, times 100, is the CPI. So that's why the numbers are higher, inflation is year-over-year while CPI adds up as you get further from the base year, and also it's just times 100.
The CPI is a *level*, while the inflation is the change in CPI over time, and is a rate.
Venezuela's CPI is indexed so as to be 100 at December 2007. It's current value of like 5 trillion reflects total inflation since that time point.
The number 53,798,500% comes from wikipedia it seems, and reflects the inflation between 2016 and mid 2019 (it's an awkward range because wikipedia is citing some random news article from mid 2019); that is around 3 years, not 1 year. You need to take the cube root to get a rough annualized inflation number. So if prices increased 537985x in that time span, each year they increased around 80x, or 8,000%, as a rough ballpark. Current annual inflation is somewhat lower than that (early 2019 was the worst and actually briefly exceeded 300,000%).
As for poor countries, something like Mpesa seems to work better than Crypto at bringing finance to the poor.
I think the only real major use case in the future are going to be getting around copyright protections. As that will become more and more disfunctional. Lifetime of the author + 70 years is way too long. And "similar works" are often way too dissimilar.
My guess is that creative industries will slowly become more decentralized as there will be more and more powerful tools available. And it will be increasingly harder to not be copyright trolled. So to get around it, you release your work and attach crypto adresses to it. Either in music or virtual worlds.
Convential economics claims that you need to force people to pay up, but I don't think that is true. Kickstarter has shown that people can be quite generous. We just don't like abusive greedy corporations treating us like financial pinata's.
I know some people who were involved in various "Mpesa for countries other than Kenya" startups. It seems to be really hard. I don't remember the details, but Kenya's government did a lot of things right to make Mpesa work, and most other countries did those things wrong and so their attempts to clone Mpesa failed. I don't have strong opinions about whether beating your head against the reasons Mpesa-for-other-countries fails is better or worse than beating your head against the various disadvantages of crypto, but I don't think Mpesa is *trivially* the right answer.
Question: What stops traditional international banks from thumbing their noses at the Vietnamese government and developing phone apps that would allow Vietnamese people to do the things they are currently using cryptocurrencies to do, but through a bank that is located outside their country?
Is it that the Vietnamese government has enough leverage against US banks that US banks are scared to do this? Is it that it would be less profitable for the banks than whatever the banks are currently spending their capital on instead? Is it just that it's too weird and banks are run by traditionalists?
(Genuine question, not rhetorical; I honestly do not know the answer.)
Exactly what I wanted to ask as well. Since most access crypto through an foreign exchange anyway, this seems like a strictly better idea, if legal. I hope Scott replies to this.
People use it to do finance in places with corrupt governments? That's supposed to be a *good* argument?
It sounds unlikeable character Pierce from Community saying, "Somalia has 1,900 miles of coastline, a government that knows its place and all the guns and wives you can afford to buy. Why haven't I heard of this paradise before?"
Just...
I realize I'm not contributing rational counter argument here.
If I understand correctly, his point is that depending on a person's character/values, if a person has access to crypto in a place with a corrupt government their response may be not "yay, I shall use crypto to heroically resist/subvert this corrupt government " but rather "yay, I shall use crypto to do all sorts of shady unethical sh*t and not get caught!"
The problem is, that is probably not the typical reason people want to make clandestine payments to Russians. It seems at least possible that high percentage of the activity is funding bad things, so the mere fact that there's a lot of use doesn't tell us whether it's good on net.
> I’m less than infinitely hostile to crypto. This is becoming a pretty rare position
I don't think this is rare at all IRL.
On the internet, yes. Everyone is in 2 camps. A) Crypto is a scam B) Crypto is the best thing since hot water.
I'm an (ex FAANG) system engineer, I speak with developers, engineers, entrepreneurs and hackers all day. I have _never_ met a person IRL in my social and professional Silicon Valley circles that is in camp A or B.
Everyone I know is camp C: crypto has some promise, the current incarnation is a shit show, DeFi is a house of card, etc.
I think people in camp C have better things to do than fight holy wars in internet comment sections, so they're heavily under-represented.
Why would you help people avoid helping their country defend itself against an existential threat? Would you similarly help Americans not willing to invade a Mexico that was becoming a military and political proxy for communist China? A Mexico that was for good measure violating it's international agreements to not terrorize American communities in Mexico?
Ukraine is definitely not an existential threat to Russia. Russia has nuclear weapons, it's not under existential threat from any country no matter how powerful.
The only thing that can bring down a nuclear regime is its own stupidity. Such as, for example, attempting to launch a pointless, unpopular, underprepared invasion that the entire rest of the international community is warning them not to do.
You mean like Russian military presence in Cuba were not an existential threat to the US and yet scared the Americans so much it allmost precipitated nuclear Armageddon? Except that the USA hasn't already twice been invaded through Cuba?
That analogy might make some sense if the US had installed nuclear-tipped ballistic missiles in Ukraine prior to the most recent invasion, or at least started digging the silos for them. No US President rattled sabers over Soviet troops or influence in Cuba. It was the presence of nuclear weapons with delivery systems that was the problem.
It's a question if Scott readers from Russia consider country as theirs.
Also, you can make a case for helping those individuals, from both countries, who don't want to fight and want to leave, and let those who wish to fight, fight.
It's interesting how some of the commentors comment on things like energy cost of cryptos and so on, as if they are negative. I, for once, find it a positive thing compared to a usual currency like dollar, ruble and so on. The point here is - the currency should have either a REAL mining cost or should be emitted by a known predictable set of rules. It is a good point where there is no organization or indivildual who can say "oh, let's just print a gajillion dollars, because we need them for fighting covid or whatever other weird cause".
I should note that my sample of "most people I know are in camp C" is heavily biased, because I speak about crypto mostly with _technical_ people.
Most people are non technical, and can't even be expected to understand the difference between cryptocurrency and blockchain. Or the more nuanced difference between Bitcoin (the software) Bitcoin (the internet currency) and Bitcoin (the phenomenon).
Setting aside the "is crypto a scam?" question for a second, I'd just like to say that if the NSA/CIA/"Deep State" is really doing some psyops behind the scenes, crypto seems like an obvious target. "Crypto is only used by terrorists and drug dealers", "Crypto is bad for the environment", "All crypto is a scam", etc. Or maybe it's not some extreme sinister psyop but just slight pressure from government institutions and media outlets. People with power don't like technologies like free speech, internet, guns, and crypto. They'd rather keep rolling with the existing power structures.
On the other hand, having loads of people with extra cash sink $billions into crypto only to have it all vanish in a puff of hall o' mirrors chicanery like the FTX implosion is a fabulous way to withdraw hot cash from the economy and dampen inflation. Much more palatable than raising taxes or interest rates.
Admitting that they missed out on the best financial opportunity of their life because they're not as smart as think they are? That would be both soul-crushing AND ego-deflating, both of which would make their lives worse.
It's much cheaper to just convince themselves "It's all scams!!!!!", and then try to convince everyone else too.
The only question is what mental gymnastics they would do if CC actually went 1st-world mainstream. My best guess is try to elect an anti-CC president to bring the CC-rich back down to their level. Crabs in a bucket.
> Conflict of interest notice / I am dumb alert: I do hold some cryptocurrency, mostly Ethereum, mostly because I received it a while ago as crypto, and want to wait until the end of the bear market before selling it.
Definitely think conflict of interests being declared upfront should be declared more often up front, always bugged me reading scientific papers where the conflict statement is at the end.
> There are 8 Ivy League schools in the US, 400 high-quality research universities, and about 1,000 fraudulent diploma mills. Higher education is full of scams! If you’re a knowledgeable person following a normal educational track, you’ll probably be fine. If you click on spam emails that say “GET A PHD IN TWO WEEKS WITH THE UNIVERSITY OF PHEONIX” and wire them your life savings, you won’t be fine.
The University of Pheonix sure sounds like a scam.
A lot of people, though, treat the University of Phoenix the same way, and it isn't clear to me why. They seem to hold themselves out as a school where if you send them money, they will send you curricular materials. I don't see the problem.
A friend of mine at a respectable public university failed Operating Systems, a required class for her major, and made it up by taking University of Phoenix's operating systems class. This was considered acceptable to the administration.
Is the difference that taking a University of Phoenix class for state university credit gets you a diploma from State University, whereas taking the same class without matriculating at State University gets you a diploma from University of Phoenix? Where's the scam? State University has already admitted that University of Phoenix is just as good.
Thank you for this post. I would add that if crypto forces re-evaluation of some aspects of financial regulation, that would be a good thing. The public tends to support financial regulation in the abstract because of a vague sense that 2008 and other crises could have been prevented by "more regulation", but in reality the relevant macroprudential/soundness rules are a small portion of the overall regulatory burden. For example AML/KYC rules make it very risky for financial institutions to provide services to new/smaller companies. It was nearly impossible for our startup to open a bank account, and we only succeeded because I held a securities license (and was therefore considered low risk) from when I ran another firm. Back on crypto, the SEC is focused on picayune issues around what does/does not need to be registered as a security under the 1933 act. The reality of securities registration is that it primarily involves paying a law firm several hundred thousand dollars to produce a document that no one will ever read. So while requiring registration will certainly result in less crypto (because not everyone has that kind of money), it's far less clear how this will benefit the public, unless you are starting out from the assumption that crypto is bad and therefore less of it is always good. Finally, Scott touched on the way that financial regulation has become a way to ban or suppress things without accountability or democratic debate. If the government wants to ban (say) OnlyFans, instead of passing a law or going to court they can simply have the regulator go to banks/payment processors and say "hmm, this business seems risky, mumble mumble some potential future liability". And because the regulator has a ton of discretionary power over banks, and OnlyFans is just one client, they are inclined to comply out of an abundance of caution.
Disagree. Speculative financial instruments almost never cause financial crises. Financial crises occur when something widely assumed to be safe (bank deposits, a currency with a fixed exchange rate, AAA-rated asset backed securities) suddenly is proven otherwise. Almost no one thinks crypto assets are safe - aside from stablecoins where there is a case for better regulation.
Can you be more specific? I can't think of a crisis where derivatives played a major role, unless you mean the ABS involved in the 2008 crisis which I've already covered.
Can you transact with the traditional financial system and have the ability to prove to anyone at any time that you've done so? Can you do the same while hiding that fact from everyone unless you chose otherwise? Can you do something in-between such as proving that you have an account with > 100 dollars in it but without revealing the actual amount? Can you create a virtual asset which is quite reliably tied to the price of onions? Can you create one that's not actually pegged to anything with its own unique monetary policy? Can you build a prediction market? Can you create and deploy something else, some weird financial instrument which no one has thought of yet for whatever purpose you desire? No matter who you are or where you live it's no to most or all of the above, not because it's not theoretically possible but because you won't be allowed to or don't have the resources, this is so much the case that most of that stuff wasn't even imagined until crypto came around. If you value this type of experimentation, then crypto actually has a leg up and the rest of the performance gap has either already been closed or will be shortly. The question is, the one that ought to be central to any good faith argument for or against, do we want this kind of stuff to be possible or not?
Most of my disagreements with this post boil down to: “Did you watch Dan Olson’s video on NFTs?”
What I really, super don’t understand is why you argue that cryptocurrency is decentralized. Didn’t the ETH/ETH Classic fork teach people that proof of stake chains are extremely easy for government to co-opt? Large stakes in the present necessitate either early adoption or large amounts of capital. These large stakeholders have the greatest say in terms of the validation mechanism, meaning all any oppressive government need do is control a small number of powerful stakeholders. The same as authoritarian states have done with crony businessmen everywhere.
Bitcoin, the only one with a slight claim to decentralization owing to its proof of work model, is horribly inefficient in terms of power consumption. It’s unusable as a currency owing to long transaction times and fluctuating value. Today, big capital holders are the only ones with the ability to mine Bitcoin, as proof of work incurs heavy diminishing returns. Again, centralizing control in the hands of capital holders.
Blockchains are not decentralized. They are quite literally a worse version of our current centralized financial system. They duplicate the old system’s problems and put all power in the hands of people who can barely code, let alone create a financial system from scratch.
This is one of the core issues. The "advantages" of "bitcoin" come with a bunch of incredibly serious flaws/downsides. And to the extent you "patch them" you basically just end up with a worse version of what we already have.
"I don't trust banks", but I do trust random foreign conmen who have been involved in other fraudlent projects...
Anyone can buy a bitcoin mining ASIC for a couple thousand dollars and operate it profitably anywhere with cheap electricity.
Humans have been burning resources to play status/trust games since long before bitcoin existed. Witness the higher education industry, the real estate industry, the car industry, the fashion industry, the military-industrial-complex, etc etc etc. Bitcoin's resource waste pales in comparison. A majority of global GDP seems to be devoted to positional goods.
"Today, big capital holders are the only ones with the ability to mine Bitcoin, as proof of work incurs heavy diminishing returns."
Incorrect. Miners want cheap energy which is found distributed throughout the world. Rural hydropower dams in Africa are now being used to mine bitcoin, with proceeds being used to subsidize electricity for poor Africans.
"Miners want cheap energy which is found distributed throughout the world. Rural hydropower dams in Africa are now being used to mine bitcoin, with proceeds being used to subsidize electricity for poor Africans."
To what extent are statements like this actually true in any real sense? I sort of feel like this saying "VISA doesn't primarily help its shareholders and developed world customers because there is a VISA ATM in Kinshasa" (or whatever). Like sure that is true, but it is not actually a notable part of the ecosystem and is really just used a boutique non-representative example to deflect from what is a valid criticism.
When an absolute statement like "big capital holders are the only ones with the ability to mine Bitcoin" is made, one counterexample is enough to refute.
The general point is that mining will be globally distributed to places with cheap power as that's the variable cost that impacts mining profit. There's cheap energy in places with poor people, so those with little capital can benefit from bitcoin mining. People can buy one ASIC, join a mining pool, and start earning bitcoin now.
The economies of scale in bitcoin mining are much less than in eth staking, and way less than economies of scale in traditional banking. Everybody's running roughly the same commodity hardware and the manufacturers don't offer much in the way of volume discounts. In Washington State the power utility discriminates against big bitcoin miners, and makes them pay more per kwh than residential small-timers who could operate a few asics on the down low. It is actually pretty decentralized and very likely to stay that way.. Hydropower in sparsely populated areas is cheaper than almost all fossil fuel, and distributed widely around the world. Some of it would only be economical to develop with the help of bitcoin mining.
The link provided in footnote 7 is pretty disappointing from the perspective of being used a concrete prediction about crypto scams. The list has 7 entries:
1. The Merge (not clear how this is is even in the category of things that could "be a scam" since it's just a technical development on a particular chain which has already completed.)
2. DEX Screener (a free website showing a list of DEXes, I suppose it could be developed into a scam by having it mark DEXes as "screened" when they aren't, but I would say the base rate on this is low anyway, so it's not very telling to bet that it won't become a scam)
3. Sudoswap (an NFT marketplace, I can see how this could become a scam)
4. Soulbound tokens (this is an idea rather than a concrete project today. I could see many people running with this idea and producing projects. Do all of them have to be scams for this to "be a scam")
5. Arbitrum (a rollup, I could see how a rollup project could be parlayed into a scam, though rollups are supposed to be visible on the chain, so it wouldn't be easy)
6. Layer 2: zkEVM and zkSynch (zkEVM is another one which is a technology rather than a specific project. zkSynch is a specific rollup.)
7. Across Protocol (A bridge.)
So 1,4,5a are really technologies rather than projects, and 5b, 6, 7 are layer 2 projects, not really the type of thing that can easily become a scam while remaining very visible, because the code should all be public.
"Crypto" is about 10 different things living under the same tent of "a lot of people saying their technology does things that it doesn't, or will never, do".
Who remembers ICOs? Those were wild. Do those count as well regarded projects given they were taking people's money in exchange for misrepresentations?
One of the more concrete things that actually happens is avoiding financial regulation to transfer money. Avoiding regulation isn't a novel use case. It's just building a gray market. Gray markets are usually useful because they allow people who have trouble accessing markets access credit and other financial products. >99% of emigrants made their journey without crypto. And circumventing currency export controls isn't some sort of virtuous feat either.
I guess if the bar for useful is "1% of users of the product actually use it for money laundering so we can ignore all the other speculation, seediness, and charlatans" then sure. But maybe have a bar proportional to the amount of hype and capital involved?
I think it's sad that you had to guard yourself by saying "less than infinitely hostile". Crypto has legitimate use cases. Thanks for pointing that out.
My guess, based on living in African countries for the last 13 years, is that most of the crypto in Africa is owned by wealth types who wish to avoid capitol controls and taxes. I'm not a big fan of capitol controls, but I understand why they exist in poor counties where most of the wealth is in the hands of a few. Crypto further weakens governments and strengthens the wealthy who control assets. Solid use case yes, but not for the betterment of humanity.
> If Nancy Pelosi’s text messages are any guide, Democrats have joined libertarians in the “actually pretty worried about the government becoming an oppressive dictatorship” club.
While I don't dispute the truth of this sentence, we can be confident that Nancy Pelosi's text messages are in fact not a guide and Democrats are not worried about this.
Or, to be snarky, at least they are not worried when it's *them* doing it.
(Note: I am not saying the Biden Administration is, in fact, an oppressive dictatorship, I am saying that party A is always going to scaremonger about party B in order to shake money out of potential donors - and likewise party B will return the favour when texting *its* potential donors - and Nancy herself may have had no idea what the wording going out under her signature was, because do any of us think that Nancy sits down to do mass emails when she could have some underling's underling do that kind of grunt work?)
I think Scott's article basically argues that *stablecoins* have plenty of great use cases but fails to make even a small case for crypto as an investment. Crypto is great money, but terrible for making money.
Stablecoins run on the decentralized networks that are secured and powered by native crypto tokens. Every time you make a stablecoin transaction you pay a network fee that accrues to holders of Ethereum or whatever other blockchain you're using.
IMO it's unfortunate that Bitcoin continues to dominate the mindshare of how most people view crypto. Ethereum is more like oil than gold. It doesn't necessarily have to replace money. Its value proposition is that people will find applications (like stablecoins) running on top of the Ethereum network valuable and useful.
I've been saying for a while "crypto as a transaction medium isn't a scam; crypto as an investment is almost entirely Ponzis some of which haven't failed yet".
Lex Fridman interviews Coffeezilla. I've just gotten to the bit where Coffeezilla says he doesn't do any deals in the crypto space because it's too hard to tell what isn't a fraud. I think he he's talking about advertising deals rather than any investments he might be making.
For context: Coffeezilla has spent a lot of time looking into, exposing and explaining all kinds of crypto scams. He's a legitimate expert on the topic. If he says identifying frauds is too hard for him, that should cast doubt on any position of "just use the established companies, you'll most likely be fine."
I've read all of the comments here and they are plenty of threads on various details, but almost no one (except for Sean McCarthy) is talking about the *fundamental* flaw of cryptocurrencies like bitcoin: they are a liability with no creditor. The claim that "bitcoin has value because people believe in it" is like saying "(literally) pull yourself up by your bootstraps". I've tried to make the point in a non-technical way here...
Note that I think this is a weak claim, but at least it is a logically possible one.
We are currently in an transient where, yes, there are people who will give you money in exchange for adding a transaction to a bitcoin blockchain that miners currently append blocks on, but this is only because those people do not understand what they are paying for. Eventually this phase will be over - with hard time limit imposed by bitcoin's own halving rules.
All that aside, there also happen to be plenty of bitcoin technical problems that would eventually catch up to it even if the delusion were to linger on. If you believe in the myths that bitcoin is decentralized, inflation proof, non-confiscatable, etc then I'd be happy to go as deep as you are willing to go to rebut these claims. There are very few people who really understand bitcoin past the marketing materials, and most of them are highly invested in not talking about these problems publicly.
And finally, if you are one of those people predicting that bitcoin is going to $100K or $250K or $1M, then I'd love to publicly take your bet here! My only requirement is that the payout can not be in crypo if I win! :)
>And finally, if you are one of those people predicting that bitcoin is going to $100K or $250K or $1M, then I'd love to publicly take your bet here! My only requirement is that the payout can not be in crypo if I win! :)
The issue with that kind of bet is that "Bitcoin won't reach US$1M by 2030" is actually asserting that neither of the following events occurs, nor a combination of lesser versions of both:
#1: Bitcoin doesn't increase in value by 57x over today
#2: USD doesn't decrease in value by 98.3% from today
#1 can be solidly argued to be implausible, but there are plausible scenarios for #2 even in the short run (nuclear war or civil war, most obviously) and it's forecast to happen by 2100 even just from normal inflation. So this caps the odds at which you can profitably make that bet.
(Of course, if you live in the US and are likely to die in the case of short-run #2, well, that alters your incentives.)
I'd like to propose a counter-bet: in 2030 Bitcoin will still be worth a nontrivial amount of money, and there will still be many people on the internet explaining why its correct value is actually zero :-)
Could you elaborate on a falsification on your side? i.e if bitcoin/ethereum trades above x at this date y I concede that I am wrong and crypto is really valuable?
If it is possible to sell $100M worth of bitcoin for more than $10K/bitcoin in 2022 dollars per bitcoin in 2030 then I concede that I am wrong and crypto is really valuable.
I'd probably be willing to be more aggressive on all parameters in the case of a real bet. FWIW, I am on record here with a far more aggressive bet placed when bitcoin was trading around $50K...
thank you. I think 1000$ by 2025 is quite unrealistic without a catastrophic technical failure. Also, I am pretty confident (80%) that you will be able to sell 100m$ in bitcoin for 10K$/bitcoin in 2030.
80:20 odds that it is will be possible to sell $100M bitcoin for at least $10K/bitcoin in 2030? I accept!
I acknowledge the potential difficulty of evaluating the "sell 100m$ in bitcoin for 10K$/bitcoin" test, but I am confident that we can work out a suitable adjudication method. I would be open to something good-faith like "...in Scott's opinion" if you are.
LMK how to proceed. I am ready to go as big as you are on this bet. If the size justifies it, then I'll even pay whiteshoe legal fees to make sure everything is legal and reliable and then opensource those documents. Maybe we can kickstart a new norm where people on ACT are willing to put real skin behind their claimed opinions!
They aren't part of balance sheet and they are not redeemable for anything. I think you might be using the wrong label.
Your joke/example is a red herring, because Bitcoin is not an IOU.
I think the main issue why crypto skeptics do not get why bitcoin has value is that they don't accept the scarcity argument. It might be that the scarcity argument is malposed.
My fix to the argument goes as follow: scarcity is a necessary conditions for a store of value without trust, but it is not sufficient. A good store of value needs to also be divisible, perishable and be fungible. Now, in the entire human history, it is very hard to come up with examples of things which are at the same time scarce, fungible, divisible, non-perishable. The only things which come to mind are precious metals. And by the way, once the other properties are there, scarcity is a very strong element for giving value: Egyptians valued silver higher than gold because it was more scarce at that time in their location.
Would you agree until this point?
By your post I assume you do not believe Bitcoin to be believable scarce? If no, why?
I have been in the space as a technical person for over 7 years I can ensure that's almost impossible to make any change to Bitcoin code, even the "good ones".
And no, it's not enough to convince the few hundreds miners operations around the globe. Miners only extend the chain, they can't change rules.
The big issue is that while *any specific* cryptocurrency is scarce, the *general category* of cryptocurrencies is not scarce; anyone can mint a new shitcoin. This is not analogous to precious metals; I can't invent "grold" and start out with all the grold in the world.
Gold does also have some uses, which contributes somewhat to its not-worthlessness, although this is a weaker argument than it could be since electronics are a minor use and its use in jewellery is to a reasonable extent downstream of its value rather than upstream (in the old days, it actually was prettier than the alternatives, but that's no longer really the case).
(NB: I'm not particularly keen on gold either, to be clear. I think it's probably overvalued, although its "true" value is definitely not zero.)
No, you cannot make a cryptocurrency that's believable scarce. Because to be believable scarce you need many different people, companies, entities to run and contribute to the open source software. Beside Bitcoin, the only successful example that I think has reached that threshold is Ethereum.
That doesn't mean people won't try, at there are have been many unsuccessful examples, some even made in good will (ZCash, Grin).
A recent bad example is Solana, where you have a single company running core network validators, be the sole contributor to development and be financed by VC by selling a huge part of the network tokens.
I think the window to launch any other new L1 crypto has completely closed. In 2050, if crypto still exist, it is extremely likely that it will still Bitcoin and Ethereum that compete for being global stateless private money.
Re: gold value. Gold still trade a big monetary premium vs industrial use cases (like 4x-5x higher than it should be for the demand for industry and jewerly). Central banks are still buying a lot of gold as a reserve asset.
"By your post I assume you do not believe Bitcoin to be believable scarce? If no, why?"
The dictionary definition of scarce is "insufficient supply for the demand". At the current price level the supply of bitcoin meets the demand, or else the price would rise until it did. My guess is that you intended something more like "has a known, limited supply", referring to bitcoin's coinbase rules that limit miners to eventually minting, at most, a total of 21,000,000 coins. I am going to call this property "bounded" rather than "scarce".
For Bitcoin to be bounded, I think at least the Bitcoin blockchain rules must be strictly immutable. If it were possible to modify these rules, then the supply would be unbounded because at anytime in the future the rule encoding the 21M limit could be modified, or the rules that enforce not changing the the limit rule could be modified.
The Bitcoin blockchain rules are not immutable. They are subject to change by political processes. This has happened many times in Bitcoin's history. There is currently even an organized political process to make changes to these rules (BIP). I note that you specifically added the word "almost" in front of "impossible", which acknowledges this fact. :)
The party line retort goes something like "Ok, yes, the bitcoin rules can be changed, but the process to change them is hard and requires consensus, and that process would never result in changes to the minting limits due to incentives."
This statement implicitly admits that it is, in fact, *possible* to change the rules such that more than 21M coins could be minted, and also that the process that currently prevents that from happening is a political one rather than a technical one.
Unless I've gotten something factually wrong here, I think just showing that the rules are not immutable and that the process to change them is a political one is enough to undermine the claim that the supply of bitcoins is structurally bounded.
But just to anticipate the next retort, "The incentives to maintain the 21M limit are so strong that so we can depend on them to prevent any political process that might try to change them from succeeding". I will resist the urge to point out the futility of relying on incentives to prevent political processes from making ill-advised decisions. :)
Instead I would show that as the block reward continues to drop, the incentives to inflate the supply bitcoin (or do the functionally equivalent) will be irresistible. This gets complicated and technical and is not critical my claim so I will not peruse it further here, but I am happy to go deep on this topic elsewhere.
In conclusion, I claim that Bitcoin's supply is currently only limited by a political process rather than a technical constraint, and further that it is not only strictly possible that this limit could be modified in the future - it is almost inevitable that it will be due to the changing incentives created by this very limit.
DISCLAIMER: I do not believe that this is even the strongest of the many arguments against Bitcoin. I do not even believe this is even the strongest argument against Bitcoin's claim of limited supply, but it is the simplest and so I offer this one here.
I use scarce as in " not easy to find or get: not abundant, restricted in quantity".
In the context of monetary and store of value uses, I think "hard to get" is the right intuitive definition. There are other metals that have limited supply (all physical resources are finite on planet earth in the end), but if the above ground stock can be dwarfed by newly extracted flows, then it makes for a bad store of value.
In fact, I cannot think of anything that is 1) hard to get in the sense of stock to flow dynamics 2) non-perishable 3) divisible 4) fungible, and it doesn't have a lot of value. Can you help me find a counter example?
Maybe Bitcoin has value because it's simply hard to get.
>For Bitcoin to be bounded, I think at least the Bitcoin blockchain rules must be strictly >immutable. If it were possible to modify these rules, then the supply would be >unbounded because at anytime in the future the rule encoding the 21M limit could be >modified, or the rules that enforce not changing the the limit rule could be modified.
No, blockchains aren't immutable in a technical sense first. That's why the argument "you can have thousands of cryptocurrency, so there is no limited supply of crypto" is completely wrong: it is extremely hard to make a blockchain believably immutable.
Only after you believe that the social construct surrounding it prevents arbitrary changes to the rules, then you can look at the technology part and evaluated it.
Money is a social construct in meatspace, so it seems normal that it should be a social construct in the cyberspace.
It's extremely hard to ship any change/BIP at all in Bitcoin, and there are some part of the community that are already considering to stop accepting any BIP. In general, the aim is to reach a nearly unanimous consensus before something is considered for inclusion in the codebase.
But, if a change is not unanimous, the minority can opt out by not upgrading the software. I think this is an important difference vs the political process of meatspace society even in successful democracy.
>Instead I would show that as the block reward continues to drop, the incentives to inflate the supply bitcoin (or do the functionally equivalent) will be irresistible.
They are a few ways to counter this without changing the supply limit, which would require a hard fork. They could reduce the block size temporarily to increase fees or implement demurrage, both which could be introduced by a soft fork.
Let's even say that they do modify the limit and introduce a small tail emission for the sake of security. I don't think this counts as an arbitrary change to monetary rule, as it has a stated verifiable purpose. And a tail emission would be so small, that for all purposes the supply of Bitcoin would still be limited.
Ok, so at least we agree that the oft-touted 21M hard limit on the maximum number of bitcoins that can ever be minted is, in fact, a only a soft limit based on the rules currently in place, and that those rules are subject to change via a political process?
I also think we have made progress in that you agree that there will have to be some set of rule changes in the future to make up for the dwindling coinbase rewards, and the possible responses include inflation (although you think this inflation level would be small enough that the bitcoin supply would still be considered "limited"), a periodic asset tax levied by the bitcoin miners on bitcoin holders, or a measure where miners artificially reduce the bandwidth of the bitcoin system to force the transaction fees on users to be higher. Most bitcoin apologists do not understand the system well enough to even see why this is an issue, and those who do are usually not willing to mention such things in mixed company!
If there are any readers out there who thought that the bitcoin 21 million coin limit was absolute and that it was impossible for that to ever change due some inherent property of the system, I hope you will now update your beliefs on that marketing claim!
Yes we agree. But the fact that the limit can be in theory be changed, doesn't undermine the value proposition of Bitcoin at all.
For example, the US Constitution can be changed, it is not immutable. You could argue that's possible that a new Constitution change could undermine private property rights. But it is so hard to change the constitution, that the fact that's changeable doesn't undermine the value of securities (stocks/bonds) and real estate in the US.
On the other hands, in countries were institution are much weaker and it is possible to change the Constitution/property laws easily, it is a consideration that investor need make when they value real estate and securities in those countries.
What would undermine the value proposition of Bitcoin is if the limit would be easy to change, but there is extremely strong evidence of the contrary. Or do you disagree with this?
By the way, it's not just the rules of the supply limit that's socially imposed, it's all the rules of the ledger, including ownership.
I mean, isn't this just another point that the only use of crypto is inherently illegal? Like you say it nicely that is is solving "regulatory issues", but these are literally laws enacted by the sovereigns where your physical presence lies. Yes, it's a not a good situation for these people, and it's kind of great that they now have the ability to sidestep these sovereign controls technologically, however it is a TERRIBLE business.
THIS is why people are infinitely hostile to crypto - as an anarchistic distributed middle finger to sovereign control of weath it's great. However, AS A BUSINESS, and any business purporting to be 'legitimate', you cannot get away from the fundamental issue that use cases are illegal.
There are cases where paying for X is legal but you still can't use the centralised payment system for it due to globalisation and oligopoly giving other people a de-facto veto. In Australia, for instance, prostitution is legal (exact law varies by state, but in the entire country selling sex and buying sex are legal), but AIUI you're still not going to have a lot of luck using Visa/MasterCard to pay for it because they're beholden to US pressure groups and US law. Or take Substack itself; Visa/MasterCard still work AIUI, but PayPal doesn't because Substack platforms people SJ doesn't like (this is also why Patreon was forced to purge itself of alt-rightists and fictional CP; it faced being refused service by PayPal otherwise).
So it's not quite "inherently illegal". "Inherently disreputable", yes, but that's not quite the same thing.
"Now these are the local (internal) tributes of Munster to Cashel, and they are paid every year, i.e. fine and refection and provision and protection. First, three hundred beeves from Múscraige and three hundred boars and three hundred cows. Then three hundred boars and three hundred mantles and a hundred milch cows from the Uaithne. Then a hundred cows, thirty boars, thirty beeves, and thirty cloaks from the Ara. Then sixty oxen, sixty wethers, and sixty cows from the Seventh. Then fifty cows and fifty oxen and fifty beeves from the Orbraige. Three hundred oxen and a hundred and fifty milch cows from Dáirfhine also. Thirty cows and thirty oxen and thirty cloaks from Corco Duibne. A thousand cows, a thousand oxen, and a thousand sows from Ciarraige. Seven hundred cloaks, seven hundred wethers, seven hundred cows, and seven hundred sows from Corco Baiscind. A hundred sheep, a hundred sows, a thousand oxen, and a thousand cloaks from Corcamruad. A thousand oxen, a thousand sheep, a thousand cloaks, and a thousand milch cows from the Déisi. A hundred cows from Orbraige, a hundred white cloaks and a hundred sows.
The stipends given by the king of Cashel to the kings of his tribes: First, a place at his side, and ten horses, ten suits, two bracelets, and two sets of chess to the king of Dál Cais; and to lead with him an expedition into another territory and to return at the rear.
Then ten horses, ten horns, ten swords, ten shields, ten hides, two bracelets, and two sets of chess to the king of Gabrán. Ten horses, ten slaves, ten women, and ten horns to the king of the Eóganachta when he is not king of Cashel. Eight slaves, eight women, eight swords, eight horses, eight shields, and ten ships to the king of the Déisi. Five horses, five cloaks, five horns, and five swords to the king of Uí Liatháin. Ten horses, ten horns, ten shields, ten swords, and ten coats of mail to the king of Raithlenn. Seven horses, seven tunics, seven hounds, and seven coats of mail to the king of Múscraige. Seven swords, seven horns, seven coats of mail, seven ships, and seven horses to the king of Dáirfhine. Seven hounds, seven horses, and seven horns to the king of Dairbre of the mountain. Seven horses, seven horns, seven swords, seven shields, and seven hounds to the king of Loch Léin. Seven women, seven cloaks trimmed with gold, seven cups, and seven horses to the king of Ciarraige Luachra. Seven horses, seven shields, seven swords, seven ships, and seven coats of mail to the king of Léim in Chon. Ten horses to the king of Uí Chonaill Gabra, and ten shields, ten swords, and ten horns; and no hostages from him, but an oath under the hand of the king of Cashel. Seven horses to the king of Uí Chairpri, and seven horns, seven swords, seven lads, and seven slaves. Eight horns to the hero of Cliu, and eight swords, eight horses, two bracelets, and two sets of chess. Seven horses, seven horns, seven shields, and seven swords to the king of Glennamain. Eight horses, eight swords, and eight horns, with the grades of prince and high king to the king of the Uaithne. Eight horses to the king of Éile, eight shields, eight swords, eight horns, and eight coats of mail."
A cow is a cow, a cloak is a cloak, but what is a "bitcoin"? 😁
The word "scam" needs to be re-understood within the context of crypto. There are huge "vulnerabilities" with tokens. The main one I see is that you can create your own token, hype it TF, and then partially cash out whilst liquidity is high. You can claim that your holdings of your own token, whilst it's riding high on the exchanges (or your own exchange), represents real capital and attract real money in, or reinvest in looking super cool and rich, getting a hype feedback loop established.
None of this is strictly a scam. But you can't really do it with traditional money. It's a vulnerability. And one that most people don't understand because we engage a defensive mode of attitude when our money is threatened. Thus people hurl words like "ponzi" around, yet don't understand the differences between crypto and trad money. And so nothing really changes.
If more people in the scene, for example, understood just how Bitconnect worked, back in 2017, and why it was not a Ponzi, it's unlikely that FTX would have gotten as far as it did.
Whether or not it is a "scam", It *is* securities fraud. It's a lot harder to do in the real world, but people sometimes try anyway (Your Hometown Deli is a notable recent case). The SEC prosecutes people for securities fraud, crypto or non-crypto, but the process takes years and bad actors in the crypto space are often not amenable to prosecution.
My point is that, with crypto, we are dealing with way more of a new phenomenon than most people actually realise. What needs to happen is a lot more education about the vulnerabilities specific to crypto.
The very fact that SBF was in so deep with people who are entrusted with protecting and regulating US financial markets, and that these very people could not see SBF for who he was, is indicative of just how little understanding there is of crypto.
Calling him a scammer and putting him in prison is okay. It's a defensive reaction and it works to a some small degree. But it still does nothing to advance understanding of the specific issues that the very existence of crypto presents to the public.
We are dealing with a radically new phenomenon here and our traditional way of thinking about money and scamming significantly underserves us.
> NYT describes its banks as “so sclerotic that sending or receiving even small amounts of money from another country requires an exasperating obstacle course of paperwork”, and this guy says that if you deposit more than $100,000 in a Ukrainian bank, “the chance that you get it back is very slim”.NYT describes its banks as “so sclerotic that sending or receiving even small amounts of money from another country requires an exasperating obstacle course of paperwork”
That's not my experience and the article is extremely biased against trad banking. Among me and my friends, we've compared availability of services and convenience of online banking between Ukraine, Poland, Estonia, Germany, Hungary - everybody agrees that Ukrainians banks win. There were no major disruptions caused by the war in any bank, evren.
From the Verge article
> the way the people of Ukraine do savings is not that they carry money to the bank and deposit it. It does not work like that. We do not trust the banks. I told you. If we have a lot of money — by a lot of money for Ukraine, I mean probably $100,000 and above — the last thing you will think about is actually bringing it to the bank.
This is what the attitude was in the 90s. Its a different country now. Some people do store money in USD, because of the multiple crises making the dollar go up (2008, 2014), but its not a minority.
This guy - the guy interviewed by both NYT and the Verge - is lying for his own benefit, to prop crypto up as they tend to do.
To get an approximation of the utility of crypto you need only look into a general history book. There you will see that one of the main achievements during antiquity was the invention of coinage. Crypto is precisely that, coinage for the digital realm. Its utility should be obvious.
One could argue that we do not use much classic coinage either these days. Technology has given us credit cards and instant bank transfers. There is truth in that, of course. But most of these technologies are centralized on some level. And one of the defining features of coins is that they are decentralized, usable by anyone at any scale.
In fact, coinage is a surprisingly late invention considering how simple the technology is. In Europe/Mediterranean coins were not introduced until a good way into the iron age. There is logic to that. The Bronze Age was characterized by empires and other large entities. These empires were perfectly able to trade in kind anything they needed. For that they only needed good book-keeping (which is a Bronze Age invention). The Iron Age is characterized by smaller entities, more or less independent villages populated by farmers and artisans with their own agency. These people could not trade in kind since they traded so very little. They needed a stable medium of exchange and for this coins were introduced.
Crypto, likewise, has its greatest utility in the interactions between individuals. No matter how fancy your credit card you cannot use it to transfer funds to the person next to you. For that you need some sort of system that allows the two of you to interact with each other directly. Centralized systems like Paypal or instant bank transfers can do the job, but something decentralized will do it better, cheaper and more securely.
As long as people are interacting digitally it is obvious that there is a use case for a digital medium of exchange. The real question is if crypto is up to the job. I am not really following this arena any more. But the fact that I still do not see options for paying with crypto at webshops or people asking to be paid in crypto in Facebook Marketplace ads tells me that crypto still has some way to go before it lives up to its potential.
Paypal also doesn't have to prove you are a sex-worker, they can just accuse you and steal your money. You would then have to prove a negative to get the money back. I believe there already were cases where someone sent the lunch money with the note "for sexual favors" as a goof and then the accounts got frozen. If this happens to a business it might be bankrupt before you even get a court date.
First off, I'm sorry if anything I've written in your comments has contributed to you writing this. I've tried to express some nuance, but I am out of practice. I actually find it fascinating how much I agree with Mark P Xu Neyer on this, but it's the places where we disagree that seem to matter most.
I would like to push back slightly on two parts here:
> I don’t think it would have been possible without crypto.
A number of years ago, I did something vaguely comparable using Western Union, a 170-year-old company based on a 190-year-old technology. I admit that, if we had used cryptocurrency, this probably would have been faster and cheaper and would have involved less walking on both our parts. Also, this was to someone in China, which at the time was vastly more stable than Russia is this year, so possibly WU wouldn't even have worked for you. Still, the point is that this is a known financial niche that was filled almost as soon as human technology allowed for it (and that's not even getting into bank notes), and what you're talking about is a technological improvement. It is definitely useful to be able to do the thing in cases where access to banks and WU is blocked but access to the internet isn't. Perhaps I simply lack perspective on how revolutionary that is.
> The saying goes: a book is a mirror; if a monkey looks in, no apostle looks out. Cryptocurrency is like this too. If people are looking in and only seeing the monkey gifs, that’s not crypto’s fault.
Sometimes, when you're standing in a blasted post-apocalyptic wasteland dying of radiation poisoning, you look in the mirror and see a blasted post-apocalyptic wasteland inhabited by some disgusting mutant that might once have been human. It's not particularly your fault, though.
In what way are you not a true believer? Reading this post and the comments, it seems like you truly believe in the core argument of crypto as a replacement for currency. Your opening says that you aren't a true believer but also aren't infinitely hostile. Was there some sarcasm that I'm missing?
True believer is usually reserved for the "Unreasonable believer" category, someone who wants to believe something regardless of anything and will - additionally - die on a hill to defend the strongest most possible formulation of their ideas.
Lots of crypto believers are not "true", I count myself as a mild believer, I never invested a single cent and I dismiss all sources that focus on the investment side or other such status-quo uses with extreme prejudice. Crypto for me is a revolutionary technology, no less than the printing press or the personal computer. It's a fundamentally blue-sky moon-shot whatever-term-you-want-to-use tech, very long tail and long term. I'm entirely okay with "*Current Crypto* sucks", I'm very okay and welcoming to "Here's *Why* crypto sucks". Crypto is an immature tech, I'm sure 1930s airplanes and 1950s rockets and 1970s personal computers sucked big time too.
But the vast majority of typical anti-crypto argument I see on the internet goes something like "Crypto begins with the assumption that you can't trust centralized instituions, this is extremly dumb and all people who do this are extremly dumb as well, why would anyone not trust centralized instituions ? All problems with centralized instituions can be fixed with more trust and investment in centralized instituions". No matter what is going to be said after this, it's not interesting to me.
Interesting. just one thing: the NYT is silly. I sent my son in Ukraine money for years; in days sometimes in minutes. Yes, to his account at the ukrainian "privatbank" (even though that bank itself turned out kinda scam), yes, using wise/transferwise - but other services work just fine, too. When I put several k of my own money in Ukrainian banks, I always got it back just fine. (OTOH: when I finally tried to sell my shares in an energy-company, there was only one bank (ie. one building) in the whole country who could do that - and it took 3 (three!) flights to Ukraine in person to get it done. A few k. And my worst investment. Share-issues are historically often scam-schemes, at least as much as crypto. So: "NYT describes its banks as “so sclerotic that sending or receiving even small amounts of money from another country requires an exasperating obstacle course of paperwork” is just another fail of NYT. - Kudos for helping out the Russians. Upgrading to paid shall be the most EA-thing I'll do in 2023.
"So why do people think everything in crypto is a scam?
[...]
Crypto is a few hundred interesting projects, plus a long tail of thousands of scams.
This isn’t so different from other fields like education. There are 8 Ivy League schools in the US, 400 high-quality research universities, and about 1,000 fraudulent diploma mills."
Except in education, it's fairly clear which is which, and in crypto a regular user has no way of telling the difference.
What's the last time an Ivy Leagy university turned out to be, in actual fact, a fraudulent diploma mill before they shut down and ceased operations overnight?
In contrast, what's the last time a major crypto company turned out to be fraudulent and declared bankruptcy? ...oh, three weeks ago. And before that? Four months ago. And before that? Five months ago.
To quote the famous "Line goes up" video on the author's experience with NFT projects: "The market is just absolutely lousy with fraud and deception. [...] If you just look at the pitch package and the sample product, there's very little material difference between a project that's going to sell out 10000 tokens in six hours and one that's going to become a trash fire as the project leader has a nervous breakdown and burns the mint three days post-launch after only selling 800 tokens."
1. Nobody's *infinitely* hostile to crypto. What would that even mean? Yes, this is obvious hyperbole, but it has the usual problem with hyperbole that it leaves the readers to work out what the non-hyperbolic claim being responded to actually is. This seems a bit of an un-SSC move. The obvious reading would be that you're less than *maximally* hostile to crypto, but that's still a straw man, because most crypto opponents would agree that it could be worse. It's clearly wrong to say it's a "pretty rare position" to be non-maximally hostile.
Later you say "people think everything in crypto is a scam". But if people believe that, I don't think they mean what you call "outright rug-pull-style scams". They don't mean that the people buying tokens won't get the tokens, but that the tokens aren't worth having. It's the difference between selling shares in a company which doesn't exist and selling shares in a company which has no prospect of ever making money. Selling shares in the South Sea Company wasn't strictly a scam, because the sellers probably genuinely believed the hype, but the purchasers were still deceived.
As a side note, people label all sorts of things as Ponzi schemes, but the label ought to require a Ponzi figure who is engaged in deliberate fraud. It seems possible that FTX will turn out to have been a Ponzi scheme in that sense, but unlikely to be true of crypto as a whole. But it can still be a bubble, and in my view it probably is. I mean the coins of course: I think it quite possible that in 20 years' time (if the singularity has not occurred) we will regularly make blockchain-type transactions, but most currently circulating coins will be valued close to nil.
All of this is to say that this would have been a compelling post if it had responded to the best criticisms of crypto instead of some nebulous sense of what everybody thinks.
2. I think crypto probably does have use cases, but I don't find your post very helpful in understanding them. The Chainalysis data is "based on three metrics", and I don't have any sense of what it's measuring. As others have pointed out, it's normed to Vietnam being 1, so it's impossible to say whether it's a lot or a little. Maybe everyone in Vietnam is using BTC to buy hot-dogs, maybe it's an artifact of some particular high volume activity being based in Vietnam: I have no way of knowing.
3. It's pretty unconvincing to quote the president of the Blockchain Association of Ukraine on the problems of conventional banking Ukraine. I doubt that this is a fair characterisation, not least because the Ukrainian government would be unable to function if the banking system were that bad, and it clearly is able to function.
Your source for crypto as a means for Westerners to send money to Ukraine states, "The funds raised in cryptocurrency are a just small part of the overall donations that Ukraine has received... cryptocurrency donations have tapered off..." Clearly there are no problems sending ordinary money to Ukraine. On the other hand, there are problems sending ordinary money to Russia, and this is genuine use case for crypto, but not necessarily one we would encourage.
I'm not sure if it's correct to say that Ukraine "legalised" crypto, because I don't see that it was *illegal* before. What seems to have happened is that Ukraine passed a law regulating crypto and requiring crypto dealers to register in order to operate legally. While that might be consistent with a crypto-enthusiast country faciliating use by ordinary people, it would also be consistent with a concern that crypto was being used in malign ways and required a higher degree of oversight. Whether the Ukrainian government actually is able to exercise effective regulatory control of course remains to be seen.
4. People in countries with poor financial norms absolutely are unusually susceptible to Ponzi schemes. Consider the case of Albania.
5. The fact that people are using crypto to meet real needs makes it worse not better if the whole thing is a house of cards. If Venezuelans hold a significant portion of their wealth in crypto because they rightly don't trust the bolivar, then a general crypto crash is going to cause the country real harm.
It's completely astonishing to me that supposed rationalists are so willing to fly the flag for cryptocurrency, one of the more obviously terrible ideas that humanity has dabbled with in recent decades.
Thanks to FTX (and, I guess, the entire history of crypto) this article aged poorly before it was even posted, but in a few years will look even sillier.
I'm surprised that there's no mention of the rise and collapse of NFTs, but then the main defences of crypto are that "they use it a lot in Vietnam, no we won't look into whether or not that was a localised Ponzi game that took off" and "I googled some projects and didn't find articles calling them scams, no we won't look into whether or not those projects succeeded at anything materially useful", so outright ignoring one of the few crypto concepts to make it into mainstream consciousness seems about right.
It's interesting that this article was apparently motivated by Silicon Valley turning against crypto - does the entire tech community learning from experience not count as evidence against crypto? Or are they all simply mindless sheep who can be dismissed without deeper thought? (A fun thought experiment might be to wonder if "Silicon Valley thinks crypto is great" would have been used as evidence in crypto's favour in an alternate universe version of this article, or if the Valley would have been consistently dismissed by the author whether or not they happened to agree.)
Serious question: if the claim is that a significant number of people in poor countries are "using crypto" - what blockchain are they using, and what are they using it for? Ethereum processes less than 20 transactions per second, Blockchain less than 10. 20 Transactions per second corresponds to some 52 million transactions per month. That's enough for the inhabitants of one medium-size country to pay their monthly utility bills... and that's it.
(I know that Ethereum plans major scalability upgrades - that's not the issue. I just have doubts that claims of "lots of poor folks need and use crypto, why do you priviledged people want to take it away from them?" pass sanity checks.)
I'm not sure footnote 3 is right - most people who invest in Ponzi schemes do make money, its only the last cohort of investors who get stung. This applies to bubbles as well, which is the better comparison for proper, BTC-like decentralised crypto. The "buy my token from me" cryptos look a bit more like Ponzi schemes, but are really more analogous to pyramid schemes. You don't buy the token to sell it back to the creator; you buy it in the belief that there will then be a market of new/other investors that you can sell it on to.
"Crypto" should really be three things:
1. Large-scale decentralised Schelling-point blockchains (I'd say really just BTC, but you could make a case for ETH); this could become a proper currency, but only if more people use it as a medium of exchange than for speculation to bring down its volatility.
2. Large-scale backed/"pegged" tokens (Tether and a handful of others); these should really just be thought of as an alternative to Paypal (aka a medium to transfer/store dollars). Given someone has to back them/defend the peg, and that person needs an address and a bank account, they will eventually be subject to Paypal-like regulation and become to Paypal what Paypal is to Western Union in the great cycle of birth and decay. My guess will be this happens in the course of the post-Tether-collapse litigation.
3. Everything else; worthless scams. You can make money out of them in exactly the same way you can make money out of penny stocks, but they're pure-speculation instruments. The difference with BTC is that BTC derives underlying value from the extent it is/should become a genuine medium of exchange for goods and services. Tron and Landcoin are not, and will never be, genuine media of exchange for goods and services.
I want to briefly add a perspective that I don't often see - how much better stablecoins are than banks for running a business.
I've been running a Swiss-based crypto-related business, and while some of our business can be handled in stablecoins like USDC, plenty of it has to go through the traditional banking system.
While banks work OK for smaller personal accounts, they're really not great for running an international business. International transfers are opaque, take days, cost an unknown amount of money and sometimes get returned because someone along the way didn't like something. They will blatantly overcharge you for currency conversion unless you work out a deal with them not to. Want to interact with them programmatically through an API? Each bank has their own mess of a design if any at all.
Just the other day they told us that transfers of USD to non-US based recipients can no longer be guaranteed and will only be processed on an exceptional basis. Why? Who knows, they can do whatever they want.
Meanwhile transfering USDC takes a couple of minutes and costs a dollar - a lot for a 3rd world remittance, basically free for a business transaction. You can instantly send proof from Etherscan that the transfer is complete. Want to integrate these systems into your business backend software? Go right ahead, the whole system was built from the ground up for programmatic access. With the more advanced business facing custodians you can set up an advanced system of rules and checks for who can transfer what, where and who needs to approve. If you want to get more advanced with financial engineering, in DeFi you can get a loan, buy options, earn yield without having to ask anyone's permission.
It's not all free lunch, you're taking on a different set of risks and responsibilities, but as a software engineer it's painfully clear which system is the future and which is the past.
While these advantages don't strictly require the underlying system to be decentralized, I would ask - why wasn't any of this built before crypto? I believe it's because for anyone to commit the kind of resources it took to build this all out, there has to be a neutral base layer where many parties can work together. As a bank, you're not going to be building your products on your competitor's walled garden platform.
If you think all of this could be better done as a centralized system, go right ahead and build one - from the perspective of running my business, I don't have a strong ideological commitment to decentralization, I will happily use the best tool for the job.
Do you strictly-speaking need a decentralized system to achieve this? No, but then the question is why hadn't anyone built something equivalent before Ethereum.
I think that you need a credibly neutral base layer to build on so that many individuals and companies can work together, to justify the kind of investment it took us to get here. A bank is not going to build their products on their competitor's walled garden, they'd be crazy to. At a minimum, you would need a VISA-style consortium, but it seems they had no incentive to go that route - maybe they will now but I'm not holding my breath.
What rules do you think I'm breaking here? It's a fully legal business, we're regulated by the Swiss financial authorities, we're fully KYC/AML compliant as are all our counterparties, and we move regularly between stablecoins and the banking world without any issues.
What I'm highlighting is that stablecoins are a much better technological solution for transfer of value in the digital age compared to the legacy banking system with hundreds of years of cruft. There are layers and layers of arcane processes that happen whenever you transfer money between banks, that have been built up over time, for good reasons that made sense at the time, but it's not how you would design the system now if you had any choice.
In many ways from a compliance point of view it's even better than the traditional banking system, our counterparties can take 1 look at the chain and fully trace our source of funds.
People keep saying that crypto is 10x worse than the traditional financial system, I claim that it is already better, at least for a certain kind of usage.
Ones the banks follow, but haven't been legilated into the crypto world yet.
>with hundreds of years of cruft.
The "hundreds of years of cruft" you are tlkaing about is eacvtly those regulations. The things that make international money transfers more difficult aren't cause like the bank takes a sextant out of a drawer and looks up what quadrant Sirius is apexing in. It is boring processes to say keep in compliance with global money luandering rules.
I think that the framework of "infinite hostility towards crypto" or "less than infinite hostility towards crypto" is unfruitful. Essentially, it's about being outraged. And while it's understandable why Scott frames the question this way, considering how much outrage is currently happening very close to him, this is not an interesting question. An actually interesting and important question is whether crypto is net positive or net negative in utility. Recently I've finally updated that it's net negative. FTX crash contributed here, but less as a new evidence and more as a reason to reevaluate the current evidence that I have.
Basically nearly for every positive use case that crypto has, there are mirroring it negative use cases which create more problems for the same issue, that the positive use case contributed to solving. For example, I live in Russia. And I can't say that crypto here is a big thing. Noone of my friends is actively using it as a means of exchange. It's also pretty hard to turn crypto into fiat currency in Russia. This brings up the suspicion that the reason the numbers in the graph are normalised is because the absolute values of numbers of transactions are embaracingly low. There are good uses of crypto in Russia - donate to Navalny team or Medusa, or send money from abroad to help individual Russians who are now in a terrible situation for nearly no fault of their own. I think this are a very good uses of crypto! That said there is a very very bad use of crypto, so bad that it completely annihilate the utility of financing Russian opposition and helping individual Russians survive. Crypto can be used to overcome the economic sanctions that were imposed on Russia and help Russian goverment keep financing the war in Ukraine.
For all the insurance against authoritarianism crypto can be just as well used to benefit authoritarianism. A group of noble rebels can theoretically use crypto to finance their efforts to overthrough the despotic goverment and bring the light of democracy to the people. However just as well a group of domestic terrorists can use crypto to finance their efforts to overthrough the democracy and install the fashist dictatorship. Crypto is a tool to overcome conventional coordination mechanisms and replace them with its own. As long as traditional coordinations mechanisms are net positive in utility, crypto is net negative. As long as the coordinational mechanism of crypto is worse than the conventional one, it's net negative in utility.
The idea of decentralisation and zero trust are interesting and inspiring. But in practise there nearly no use cases that actually need it in practise. People keep doing crypto projects not because this new technology is the best tool for the job but because it's hyped. So again and again it's an attempt to find a problem to the solution. A worse house but in space is worth the effort and the inconvinience. A worse financial system but decentralised is not.
If you are trying to do something with "zero trust" the thing you want to do 99.9% of the time is find someone to get involved in the transaction you both can trust, not plow ahead.
As the kind of commentator who often strives to approach infinite hostility towards many things (including crypto), I can say that this was exceptionally well-written and persuasive. If it's a defense of crypto broadly, it's the best I've ever read anywhere.
It also doesn't change one aspect of the social construction of value that drives much of the overall hostility to crypto, which is social proof. Given that I'm an American, the people I encounter who like crypto trend heavily towards the "most detestable and obnoxious people you'll ever meet" end of the spectrum, to the extent that when crypto was at the top, if someone annoying-seeming started excitedly talking to me and a few sentences in I discovered he was a Mormon, a conspiracy theorist, or genuinely schizophrenic, I would have felt actively relieved. I've met zero Vietnamese-speaking crypto users, and even if I did we'd probably have many other things to talk about than methods of sending remittances. I know plenty of Ukrainians, but none of them have ever brought up crypto.
Yes, I'm aware that this is bias, but it's also how products work.
But crypto only exists because of regulation. The advantages it offers are basically numbered accounts without chargebacks or know your customer laws.
If world governments didn't make it illegal (and effectively illegal to just do it offshore) all your favorite tech and investment bank companies could offer much better products with the same advantages but without slow transactions, technical complexity/impossibility of retrieving lost keys (but you'd have to identify yourself for that) and no massive waste of energy.
I believe the benefits to the third world of these kind of products are quite real. One can also make a case for the kind of KYC laws that prevent numbered accounts without clawback. But it's absurd to have both.
Moreover, crypto isn't really regulation resistant. If the western world just made it illegal it would disappear. Sure, maybe the Blockchain itself survives amoung a few hackers but if you can't xfer money in and out legally or setup a crypto mining company the whole thing falls apart. And if you don't make it illegal useability will increase so it's just crazy to leave the version of the product with massive negative externalities legal but not the one without.
I think this post ignores a salient point: "crypto" writ large isn't just about reinventing wildcat banking, it's supposedly going to disrupt the world (TM) in various unspecified but heavily touted ways.
Wildcat banking is a known thing. It's the original and design use case for blockchain, it's basically the subject of the original white paper, and it's been around long enough to have gotten a cool animal name. Basically every current benefit and problem of cryptocurrency as a theoretical currency has a very close parallel in wildcat banking and wildcat currencies. (in my Ted talk I will examine...) This is all well upstream of any technological issues.
However, all the other applications being proposed for blockchain are just, well, shit. Let's call a spade a spade! Legal applications like a registry of deeds or some public facing government database? Logistics and transit applications? The "programmable blockchain" and some fairy tale of "automatically executing contracts without oracles"? All of it is broken in fundamental ways, be it from needing Oracles in the first place, to the ability to correct / edit and force / reverse transactions, to total data throughput (sharding has a VERY long way to go to approach what a single IMS instance can handle), and etc. These are huge, 10,000' problems and the way the greater Crypto-not-currency community has handled them is quite telling.
Blockchain / crypto has become like snake oil everywhere outside of wildcat banking, and it's really just better to assume ill intent there until proven otherwise.
Bob: Hate having to use high priced lawyers to draft contracts you can barely understand? You need a smartcontract, the contract that gets resolved automatically without the need for specialist labor!
Tim: Great how is a smart contract going to help me?
Bob: Well instead of needing a lawyer, the blockchain will execute your contract automatically.
Tim: My lawyer charges $350/hr, sounds great! How does the blockchain to do that?
Bob: Well you need to code the contract into the blockchain.
Tim: I don't know how to do that, so this isn't for me.
Bob: No you see you can hire a tech expert for $100/hr to get the smart contract into the blockhain.
Tim: Great that will be a huge savings. This tech expert knows how to write contracts?
Bob: No you see the tech expert knows how to get the contracts on the chain, not how to write them.
Tim: But um who is writing the contract, me? Writing the contract is the thing I was previously hiring a lawyer to avoid.
Bob: Well you can still hire a lawyer to write the contract if you don't want to write it.
Tim: But then where are the cost savings?
Bob: Its not about cost savings, with a smart contract it can all happen automatically!
Tim: All you have done is add MORE intermediaries to my transaction? In what sense it is "automatic"?
Bob: In the sense that if something goes wrong instead of everyone being reasonable and coming to an agreement, or if not using the legal system, instead the errors are just unfixable.
> Remember the story of that special astronaut pen that cost $1 million? We already have pens on earth, for like $0.10, and they work better!
This is mostly an urban myth; in particular, the money was spent by a private company, not by NASA or something. And it turns out pencils are not great in a high-oxygen zero-gravity atmosphere (e.g. due to flammability). Or put differently, we already have pens on earth and maybe they do work better... on earth.
A better way to state my position is that crypto is only more resistant to regulation because the public doesn't see it as real banking done by big corps but as a kind of toy .
To avoid this regulation you'd have to convince ppl of this argument and if you could do that then couldn't you convince ppl to support companies just offering numbered, no id accounts that don't allow clawback of transfers.
Murtaza Hussain had a nice article a month ago that echos Scott's first point:
"A few years ago, though, I had a little experience that briefly gave me a taste of what the world could be like if things were simply fair. In the early months of the pandemic, I needed to send some money across borders to a family member in a country that is subject to financial controls and has an underdeveloped banking sector. Usually, this is an exhausting and costly chore of figuring out who is soon going to be traveling there or to a nearby country and is willing to take cash with them, or seeing whether the recipient themselves can travel outside and receive a wire transfer. It’s expensive, cumbersome, and insulting to the dignity of innocent people who have done nothing to deserve this level of suspicion.
This time though it went differently. I’m a wordcel and am usually aloof from tech, but this person (smarter than me) walked me through how to send them Bitcoin, which, they assured me, would mean something to them and could be converted to a local currency upon receipt. After messing around with it for about half an hour, I figured out how to buy Bitcoin and clicked send to transfer it to their wallet. And it worked, the money moved. They got it and were happy. No big deal. This may sound like nothing to you, but after an entire lifetime of watching good people treated as presumptive criminals by the global financial system it was practically revolutionary."
That is all cute. The problem with this "minimalist" defense of crypto is that it is not the position of almost any of its advocates. And if you do take it to be the position, the whole thing will collapse to a tiny fraction of where it is now because all the interest is from much more grandiose visions when it isn't just rampant speculation on an asset bubble.
I'm willing to write off SBF as a garden-variety sociopath with decent math chops, if only because of his apparent grandiose fantasy that he can *still* tap dance his way out of this one, but Ellison puzzles me. She seems to have had rare ability in math, thus very smart, and to not be unaware of what she was doing, thus not lacking any theory of mind (or sense of shame). How did she come to be so bemused? Mere youth?
Was it the media or crypto companies that bought Super Bowl ads with celebrities with the message that this is something normie American consumers should get on?
It was crypto companies. And if, people perceive that crypto is a get-rich-quick Ponzi scheme rather than helping poor Vietnamese farmers.
Also, most normie Americans have interactions with the higher education system other than diploma mills. They don't with crypto. So, for most normie Americans "Crypto = scam" is probably not a terrible heuristic.
Also, losing all your money to crypto is still a bad experience, even if it wasn't technically a scam under strict definitions.
Scott is deliberately misinterpreting and strawmanning the positions he's arguing against and then taking the narrowest possible definition of "scam" in order to justify himself. But the end result is that his argument just boils down to "if you stick with the best, most-vetted projects, then sure you'll still lose all your money, but it probably won't be an *intentional* scam."
Scott you have identifies the one use case for crypto that has some good to it. Allowing the subjects of tyrannical regimes to store some assets out of the reach of their oppressors.
Of course that use will only last as long as the regimes don't catch up to it. Such regimes can blunt the use of crypto by cutting their people off from the global internet. The low tech method open to thos regimes is to throw people into the gulag and torture them until they give up the goods.
The good should be weighed against the evil. Financing hackers, drug smugglers, and terrorists is a negative. Channeling savings into unproductive uses is a negative. Turning energy into pure entropy is a negative. Disrupting the financial system that governments depend upon to provide welfare for billions of people is a negative.
In my judgment, the evils far out weigh the benefits and crypto should be banned.
Hey good on you for helping people out of a bind and being a little bit clandestine. That’s awesome. I know you don’t need to hear this but it’s a good thing to say and a good thing for a culture to see being said.
> If Nancy Pelosi’s text messages are any guide, Democrats have joined libertarians in the “actually pretty worried about the government becoming an oppressive dictatorship” club.
Off-topic, but this is pure propaganda. I don't think Nancy Pelosi cares one whit about your ability to support unpopular (American) political causes with crypto and will zealously attempt to regulate it out of existence the moment you try to support something she deems "dangerous."
You're wrong about bank account freezes having been an effective tactic against the Ottawa trucker protests (which were in 2022). Nothing changed about the protests until police moved in and started arresting people. This happened only a few days after federal government invoked emergency powers, including the banking stuff, so it's hard to tell what the counterfactual is if the bank account freezes had the chance to play out, but it was very obviously the direct police actions not any financial issues that ended the protest.
Scott, are you retracting your statement from Meditations on Moloch, implying that that time has not yet come, or still hostile to cryptocurrency for this reason (just "less than infinitely")?
>In the links post before last, I wrote:
>>The latest development in the brave new post-Bitcoin world is crypto-equity. At this point I’ve gone from wanting to praise these inventors as bold libertarian heroes to wanting to drag them in front of a blackboard and making them write a hundred times “I WILL NOT CALL UP THAT WHICH I CANNOT PUT DOWN”
>A couple people asked me what I meant, and I didn’t have the background then to explain. Well, this post is the background. People are using the *contingent* stupidity of our current government to replace lots of human interaction with mechanisms that cannot be coordinated even in principle. I totally understand why all these things are good right now when most of what our government does is stupid and unnecessary. But there is going to come a time when – after one too many bioweapon or nanotech or nuclear incidents – we, as a civilization, are going to wish we hadn’t established untraceable and unstoppable ways of selling products.
I find the hostility to crypto these days quite reminiscent of the hostility to the internet following the dot-com bubble. Like crypto today, the internet in 2000 was quite limited in many important ways, but it had a very high ceiling and was getting consistently more powerful. The same goes for crypto today.
I would love it if you would add some concrete predictions to test your intuitions about how viable / fraud-ridden the crypto landscape will be in the next 5 years. From reading the comments I feel quite confident that most of your readers are way too pessimistic about the space, and will be very surprised when the space (1) doesn't go away completely (2) keeps testing interesting ideas and (3) produces real-world use cases beyond the narrow ones contemplated in this essay.
Now I'll lay out my own views, even though I know from reading others' comments that people will dismiss them out of hand:
Crypto is both a fully general computing platform and a novel way to align incentives. The design space is simply too rich to be limited to sending cash in countries with bad financial systems. The financial system today is basically sclerotic, riddled with expensive middlemen, and building new products on it requires wading through miles of red tape. Contrary to popular belief the regulatory burden ultimately falls largely on users, because it makes it impossible to compete with incumbents.
Any product that exists in our financial system can be replicated in crypto (in a slower and more expensive way — for now). Crucially, once these primitives exist others can build on top of them, and like in other software systems the layers of abstraction will build up. As an interesting aside, crypto projects are subject to natural selection because they satisfy the requirements: they reproduce with heredity through forking, and the child projects have variable fitness levels.
What people perceive as crypto's biggest issue – that bad projects are failing – is in some sense its biggest strength, because it creates a more robust system in the long run. Security flaws are exploited ruthlessly, but the next generation of engineers learn to avoid them.
Not sure about the expense point, all of the major US brokers going to free trading was unthinkable just a decade ago- the competition in the existing system is driving marginal costs to 0 as the intermediaries face fierce competition to price compete over pennies. Same thing can be seen all over the system such as bank loans, margins keep getting squeezed lower and lower.
Crypto might get there but a lot of the security of the system is based on intentionally wasting processing power, so if you have a more efficient algorithm you have weaker security; and the higher the FLOPS technology produces (i.e. quantum computing) then you also lower security... doesn’t seem like transition costs will be decreasing?
1. The headline says 'not infinitely hostile' whereas the content is a restricted endorsement.
2. Header 1 - "Crypto Is Full Of Extremely Clear Use Cases, Which It Already Succeeds At Very Well" - This graph has information, but the assumptions included don't seem to align with the claims being made - for instance, only P2P trades? That's not a representative sample in any way? And the 10k 'retail transaction' assumption would seems to go against 'alternative banking' and place extra weight on small transactions like crypto games. Also, variance such as "China fell from 53rd in this component to 155th, while the U.S. fell from 16th to 109th." over the course of a year should indicate any assumptions about the results are best taken lightly. (Also, Vietnam appears to have over 60% adoption of GameFi according to Statista, which seems to indicate it has little to do with banks or anything)
3. Header 2 - "Big Crypto Projects Are Very Rarely Scams" - What about a similar but different claim? 'Big Crypto projects are very often narrowly held and profits are narrowly gained'. What exposed FTX was a major player making a negative call. There is a negative incentive for users to sell large quantities of coins as the value shrinks to 0. Even if it isn't explicitly a 'scam' it is something where the utility is the ability for a small group of owners to slowly divest of an asset for large personal profit. That doesn't really align with either the 'it's an alternative to currency' or the 'line goes up' reasons to use crypto. It's more scam adjacent than directly a scam though.
4. Header 3 "Crypto Is Valuable Insurance Against Authoritarianism" - Isn't this more 'crypto is valuable against laws? [Even if, yes, authoritarian governments love a bad law] And if the premise of a currency is that it can circumvent governments - there is a strong incentive for 1. Hostile regulatory structures - which will ensure that it will always be worse than normal financial instruments and 2. A haven for bad actors - which makes costs of trust, risks of purchases, etc. higher than other venues.
What is my incentive to ever use this in a non-crime scenario? If there isn't one, then the assumption will also be that having crypocurrency is tantamount to 'will to commit crime'.
5. Header 4 - "Yes, The Crypto Financial System Is Just Reinventing The Regular Financial System Except Worse In Every Way, And That’s Fine"
Yeah, that's fine. I'm not saying crypto should be illegal. But I don't see your article saying 'I'm less than infinitely hostile to unicycles'. You're promoting unicycles in a world where bikes and cars exist.
6. Header 5 - "You, Too, Can Be Less Than Infinitely Hostile To Crypto" - And here is the sales pitch. Cool. Maybe just title it "I like crypto and would feel better if you did to".
7. You have several claims for what it can be used for - everyday purchases, remittances, illegal activity, stores of value, etc. - however, deflationary currencies are bad for everyday use and low trust/high risk currencies are bad as a store of value. Rather than making a diffuse argument about every cryptocurrency and every possibility - it would be more useful to examine a specific one. What is it good at? Why is it good at it? And where is it effectively doing that? The breadth of your example strains critical analysis.
This is interesting but a bit verbose, no? To crystallize the concept: crypto is extremely useful for black markets, and you're coming out in favor of black markets.
I'm sure that some people who are inside Russia have used crypto to get out of Russia. But I can assure you that there are many other people inside Russia who are using crypto for...different purposes. It is not very hard to find information about what organized crime in Russia looks like, at least not to get a general sense of the vibe. I'd encourage you, when you do your utilitarian calculus, to consider both sides of the scale. On one plate you have Russian émigrées, on the other plate you have Russian drug and sex traffickers who partake of violence of a degree that I don't think it's possible for a comfortable American to exactly fathom. I don't have a good sense of how big the two plates are, do you?
Well said. My short version of this is, “I like Ethereum mainly for tilts smart contract potential, rather than its currency.” It sounds a bit like getting Playboy for the articles, but I’ve never spent a penny on crypto currency, while I have spent many hours reading about smart contracts. I also suspect that, if I lived some place other than the US, the cryptocurrency aspect might interest me in a practical sense.
It feels like the range of years for biggest crypto projects starts after Mt Gox (super popular exchange, turned out to be a huge scam) and ends before sufficient popularity of FTX (super popular exchange, turned out to be a huge scam). With this slightly expanded reference class, choosing an exchange seems super hard because neither of these were expected to be scams up front. This seems greater than the risk of investing more conventionally in stocks or bonds, as it’s highly unlikely your broker will secretly steal or your shares or be robbed of customer assets in a way that can’t be investigated or reversed.
Yes, because your broker is regulated. Trust is a human / societal trait and not a bug, so the full premise of “everyone do you own due diligence, we are a trustless ecosystem “ will ultimately cap the growth of crypto on a world scale, unless trusted intermediaries (incl regulation) is implemented. But, once you add that back in you lose OPs feature of bringing banking to the developing world, and the censorship resistance aspects. What you are left with is a highly energy inefficient and slow proxy for the system we already have in the west...
Thanks for this Scott. I had taken functioning banking for granted and completely missed the developing world use case, which left me mistakenly treating crypto as a way for bitlockers to collect ransom whose 'legitimacy' came from being attached to a pyramid scheme - exactly as you describe.
I think there's a mistake I keep making here, where I think of the developing world as being like the West in the past, when in fact they have 21st century electonics combined with an infrastruture from about 1800.
Market cap is tricky because it can be heavily impacted by public float. I.e. FTX’s $5.4bn worth of Serum, where they had 97% of the coins in their accounts and only 3% traded, so even though the “market cap” was $5.56bn there’s no way you could actually buy $5.56bn worth of things with it. This is pretty common in crypto and most projects are closed ecosystems i.e. the current price is determined by exchanges with other crypto and not hard currency like dollars. This is to say that you could not actually buy the $500bn of goods with that crypto market cap you cited, which is highly manipulated by this lack of liquidity, lack of bids for traditional currencies, and these shady dealings. On the other hand, there are trillions of dollars that trade hands every day, so you absolutely could buy $500bn of corn, apple shares, rockets, copper etc. Using the market cap of crypto as evidence of its importance is not that great of an argument.
I actually removed most illiquid coins: 500B$ is the marketcap of only ETH + BTC, which I am pretty confident they are enough liquid for that marketcap to count as you would count large stocks marketcap.
Good to know; hard to find good data but theblock.co has some charts on monthly fiat exchanges across all coins of around $181bn. Most Net Orderly Liquidation Analyses I’ve seen use something around 10% of average liquidity as an estimate of not disturbing the market, but in this case Cryoto’s transparency could be problematic. I.e. if Musk wanted to sell $44bn if bitcoin / eth to fund the twitter acquisition it would take maybe 3-4 months to exchange it for USD in an effort to avoid crashing the price. However since anyone can see the transactions ppl would quickly see that a whale was trying to move volumes and could front run them... naturally he was able to put together the $44bn needed to acquire twitter in a few days and without impacting the USD market. My point being that the valuation is still a paper valuation, especially since they can’t be used to close any transaction of material size
Also only 19% of bitcoin is actively traded according to bitcoin.com, and of that the %being traded with USD is even smaller (coinbase says 15%? I’ve read 5% elsewhere) = a very small pipe to get money out from, so even with an established coin like Bitcoin there is no way you could get even close to $330bn of USD for the coins given the small volume of fiat currency holders to buy it from you
The liquidity is also not a constant. If the price were to go down because there is a large seller, you will have more money wired to exchanges to bid.
It's as material as the evaluation of Apple: try finding 2.5T$ worth of buyers in a short amount of time. In fact, Bitcoin trades in most days roughly a similar $ value as Apple (1-5b$ range).
You can also make my argument in the extreme: the evaluation of all world assets is much larger (500T$) than all available currency (cash + bank deposits) in the world (100T$).
Nobody owns that many coins, so the impact of large sellers is not as strong as you think it is. As a comparison, Elon owned 30% of Tesla (roughly 200B$) and when he sold 10b$ the price tanked pretty aggressively.
There's this saying, "Your keys, your bitcoin. Not your keys, not your bitcoin."
So in the glorious crypto future where we all live by that rule, if someone steals a bunch of bitcoin, and then disappears out of physical reach, we just have to let him keep and spend them?
If so, then it's likely that a large fraction of bitcoins end up being held by very unsavory criminals.
You'd have your hackers and scammers of course. But also, gangs of kidnapping torturers would roam the land, attacking holders one after the other. They would have an incentive to keep a reputation for never letting their victims go without getting paid. So if you get caught by them, you either give up the amount of coins they guess you have, or, if you have an iron will or don't have that many coins, you and your whole family die.
Having an iron will wouldn't fully deter the gangs from attacking you, because killing you would still be an opportunity to demonstrate that they never let their victims go. The only thing that would deter them is if almost *all* holders had an iron will.
And all along their ownership over their ill-gotten coins would be considered as legitimate as any other. It's their keys after all.
Quantitative difference. There's relatively little cash in circulation to steal, compared to how crypto there would be to steal if it was widely adopted. Stolen crypto is also easier to spend in large amounts.
How is that relevant to the original point? What could you do about it in either case? Intrusive surveillance or an outright ban just pushes it underground. Are you calling on people to boycott both?
Aren't you just saying that you're in favour of financial transactions that are outside of national laws? In which case the question is just whether 'good' law breaking such as escaping authoritarian regimes outweighs bad law breaking such as organised crime. Whether that's true is really a contingent question and needs evidence to solve.
I think some of us would be a lot more open to things like crypto if they didn't seem to always come with a such a load of quasi-objectivist rhetoric. ("Someday soon, there will be only two types of people: the awesome, kick-ass crypto users who will raven across the land, and the pathetic mud-golems.")
Just to make clear: I've long been leery of crypto for just this reason. SA's arguments here, especially in the first section about places like Vietnam and Ukraine, were kind of a revelation. Wow, this can actually make some lives better! But I think the kind of triumphalist rhetoric I mentioned really does weigh on at least some of the wider public's perception of this sort of innovation.
And prior to the development of the space pen, NASA had used custom-made mechanical pencils on the Gemini missions, designed to be easy to handle while wearing fat-fingered spacesuit gloves and costing about $300 apiece. I think they just used regular pencils for the Mercury missions. The Soviets used a mix of regular pencils and grease pencils until they, too, started buying space pens.
Pencils weren't ideal because sharpener shavings and graphite dust (the latter of which is electrically conductive) were potentially problematic in zero G and because pencil writing tend to fade and smear with repeated handling. Mechanical pencils eliminate shavings and reduce but don't entirely eliminate dust. And grease pencils don't have graphite, but they smear if you look at them funny.
NASA also bought a bunch of regular, off the shelf felt-tipped markers in 1969 for the later Apollo missions. These have most of the advantages of ballpoints, but since they use capillary action to feed the ink instead of gravity (like a regular ballpoint) or a spring-loaded plunger (like a Fisher space pen), they can write fine in zero G.
Crypto's only advantage over a developed countries banks is that developed countries don't ban or discourage its usage by people without addresses within a certain geographic region. That same property has allowed it to be used for ransomware and other crimes.
Can you name crypto projects that are actually useful, aside from ones that facility the usage or trading of crypto? Everyone I have heard of, including helium, has been debunked.
If you want to count Stablecoins--those are really just very lightly regulated banks that allow people to evade US banking laws. What is the reason we should require the usage of inefficient blockchains (ethereum is still inefficient even with proof of stake) rather than let entities with centralized and efficient databases fill that need?
The way I think about this is by asking "what is the cost of creating an institution that I trust enough to transfer billions of dollars of value through it regularly?" For traditional institutions like banks it's something like a century of tenure, billions in capital requirements, and existing within a very complicated bureaucracy of checks and balances where I know I’ll only be fleeced in arduous, obfuscated ways. For currencies it’s a military and a revolutionary war at least, and centuries of slavery and colonialism if you want a good one. All very expensive and out of reach for an upstart country. Bitcoin, on the other hand, derives it’s trustworthiness from the perfect reliability of math. This is what people are on about when they say Bitcoin eliminates “counter party risk”; your counter-party is an immutable algorithm. This is not to say that things can’t go arwy, it’s just much less likely than a human counter-party screwing you over since other humans like money too. This greatly decreases the cost of bootstrapping a nation. You can afford passable beuracracy-driven counterparties in the first world so we aren’t forced to pay the upfront costs of integrating crypto such that it’s useful, but it would be way cheaper if we did.
As far as the electricity requirements of Bitcoin go, they tend to be renewables since those, when strategically placed, are the cheapest option. Otherwise, a lot of the electricity used is so-called ‘stranded energy’. A power plant needs to over-produce electricity to be able to reliably deal with demand-spikes and the otherwise wasted energy powers much of Bitcoin’s mining. I personally think that Elon Musk is actively trying to make crypto seem useless/frivolous with his strategic tweets and backing of doge because a big part of his battery development efforts at Tesla are for storing this stranded energy. He has already deployed mega batteries in Australia and every electron of stranded energy that ends up there is priced against the opportunity cost of using it to mine Bitcoin.
I decided to do a follow-up on this blog post with a different slice of the blockchain story. For people that are unconvinced by the economic, regulatory, and libertarian arguments on the topic, the research curiosities might give you a new perspective.
I am highly sceptical of the headline numbers reported here. "69% of Vietnamese have no bank access"? That number really surprised me so I tried to find the source. The company https://merchantmachine.co.uk/ provides no information on where these data come from. I live in Vietnam: there are banks everywhere, including in the very rural parts. I work with a lot of non-elite Vietnamese who have very advanced access to mobile phone banking! The numbers for Thailand (20% with no bank access) also look very dodgy. I would guess it's around 5%
It's obvious both why they hate it and why we need it - it's a tool against the (cultural) establishment, which's game they are deeply indoctrinated into; otherwise, they would not be able to exist in woke valley. But it's fine, they can kvetch the whole day about it, we're here to stay.
Each programmer they cancel for refusing the ritual scarification of their own rational faculties is a new worker on our side. There is only one way this is going to go.
But what if I think prostitution is wrong? What if I think it is immoral to buy sexual consent? Is it okay for me to criticise crypto's ability to allow people to bypass a government's ability to crack down on that behaviour?
(And before you bemoan that the prostitutes are losing their livelihoods, I would recommend that the state put them in a shelter rather than turn a blind eye as they allow themselves to be raped just to get by.)
Crypto's high cost per transaction makes it a very poor substitute for traditional electronic payments and inherent high price volatility in the short term also makes it an awful substitute for fiat currency as a way to hold value.
Bitcoin transaction costs are as low as you set them. If it's not a replace-by-fee transaction, and the size is under $100k, you can be 99.9% confident it won't be double spent after a minute of getting propagated to nodes and miners, before it actually becomes part of a block. Nodes and mining pools aren't set up to help you double-spend those sorts of transactions. If you require actual confirmation ASAP that would be more like $0.45 in the current climate.
This is an example of a topic where Scott, who is a good blogger, would benefit immensely from a blogosphere existing. This post, and his arguments on the topic, would benefit a lot from a critical dialogue with an informed and compensated skeptic. Speaking as someone who respects the effort but is not convinced.
I got interested in crypto several years ago listening to Nick Szabo on the Tim Ferriss podcast. After playing around with DEFI in the $ATOM and $AVAX ecosystems ($ETH fees are too expensive to use $ETH as a play-around-to-learn platform) my biggest disappointment is that there aren't enough "real-world" projects which is what Szabo predicted would eventually disintermediate much of the make-work and bureaucracy built into conventional finance, insurance, real estate, etc. With only a handful of exceptions, all I see is a lot of DEFI derivative projects vying for (and passing around) the same ecosystem liquidity.
I wrote this email in reply to my girlfriend, who said crypto was only good for vice and speculation, and that it couldn't be a bulwark against authoritarianism because guys with wrenches can always beat the password out of you:
I like that XKCD comic about the $5 wrench cryptanalysis!
Vice and speculation is a big part of it but I think bitcoin is a lot more than that. Right now in some poor countries it's an important safe harbor. $5 wrench attacks work, but it's impractical to go around doing that to millions of people. A bank is so much easier for a dictator to steal from because the money is so much more concentrated and visible. Meanwhile a safe announces the presence of wealth and gives burglars with wrenches ideas of something specific to ask for. But a bitcoin wallet can be held as 12 memorized words which leaves no physical evidence anywhere (I have one of those). Someone could even memorize a decoy wallet with a small portion of the funds to give to the wrench guy. So I think bitcoin can be more secure than keeping your money in a bank or a safe, especially in countries that don't have good banks or good law enforcement right now.
I also think that in very long term expected-value terms, bitcoin is a 4-6%/year better store of value than dollars in a safe. If we suppose a constant fraction of the global economy will be transacted in bitcoin at a constant velocity, and the supply of bitcoin is constant, then in the limit the value of bitcoin will grow at the same rate as global GDP, which will be positive 2-3% instead of negative 2-3% from USD inflation.
International payments can be a pain in some countries, and I think bitcoin has a role there. A lot of poor countries, and even middling countries like China, have capital controls that function as a sort of financial Berlin Wall to keep people locked in. Richard Munchkin has a story about how he won tons of money at casinos in Poland in the 90s, but then he couldn't get the money out of the country so he just kept it there in a safe for a year while he tried to figure out a way to move it. Eventually he just smuggled it out. My other friend who imports a lot of stuff from China says the factory owners there create burner accounts in Hong Kong and get paid in fiat there, and then they can use that money anywhere outside china. But crypto could also be a good option if China starts cracking down on Hong Kong banks.
Crypto is being used in Ukraine mostly because it's how Ukrainian scammers launder money. I suspect the rest of the third world uses crypto for that exact reason as well.
You sent cryptomoney to Ukraine? Congratulations! You got scammed!
great article, tho i disagree w/ "Yes, The Crypto Financial System Is Just Reinventing The Regular Financial System Except Worse In Every Way ..."
smart contract chains offer big decentralized computing systems, with a built in (tho slow and expensive) mechanism for compensating those who offer up cpu resources to the system. As of today, these are not very good computing systems, but they have benefits beyond just avoiding govt and megacorp censorship:
1) shifts financial burden from creator onto users, allowing for lower startup costs. If i want to create an online game or something, that stores peoples' game state serverside, I dont have to buy up a bunch of expensive server space without even testing the market to see if anyone wants to play my game. Users pay a-la-carte for each game action, and if they actually like your game they won't mind doing so because they're paying like a hundredth of a cent for each action
2) scaling "for free". Of course, if eth gets too busy, then prices go up and there's congestion and it's a huge mess. But at least you don't have to pay amazon or google a monthly fee to run your service, and either have to make excessive payments or outage in the case that there is a usage spike, and you don't have to worry about getting DDOSd (trolls can't afford the txn costs to DDOS a major chain)
3) One versatile tech system means that if you can get it right once, you don't have to have every online retailier do their own code and screw things up. Ticketmaster has a number of bugs, but ethereum probably has very few. If you had an NFT smart contract for concert tickets, teh contract might have bugs, but it probably won't because it will probably a small modification of the basic NFT smart contract which has been rigorously tested a gillion times. On the topic of ticketmaster, they charge exorbitant fees (like 5-20% i think) for everything. OpenSea (the biggest and oldest NFT exchange) takes a 2.5% cut of every transaction, and I think there's a good chance that will decrease in the future if they get any major competition
5) financial contracts settled with code execution are more objective, predictable, cheap, simple and straightforward than legal contracts. They aren't perfect, and there are plenty of cases where a legal contract is preferable or inevitable. But there are also plenty of cases where you'd much rather have a well verified, publicly published computer program execute your financial agreement than have some legal agreement written in english-variety-legalese whose adjudication will be achieved two years after a dispute by twelve randos who are being corralled by the better paid attorney (and both attorneys are very expensive).
tl;dr: crypto is not a strictly inferior financial system whose one merit is that it can exist at all in one extreme niche environment, it is as of today delivering options in a broad array of niche or not-all-that-niche subareas of the finance, computing, and contracts worlds in ways that have different pros and cons compared to the conventional options. and it's definitely improving a lot, as new smart contract chains come up with major tech innovations over the existing ones
I love your article, it is one of the best on crypto I've read, it gets close to realizing a fundamental point about what crypto solves. This fundamental feature is the reduction of economic transaction costs of trust for a common set of economic transaction types. I wrote my own here: https://7174.substack.com/p/the-fundamental-economic-value-of
Calling the people blocking roads and making noise with their horns loud enough to cause hearing damage in Ottawa "protesters" is disingenuous/inaccurate the same way calling J6ers and people who robbed businesses under cover of BLM protests "protesters" is. I think a better approach would have been arresting and charging those people, but what they were doing was not part of liberal political debate but more akin to rioting.
Is there evidence of what people in Vietnam are using cryptocurrency for?
My understanding is that hard cash has a lot of value as a means of transaction, and usually carries no fees.
Is it possible that less developed countries have more cryptocurrency volume because, unlike many other industries, the rewards of running a cryptocurrency scam aren't scaled down compared to the developed world, but are on an even footing with running a cryptocurrency scam from a developed country?
This article makes the startling claim that, "An estimated 25% of Filipinos and 23% of Vietnamese have played a play-to-earn game". Makes sense that it would be in a place where labor is cheapest.
Not sure about any of the explanations for why cryptocurrency is popular there, but there are a lot of good explanations and we should probable see what they're using cryptocurrency for before assuming it is for normal banking.
Somehow the article offends me while my priors actually already agree with it. Cryptocurrency is an interesting way to *trade*. The use cases mentioned in this article already focuses on that. I'm hostile for it as store of wealth and will only use it if I ever need it to exchange money and will cash it out immediately. This view isn't changed by this article. This also dodges the Ponzi schemes that are out there.
But again you have mentioned that the topic is always drowned by the fact that Bitcoin has raised by 10000x so on this topic the trading part is treated as insignificant. As long as it's true, my prior is negative anytime it's mentioned.
I agree this is puzzling, but as I mentioned, lots of Democrats have gotten more aware of the possibility of government takeover lately, so maybe they'll be more open to hearing about it than the last five thousand times I've tried this.
Scott, this is why I'm crying laughing reading this. The party of "bake the cake, bigot!" is now oh gosh oh golly oh maybe you know Bad People could get court judgements to make people do things that they don't want to do because those things violate their principles? The party of the "Dear Colleague" letter is concerned about governmental overreach?
Bit late in the day to start worrying about that, isn't it?
This is how adversarial systems work. The Democrats do work showing us how the Republicans might be authoritarian, the Republicans do work showing us how the Democrats might be authoritarian, and hopefully we take both seriously and prepare for them.
Yuval Noah Harari thought that there was at least a small chance that 2024 would be the last free election in the United States. He mentioned this on Bill Mahr’s show immediately before the midterms. This was essentially the same message as the Nancy Pelosi fund raising emails.
He probably thinks that chance is even smaller after seeing the rejection of candidates claiming the 2020 election was stolen.
Repeatedly debunked lies did not carry the day, thankfully.
This wasn’t a case of both sides being a threat though.
I am way more cynical about politics, having had any idealism around it burned out of me. When I vote, I do vote for one particular party but given the carry-on of many of its incumbents, minor to major, over the past thirty or more years, I also think they should be flogged at the mast.
And now the two main parties in my country, which were as adversarial to each other as the Democrats and the Republicans, have happily settled down to a power-sharing agreement where Tweedledee and Tweedledum swap the office of (equivalent to) Prime Minister. They've settled on a mutual bête noire party to point at and go "if *they* get into power, think of the horrors that will ensue!" for the public to consume.
America doesn't have any kind of third party that the Republicans and Democrats can do the same for, but if there were, I'm happy to assume that Nancy (if she hadn't retired) would be perfectly comfortable in a similar arrangement where the Dems and the Republicans swap 'who holds the big seat'* while both of them pointing at third party as the real menace. Oh, I sent out fundraising emails five years ago claiming that my new best buddies were a threat to all that was true, good, and the American Way? Yes well, that was then, this is now.
So in conclusion, *my* take on that is not to take either of them seriously when they claim "if the Other Lot get into power, they will start up the re-education camps!"** and to want a check on *both* of them because *either* of them could carry out abuses when in office.
*Not the presidency, because that is different in the US, but I could see them doing a "Party X president candidate, Party Y vice-president candidate" selection where the public gets a choice of "do you want to vote for the Demopubs or the Republicrats?"
** You know the ones, as in this article: https://www.washingtonblade.com/2018/04/30/brandon-wolf-i-misspoke-vp-wants-gays-in-conversion-camps/
We can always rely on a party that loses some or all control of government to suddenly become concerned about unrestrained power of government. Those concerns will again become silly paranoia as soon as the party regains power.
That's my view of it, Carl. It may be that we are both older and in my case, much less nicer, than Scott.
Well handsome is as handsome does, D. For what it's worth, my experience is that a fair lot of those who are deeply skeptical -- I did not say cynical -- about politicians and politics are by nature the soul of kindness, but have had that tendency exploited once or thrice or eleventy-twelve times too often.
Good luck.
I seem to mean this both sincerely and sarcastically at the same time, but that's probably the margaritas.
I don’t know that the point is to reach those urging for a hardline crackdown but rather those who listen to the urging with some sympathy but aren’t fully committed to that hardline stance.
It is a hard sell but I don't think it is impossible. As an example, Germany has strong privacy laws in response to what was the Nazis had done.
To accept this argument you need to belive that an acceptable compromise is possible. If you sincerely think that your enemies are literal Nazis, that's clearly out of the question.
This is mostly just Bitcoin now - Ethereum and most other modern currencies have solved all their environmental impacts. I agree this is a point against Bitcoin.
Proof of stake chains are pointless as they have no externalized effect on society. They should just be databases in AWS.
Wouldn't a database in an account owned by 1-or-a-few entities on some cloud company's private platform break the decentralization of the whole idea?
Yes but isn't this most people's experience with crypto already? I.e. it's supposed to be great because you can just have a wallet and have people send crypto directly to your wallet, but most people in practice have some third party provider manage the technical side for them. Thus recreating the centralization (but worse).
Which leads to my question about Vietnam - are the people there actually sending crypto to other people's wallets without the help of any intermediary, like in the original conception of bitcoin? Or is it like people in the US who are using FTX or Robin Hood or whatever the equivalent over there is?
If it's the latter then Vietnam isn't actually breaking free of centralization, they're just using a central authority other than their own country's institutions.
> If it's the latter then Vietnam isn't actually breaking free of centralization, they're just using a central authority other than their own country's institutions.
You might be surprised how much additional freedom you can get that way. The authority they're using, unlike their own country's government, can't compel them to keep using it.
Sure, but at that point the invention is not crypto. The invention is giving acces to foreign authorities. You could just give them acces to Bank of America.
"The authority they're using, unlike their own country's government, can't compel them to keep using it."
Unless it's "if you ever want to see your money back again, keep using our services, otherwise we will mysteriously lose or misplace all your bitcoin and good luck getting us to cough it up, the government can't make us do that, you know".
Digital wallets connected to blockchains through the pocket network are not relying on a centralised third party.
The difference is the power of exit. Even if I'm using a centralized platform like Coinbase or whatever, if I'm unhappy with Coinbase I can move the entirety of my holdings off Coinbase in literally 30 seconds. Either to a competitor or to a fully self-custodied wallet.
I still expect even with fantastic decentralization, many if not most users will prefer centralized entities for ease and convenience. That isn't ideal, but as long as those centralized entities sit on top of a low-friction decentralized base layer they're subject to extreme levels of competitive discinpline.
"if I'm unhappy with Coinbase I can move the entirety of my holdings off Coinbase in literally 30 seconds."
That is, unless the reason you're unhappy with Coinbase is that they've frozen assets six hours before the company goes up in flames. Not like that has happened to any major crypto companies, though, right?
Seems to me this is really that you trust Coinbase more as a central authority than the Vietnamese government. But then that raises the issue of why. Three possibilities come to mind:
- Coinbase is doing some blockchainy shit and you can theoretically withdraw your assets and trade on the bare metal
- Coinbase is subjected to the free market
- Coinbase is subjected to legal regimes that you trust more than Vietnam's (like the US's)
> Yes but isn't this most people's experience with crypto already?
This is my big hang-up about crypto (plus apathy I suppose). But centralization-by-design isn't the same as centralization-by-bad-UX. The latter is a bug that can be fixed -- hopefully, eventually -- while the former is a feature.
Most people's experience with spaceships is designing them while it's on the ground. The point is decentralization, you can't just propose an alternative that doesn't have it.
Crypto is already centralized in practice.
True -- mostly anyway -- but that's different from centralization by design. Centralized control of ideal crypto is an eventually fixable bug whereas it's a feature of a private platform.
"eventually" and probably "ideal" are both doing a lot of the work in that point, though, which is why I'm not a crypto booster or user myself.
You don't know what you are talking about.
Unless you explain why he's wrong, that's an empty and worthless response.
Databases are centralized and whose owner is explicitly trusted by their consumers. IT isn't a replacement for blockchain.
That is not so Scott. Ethereum may turn less energy into entropy in their process than Bitcoin does, but the number is a long way from zero. All cryptocurriencies use energy to create and maintain their operations. All energy production creates some environmental impact.
I'm pretty sure than any currency transfer will involve some energy: Visa, Paypal, bank wire, driving someone's house to give them my gold coins, ...
Numbers would help here. I remember when iPhones/iPads were becoming popular and a poster (at another site) was worrying about the energy consumption. The key insight was that an iPad3 battery held about 10 watt-hours of energy. Using an iPad3 for 8 hours was roughly the same as having a 100 watt lightbulb on for six minutes. Which people tend to not obsess over.
How does Ethereum stack up against the alternatives?
According to the "Crypto Carbon Rating Institute" the ENTIRE Ethereum network uses 2.601 MWh per year (post Proof of Stake)
That is about three months electricity for an average US household. ( average us household is ~900 KWH / Month )
Thank you. This does not (yet) seem to be anything worth worrying about (assuming that the Ethereum number is correct :-)).
2.5 MHh also seems to be comparable to the energy needed to fly a single passenger 4,000 - 5,000 miles using a reasonably modern airliner.
How much energy does the US Mint go through to produce coinage? How many trees have to be cut down to make the paper for it's notes?
It's plausible to me that this is still less ecological impact than Ethereum. Is it closer to 30% or 1% ?
"How many trees have to be cut down to make the paper for it's notes?"
Trick question: As was explained in the movie 'Inside Man,' "Paper" currency is actually made of cloth. Cotton and linen to be specific.
If you wish to be very specific about it sure.
Feel free to interpret "number of trees cut down" as a general shorthand for the overarching environmental impact of leveraging the textiles growing industry, the shipping and transport costs, the various expenses of operating the printers themselves, and hauling the final notes to the various banks that use them. Then repeated for everything that goes into metal coins.
The intention of the question is that if we're going to worry about the environmental points, then at least presenting metrics for both sides instead of just one seems like it's an important part of reasoned argument.
... Anything that humans could possibly make uses energy to create and maintain, though. What is the alternative?
Banks also consume a lot of energy - the fact that ETH uses energy isn't sufficient to be hostile towards it.
If Ethereum has solved serious issues that Bitcoin hasn't then they shouldn't be trading almost identically still, they should be fundamentally different. Can you get rid of Bitcoin and have the Ethereum network still function? Market signals imply that answer is likely no- this isn't definitive as maybe the easy money aspects which have driven Bitcoin's price have also overwhelmed the differences but if Ethereum is markedly different from Bitcoin then you would expect divergence in their price action. Without that you are basically projecting a disconnect which hasn't happened yet, but are treating it as having happened- either that or there isn't an efficient market and you can be rich by shorting Bitcoin relative to Ethereum.
" Can you get rid of Bitcoin and have the Ethereum network still function"
Yes of course...
You clearly don't understand the question.
I understand the question you wrote but it's poorly formed. The network would of course be fine, it's not in any technically way necessary to ethereum for bitcoin to exist. You're implying that they price of the two coins tends to be cyclical, but so are most stocks and no one asks whether Ford could exist if Toyota ceased.
The question is not about if the Ethereum network can technically function, its about the utility and adoption of crypto without bitcoin. Currencies/payment methods- whatever you want to call crypto depend upon networks of trust, and you cannot assume they will function if you remove a major trust node. Your statement about stocks shows that you don't understand- stocks are not nearly as correlated at ETH and BTC are. Car companies will, at times, be inversely correlated as they compete for market share, as one company doing well typically comes at the expense of others not doing well. To take the specific names you mentioned- in the early 2000s to just before the GFC Ford lost over half its value while Toyota doubled. That is the relationship you expect between competitors where one has an obvious advantage over another, that doesn't happen with ETH and BTC.
The cryptocurrency used in all of those third-world countries you've listed is mostly bitcoin. Much of your article basically just defends bitcoin specifically.
And Ethereum caused tremendous damage to the environment before switching. Infinite hostility is still warranted against someone who used to be an arsonist and recently stopped.
Arsonist here means "spent a lot of energy on something I don't like?"
Spend a lot of energy on what is, at best, a *currency*, something that can be constructed by fiat (or by proof of stake or by many other methods that don't spend a lot of energy).
That's the best version of events. The more realistic version is that the energy is spent on (1) Ponzi schemes, and (2) crime (like allowing ransomware payments, thereby encouraging a lot of ransomware).
Nobody knew how to build a cryptocurrency that worked until Bitcoin, so it was a new thing under the sun. The fact that you don't like its applications doesn't mean that its heavy energy use is analogous to arson. People routinely make arguments like this about the environmental destruction due to people eating meat, flying, or driving cars, and it works the same way--the real complaint is expending lots of resources on stuff I don't think you should want. Weirdly, people who don't agree with you on what they should want never seem to find such arguments convincing.
Well said.
There's a prayer I like to remember "Lord, help us forgive those who sin DIFFERENTLY than us"
Plus, there is a whole argument to be made that 1 kW =/= 1kW, since the where, when and how that kW is generated has a huge influence on its cost and utility. Bitcoin is the buyer of last resort, ensuring that an energy project can always find a buyer as long as there is internet (and with Starlink, there always is).
Lots of energy is spent moving fiat currency around too.
Not really. One bitcoin transaction takes around 1450 kWh in energy. One fiat transaction by my bank... how do we even measure that? The computational time used would be in milliseconds. It's likely at most 0.01 Wh. That would be 100,000,000 times less energy per transaction. Even if I'm off by an order of magnitude, that's 10,000,000x less energy per transaction.
You'd be infinitely hostile to someone who used to be an arsonist, but recently stopped? There is no way your hositility could possibly be higher to someone who is still an arsonist and is for example currently setting fire to your house? Or someone who after murdering their way to supreme leader is currently engaged in a campaign of ethnic cleansing who's causuality count already runs in the millions?
I don't think most people appreciate how big infinity is. It's *really* big.
(By all means continue to be hostile to crypto, I certainly am, but Scott's persuaded me I should be less than infinitely hostile.)
Nobody on the planet is literally *infinitely* hostile to crypto. This is a motte-and-bailey strawman and everyone using this point should be ashamed of themselves.
The argument Scott is making is that we should not be hostile to crypto. But we should be. Scott is wrong. The "infinitely" stuff is a distracting hyperbole that overly-literal people are tripping on.
No, we should not be hostile to crypto. As the article clearly points, it has fair and valid uses all over the world, maybe not just that much for regular occidentals. Reading your previous comments it really feels you, at best, skimed the points in the essay and went straight with your pre-formulated, unchallenged opinion about crypto
That's fair. I came into this article thinking everything about crypto was bad, and Scott convinced me that there are some good use cases for crypto in the developing world i.e. it's a mixture of good and bad. I think the bad dominates and I remain hostile to crypto, but the article moved me from 'entirely hostile to crypto' to 'on balance hostile to crypto'. Infinitely is a hyperbolic way of describing that, but it is a real thing being described. I assume you meant it that way as well when you took up Scott's language in your original comment?
I guess I agree with this, with one caveat.
I am not convinced Scott is right about the third-world use cases. I'd be more supportive of crypto if Scott is right about that, but I suspect he is wrong.
Scott demonstrated that crypto is, in fact, being used in the third world. What he did not bother showing is that crypto is better than what they would be using instead; that the third world is *benefitting* instead of being scammed. I mean, I have no doubt bitcoin is better than the local currencies, but I am unconvinced that the bitcoin apps these people use are better than some USD apps they could be using instead.
("So why aren't they using the USD apps?" You ask. My answer is that they think crypto is a get-rich-quick scheme, just like people in developed countries.)
Its actually mostly dollars on Ethereum and Tron.
There is also a pretty convincing case that can be made that proof of work has the potential to be very good for green energy: https://bitcoinmagazine.com/culture/bitcoin-is-a-green-energy-battery
This is not convincing at all, his description of money is wildly wrong, and is trying to convert an analogy into a real property with (bad) rhetoric. His description of 'green' energy is also mostly wrong. You can just build out a solar field over time rather than building a very large one now to take care of future demand, and since solar panels degrade over not that long of time frames (plus incremental improvements in design efficiency) you wouldn't do that anyway. Then there is the flat dumb idea that increasing demand for electricity via bitcoin mining would alleviate price issues, higher demand is not a good way to combat energy shortages.
No, they warrant some large amount of hostility, which is still infinitely smaller than infinity. Your comment amounts to, "environment, therefore BOOO". We can do better than this, and readers of this blog in particular should do better. Give an order-of-magnitude estimate of the problem and of the benefits, suggest alternatives, write a poem about carbon offsets, anything but this.
I mean, the point is 'boo', nothing else needs to be said. You're inventing an arbitrarily high standard so you can debate it, but the argument is really so simple that it's a farce. Proof of work is a joke, no weird arguments about carbon offsets are necessary and they would not strengthen the argument. (Proof of stake.. we'll see.)
I think justifying "infinite hostility" should require a high standard.
Proof of Stake is here what are you waiting to see?
I'm just saying that the infinite (or 'effectively infinite', since you don't seem to like that as a shorthand for 'much higher than any other factor by orders of magnitude') argument applies to proof of work. So it's a complete condemnation of Bitcoin only.
> Proof of work is a joke
Proof of work + longest chain was a theoretical breakthrough that enable bitcoin to work in the first place.
Staking was known approach and has been around for decades.
If proof of work is "a joke", why didn't people just create staking based cryptocurrencies before? Why did bitcoin suddenly blow up when multiple attempts to create digital money failed?
Can you steel man proof of work?
In my mind, there are at least two original contributions in the Bitcoin whitepaper. The first was Nakamoto consensus, and the second is the concept that one can bootstrap a digital currency by having a consensus mechanism maintain the ledger while at the same time incentivizing individuals to participate in the consensus while rewarding them in that same currency.
I think there's an interesting argument to me made about the accessibility of PoW. You could say that it's hard to start a cryptocurrency with PoS because it will necessarily be the developers who start with all the stake at the beginning, by virtue of them being the only ones who know about the protocol. But I don't think this prevents a PoS chain from eventually becoming decentralized, and I wouldn't count it against a chain if their security properties at some point in their history were suboptimal, but it was a problem that had since been fixed.
Another argument in favor of PoW is its simplicity. You can teach a competent student how PoW works in a day, whereas Byzantine consensus takes a whole course.
I remember a time in my life when I was learning about blockchain, and I had averse feelings to proof-of-stake, because I didn't understand the details of how it worked, and I did understand proof-of-work. I still don't know the details of how Ethereum's proof-of-stake works, but at some point I took a course on Byzantine consensus, and I began to feel that my earlier aversion was irrational. I wonder sometimes if proof-of-work proponents I see on the internet are being victims of this kind of mentality, especially when they say things like "proof of stake can never work" (I don't think you are doing this, your Bitcoin maximalist arguments have been cogent).
There is a saying in software security: either your system obviously has no bugs, or it has no obvious bugs.
I don't think even bitcoin is simple enough to be in the 'obviously has no bugs category.' The attack surface for ethereum is orders of magnitude larger. The operational risk of doing something wrong during a hard fork is even larger as well.
There are numerous problems with proof of stake. The easiest one to understand is that it is a form of centralization, because 70% of all Ethereum in existence were created at the premine, and staking will give these people an even higher share of the ethereum. When you combine this with all staked etherem being on a small number of us-run entities, i think there's a very good chance the US regulators say "it is illegal for an ethereum staker to process a transaction that is going to a blacklisted address" and then for all the staking entities to say "ok, we'll do that,' and now, boom, the censorship resistant property is totally dead.
Ethereum and bitcoin have always had very different values and motives from the start.
Bitcoiners have always been focused on one thing: sovereign digital money that can't be stolen directly or through inflation. Money that no one controls.
For Ethereum, this was always about 'world computer' 'digital apps', etc - "decentralization" was "one of many properties." For bitcoiners, it is the only property that really matters, and anything that compromises it in the slightest is not acceptable.
Well said.
It's not at all obvious that staking is sufficient. The argument that proof of work works for the purposes of bitcoin originally (byzantine fault-tolerance etc) was solid and neat. But it turns out that it was deeply undesirable as an actual physical institution in the world. This became increasingly obvious over time.
of course the people who were making money hand-over-fist on PoW were also the types not to care about the externalities. That's not an argument for you or me being okay with it, it's just an explanation of why it got so big.
There are many people who don't find "boo" convincing. It is not at all self-evident that the environment impact of bitcoin outweighs the interests of the Vietnamese, Ukrainians, and Africans to have money they can actually use.
Well the main argument, as mentioned everywhere else in this thread is, is not "bitcoin versus no money" it's "bitcoin versus USD" (or gold or whatever). So yeah, I think that's a pretty easy one -- and that's before you get into the highly dubious temporality of the claim that it's "money they can actually use" _at the moment_ they have money they can use but, bitcoin being bitcoin, it's hard to say if it will inflate 0.1x or 10x in the next 3 months, and then I guess we should hope they're not holding the bag.
Proof of work is not a joke, it's a fantastic distributed computing algorithm solving a well known computer science problem (https://en.wikipedia.org/wiki/Atomic_broadcast, briefly summarized : how can you make a bunch of independent computers agree on a set of facts as well as their *order*, without any central coordinator ?)
PoW's solution is : make it expensive to declare a fact (and trivially easy to falsify it if it's wrong), so that liars are de-incentivized and the honest prevail. The only problem is that liars have one hell of a deep pocket, and so the "expensive" thing for them is really fucking expensive. But, in the same way that PageRank is not a joke just because it turns out it can be gamed rather easily by spammers, PoW is not a joke just because it turns out its guarantees are catastrophically expensive in real world terms.
This youtube channel https://www.youtube.com/@bitcoinandcryptocurrencyte3219 and its website https://bitcoinbook.cs.princeton.edu/ go into way more technical detail underlying bitcoin, I wish more critics go through it first before they open fire. Cryptocurrency is a genius idea coming from the wild west internet of 2008, its only sin is that a religion has formed around it starting from about 2015-2017.
> its only sin is that a religion has formed around it starting from about 2015-2017.
What are religions if not attempts to materially reify value?
Currencies and religions are, i think, much more alike than they are different.
Proof of work, the concept, is fine and neat. Proof of work as an actual implementation in practice that we use to run a system is (it is now clear) an unfortunate tragedy.
That arbitrarily high standard is barely reasonable debate. If you think it's too high, than with all due respect this really is the wrong place for you.
I get the original comment - it's a poke at bitcoin, and it made its point. But to unironically double down and insist that's the kind of conversation we want to be standard here... no.
Thank you. This kind of attitude, “who needs evidence or reasons or to consider that they may be wrong” really does deserve infinite hostility.
Well, the rhetorical point is to say: somehow we have ended up (in my opinion) in a twisted situation where people by default think that "huh, maybe this can be a new currency system" and then other people have to say "doesn't the fact that it intentionally consumes as much energy as possible make it a non-starter?", and how it should be is the opposite: the default stance should be "this system is clearly terrible" and the crypto-enthusiasts have the onus to defend it. It does not seem like "maximizing energy usage is a bad thing" is a stance that needs defending. If it's not obvious, then the interesting conversation is about a difference in values, not a debate about, like, the utilons of defi vs scorching the earth. The "isolated demand for rigor" when disagrees with the article is unfair.
That is, the meaning of the OP (and my defending it) is more like: "what is up with you people such that this isn't a HUGE PROBLEM to you? how do you justify that in your value system?". Scott's article doesn't even mention it. It's the most glaring of the many ways that it feels totally disconnected from reality.
Also you seem to have decided for yourself that the measure of a good comment is how much it's jumping into the debate, and I guess a lot of people agree with that, but there is something to be said for some comments existing for other reasons, such as to "give a position which is otherwise unrepresented a voice", like it's doing here with the position that "crypto's impact on the environment is totally shameful".
You should probably just use the word 'bitcoin', since that energy is mostly being used by bitcoin.
If you think bitcoin is not doing any good at all, talking about the environment is just a hidden way of saying “bitcoin is worthless.” Unless you are willing to acknowledge bitcoin is doing some good (are you aware of it’s use by people in dictatorships to protect themselves?) and then attempt to compare that good with carbon emissions, you’re not really arguing with the premise at all.
If your default stance is “this is clearly terrible” you aren’t remotely open minded. You’ve made a judgement and are only pretending to be reasonable.
If you want to appear reasonable, you could consider, for the sake of argument, asking "what if the bitcoiners are right, then is their project worth this energy it's burning?" This way you can separate the question of "is it bad for the environment" from "is it any good", since i think these two boil down to the same thing.
Here's an article comparing bitcoin's energy usage to major industries. Among other things, it uses substantially less energy than gold mining:
https://bitcoinmagazine.com/business/bitcoin-energy-use-compare-industry
But you're not all up in arms about the energy used in gold mining. Why not?
It's disingenuous to compare the absolute energy usage of two industries instead of the ratio of energy to whatever value is provided. There's another thread on here that did that and it's so egregiously disingenuous that it undermines the point of the person making it completely, like they'll say anything no matter how dumb to defend their side instead of caring about being right.
But anyway. I don't have a sense of the value-to-humanity of the gold mining industry, although I have no doubt that it's much higher than bitcoin since people use gold for all kinds of things. But if your point is: because I didn't say so, I'm implicitly okay with the energy use of every other industry... what are you doing? of course that isn't implied by anything I've said. I happen to think lots of energy use is embarrassingly wasteful, but at least it mostly produces something of value that someone wants, so it's gonna be marginally better. I have no doubt that if I studied what gold goes to I'd be able to say "this whole part is obviously stupid" (presumably, the part where it has intrinsic value as a precious metal, and presumably you would agree?) and wish it was gone, but that's not what this comment section is about.
Anyway, yes, bitcoin does seem near worthless; the examples of "use in dictatorships" is so small as to be trivial (I suspect, a lot smaller than Scott thinks it is) and anyway not convincing at all -- the counterfactual "what if not bitcoin" is, and has always been "some other kind of currency", not "nothing at all", and those economies literally exist (although they're kinda lame, like currencies in video games... but still bigger than some countries' GDPs, I seem to recall). So yes, if your conundrum is "how do we build a system that lets us send value to people in dictatorships" and your answer is "it's gotta be crypto", then you're just, like, totally wrong, and buying the hype, as far as I can tell.
Of course it's a hard sell to convince anyone to adopt a currency that's not crypto, the hype is certainly helping with that. But that's the point about griping it on the internet, in hopes of gradually changing public opinion, I guess.
Anyway, as you can see, none of this is an argument about utility of bitcoin versus cost of bitcoin. You really, really want a utilitarian debate, and you're not going to get one, because that's not the position your counterparty has. I think Bitcoin is bad because it's _stupid_, as a solution to anything except an esoteric computer-science problem, and it confuses me to no end that that's not more obvious here. Although I was very happy to see that other very-smart people understand that, e.g. here: https://www.tbray.org/ongoing/When/202x/2022/11/19/AWS-Blockchain.
> No, they warrant some large amount of hostility, which is still infinitely smaller than infinity.
This is not something you should take for granted; the difference between a large finite quantity and an infinite quantity is not necessarily infinite.
I was always charmed by a description of Eratosthenes' calculation of the circumference of the world which observed that he "accurately assumed that the sun was infinitely far away".
>the difference between a large finite quantity and an infinite quantity is not necessarily infinite.
I mean, in calculus' conception of infinity at least, it literally is. Infinity - x = Infinity for any x in R that is not infinity (https://tutorial.math.lamar.edu/classes/calcI/typesofinfinity.aspx).
My impression is that other, more sophisticated, conceptions of infintiy (e.g. Cantor's transfinite numbers) still preserve this intutive quality, but I can't be really sure as I didn't study them in any detail.
That's only true at a rudimentary level. Infinity, as they say, is not a number, and to deal with it with any rigor you don't treat it as a single symbol so much as a placeholder for a limit. And two placeholders for limits can be reduced to a finite value, as in the reductions of any of the indeterminate forms in calculus such as (infinity - infinity).
In addition to what Scott said: Standard banking uses significantly more energy than bitcoin overall. Almost 50x iirc. And things like ethereum use significantly less. So the abolishing of the traditional banking and the movement over to ethereum stable coins could now reduce total power. Are you now going to switch your position and support the immediate change over because it will reduce power consumption? If not, why not?
If plain energy use is an issue then you presumably have to adopt a full degrowth mindset. Otherwise this is just an isolated demand for rigor. After all, it's not as if bitcoin requires a particular kind of power that's especially polluting. It's the same as any other industry.
Standard banking uses significantly more energy to do enormously more "stuff" (transaction volume). If you tried to immediately scale bitcoin up to do everything the standard banking system is doing, and you could manage it at all, the energy difference wouldn't still tilt the same way, not even close.
Bitcoin does use a whole lot of energy for what it accomplishes. But that's just Bitcoin, basically every other chain is on Proof of Stake, which uses a trivial amount of power. Solana as an example calculated that a transaction used as much energy as a google search
Bitcoin yes, others (like ethereum) no. If you assumed ethereum kept its same per transaction energy cost it would be a net decrease even if it covered all banking transaction. That's not a completely safe assumption. But if scaling does work out are you going to support replacing all banking with crypto?
Depends. With bitcoin most of the indicators go the same direction and only the ambiguous ones "resistance to censorship" and "resistance to remote confiscation" might go "against", but traditional banking comes with a lot of conveniences that crypto doesn't have, so it really depends on whether banking could move more toward crypto in energy budget or whether crypto could move more toward banking in features, as well as the relative prevalence of crime and tyranny, etc, which way the analysis would come out.
Depends on what? Is your belief a falsifiable one based on reasoned logic? If so what evidence would cause you to change your mind?
To clarify what I'm doing: I've seen this argument before and I've never seen it actually defended successfully. So I'm poking a little to see what happens.
I suspect you just don't like cryptocurrency and have seized on the environment as an excuse to justify your dislike. And the fact I point blank asked you whether you'd change your mind if crypto was better for the environment and you still said, "maybe but probably not" makes me more certain in that thesis. But I'm open to having my mind changed.
The rest of the comment was answering "depends on what?" The environmental cost has significant, but not infinite weight. Things like being able to reverse transactions in case of fraud are significant compensating value. Resistance against purely-third-party censorship weighs on both sides of the balance because it enables both virtuous outlawhood and vicious criminality. The reason I can't just give a straight answer is that it *is* a falsifiable set of beliefs based on logic, and so it's hard to figure out the right answer. In particular it depends on the future evolution of both low-energy crypto and traditional banking as they compete with each other. (This is not as simple as "let the market decide". I'm not at all confident the market will choose the right thing in the moment, though in the longer run it will probably create a self-fulfilling prophecy as it often does in such cases.)
Other people have tried comparing the energy used for bitcoin mining to that used for gold mining, reasoning that bitcoin is not money to replace all cash but a store of value like gold. Exact estimates vary for which form of mining is worse, but the two are very similar in scale.
The energy used for bitcoin mining has steadily increased with the price, however, and it will continue to do so.
That probably puts some rough limits on price. Like, bitcoin isn't going to a million dollars this year, if that attracted more miners to keep the profitability constant, it would end up using 10% of the world's power:
https://medium.datadriveninvestor.com/wheres-the-bottom-for-bitcoin-51693997dadb
It could maybe go to a million dollars in a decade, as a few more halvings reduce the mining incentive.
You could have banks using Bitcoin as a settlement layer, you don't need to have all world transaction on-chain.
This comment is brain dead.
Ceci nes pas une pipe
To quote the famous "Line goes up" video: "Yes, globally, the entirety of the banking industry consumes a lot of power, and a non-trivial portion of that is waste that could be better allocated. But it's also the global banking industry for 7 billion people, and not the hobby horse of a few hundred thousand gambling addicts."
The energy costs of a single transaction in the traditional banking industry are fractions of a cent. The energy costs of a bitcoin transaction are, what, 20$ at retail electricity prices? That's why moving away from bitcoin offers significant saving potential (as did the move of Ethereum to PoS, which they thankfully did). And before we switch banking to a new unproven system, I would like to see evidence that it does, in fact, consume less energy, and if so, I would encourage banks to try to improve their energy efficiency.
And "just plain energy use" is an issue if the value that is derived from it is disproportionately small, compared to the alternatives. I am in favor of cars that consume 4 or 5 liters/100km over cars that consume 10 or 12, at a similar level of driving comfort. If there were a car that did the same with 0.1 liters/100km, I would be in favor of switching to that. That is not a "full degrowth mindset", that's "being responsible". And I am a little surprised that I have to spell all this out.
It's a sign of the weakness of your position that you and others have to repeatedly return to bitcoin when I purposefully put the hypothetical in other terms. But I do give you honesty points for admitting that even if it were true cryptocurrency were more energy efficient you wouldn't support it.
Or is that not your position? Your last paragraph seems to imply it isn't (in contradiction of your second paragraph). But your failure to engage with my actual hypothetical and its purpose (as well as your snarky end comment) makes me think what you really want isn't to defend your position but just to accumulate a bunch of dunks.
If crypto were proven to be more energy-efficient, I would consider that as a argument for switching. I would still need a lot of convincing that moving all of the monetary transactions of everyone in the world onto a public database is a scalable solution; and that it does not represent a complete disaster from a privacy point of view; and that the so-called stablecoin is actually backed by actual cash, not held up by some smoke-and mirrors algorithm right until someone decides to challenge it.
And yes, I was snarky, because you introduced your "hypothetical" using sleight-of-hand: "Standard banking uses significantly more energy than bitcoin overall. Almost 50x iirc. And things like ethereum use significantly less. So the abolishing of the traditional banking and the movement over to ethereum stable coins could now reduce total power. " - I don't read that as a "hypothetical", I read it as a claim - "we could save energy, if only we decided to do it". And that claim is completely unfounded unless you compare the power consumption per transaction, which you didn't even attempt.
No, you weren't being snarky because of anything I said. You were being snarky because you think you already know the answer and that it's so obvious you shouldn't have to make the case. Combined with the usual attempts at a power move based around shaming the other side.
To wit, you again have to make things up. I said it COULD have that effect. Not that it would. And then later clarified it was a hypothetical. This hasn't stopped your strawman. You are justifying your rather snarky attitude not by something I said but something you made up I said. And you are now defending your putting words in my mouth ("I don't read it as...") to avoid confronting that you're acting poorly.
Which is a long way of saying: less of this please. If you want to have your criticisms taken seriously you would do better to make them cogently rather than acting like a high school bully.
>You were being snarky because you think you already know the answer and that it's so obvious you shouldn't have to make the case
And you have never been guilty of the same sin?
I think the environmental impact is enough to justify considerable hostility to proof-of-work, but there are several other models - proof-of-stake, proof-of-space, etc.
But yes, the amount of electricity used on Bitcoin is pretty scary.
It's not scary. An enormous amount of energy that is produced is wasted or stranded. Bitcoin miners are happy to use this wasted/stranded energy as it's extremely cheap. This can help, for example, poor Africans with abundant hydro energy have their energy costs subsidized by bitcoin miners (https://www.coindesk.com/business/2022/12/06/east-african-bitcoin-miner-gridless-raises-2m-seed-round/). Or it can help consume methane gas that would otherwise be vented, and actually contribute to reducing emissions of the worst greenhouse gas (https://bitcoinmagazine.com/business/methane-reduction-profitable-bitcoin-story). An interruptible consumer of energy that is location agnostic has enormous value.
The negative environmental impact is a common misconception. In reality Bitcoin is the best tool we have to protect the environment. With a disinflationary currency, holders are incentivized to save their money instead of consume. We will all agree that reducing consumption is a necessary step with our growing population. When money is debased, you must consume quickly to not lose purchasing power.
I won't make any arguments for or against other crypto projects. Most if not all of them are unregistered securities. Bitcoin is a digital commodity, and in a class of its own. An army tank and a Reliant Robin are both vehicles, but that doesn't mean much. Bitcoin, the digital commodity uses more energy than these other things that are different and unregistered securities, okay? Bitcoin's security is based on energy consumption. This makes it resistant to counterfeiting. Using energy is not bad for the environment. Bitcoin miners do not produce CO2, bitcoin miners produce heat. If you are unhappy with where your local energy grid sources its electricity, let your government know.
Bitcoin mining is a highly competitive industry. To stay profitable, you have to get energy for a very low cost. This forces miners to be creative. Miners seek out stranded energy sources, such as geothermal and hydroelectric. In most cases, renewable energy sources are cheaper. Bitcoin is not stealing energy away from people, most energy used by the network would have been otherwise wasted, or never generated to begin with. Don't even get me started on how Bitcoin incentivizes the buildout out renewable infrastructure by providing immediate profitability.
New businesses are popping up left and right to use methane as an energy source for miners. You know methane? That pesky greenhouse gas that has 80 times the warming effect of CO2? Generators that run off methane are being installed that power bitcoin miners, wherever they are needed! Oil drilling sites that hit pockets of natural gas, should we flare it? No! Boom, free energy to mine bitcoin. Rancid landfills leeching methane into the atmosphere with no capture system due to cost? Start collecting that methane and use it to mine bitcoin, cost problem solved. Making money by reducing greenhouse gases? Now we're talking. When you look at the data, Bitcoin is actually on track to be carbon negative within a decade.
Notice I said making money, not currency. Let's face it, the U.S. dollar is decent, but it's still a fiat currency. Like Ray Dalio says, “Of the roughly 750 currencies that have existed since 1700, less than 20% now exist, and all of them have been devalued.” It is time for the fiat currency experiment to end. It did some good things, but it also did many terrible things. When Bitcoin gets to around $1,000,000, it will become the governor of governments, forcing more responsible monetary policy for those who still issue their own currency.
I realize this all sounds a bit far-fetched and perhaps poorly written, but I'll kindly point anyone who is genuinely curious about any of my claims to some quality sources.
Every single watt spent on crypto currency could be spent on something either meaningfully productive or entertaining for the rest of humanity.
If you think bitcoin has zero value, then it's circular: all that energy is spent is worthless just by your definition of bitcoin as having zero value.
If you don't value censorship-immune, state-free, unseizable money, fine. Lots of people do. At the very least, we find it 'entertaining.'
It’s not unseizable.
"Significantly harder to seize than many other common options", then.
If this kind of trivial rewrite can obviate the counter you're trying to make, consider whether the counter was worth making in the first place.
Bitcoin cannot be seized from a willing holder who has properly stored their keys.
Nothing you can do will take bitcoin from someone who has them stored in a brainwallet with the seed phrase known only to them, unless that person choose to give them to you. You can coerce them, of course, but that person could also chose just to die and thus destroy those bitcoin from the world forever.
Nothing else has that property. There has never been a form of wealth like this.
It is worth making, because it is often sold on exactly those terms. Perfect secruity, perfect anonymity, etc.
You didn't find FTX entertaining?
Mining bitcoin from the methane gases released during drilling just monetizes flaring, it does not stop flaring. And, having fossil fuel companies profit from wasted natural gas through bitcoin mining actually incentives them to continue drilling so I don't see that as a win for the environment at all.
> just monetizes flaring, it does not stop flaring.
This is false. Flares are only ~75-90% efficient. When a generator+miner is installed atop the flare, the efficiency is much much higher.
https://www.cnbc.com/2022/02/12/23-year-old-texans-made-4-million-mining-bitcoin-off-flared-natural-gas.html
> Having fossil fuel companies profit from wasted natural gas through bitcoin mining actually incentives them to continue drilling so I don't see that as a win for the environment at all.
They already have plenty of incentives to keep drilling anyhow. Are you saying it's bad for the emissions to go down?
And if you're going to consider incentives for energy production, how does that compare vs. the incentives created by bitcoin for clean energy buildouts which can't change their production rate in the evening to match demand?
Once you use a word like 'infinite' it tells me that you are not being a rational, reasonable person open to evidence. But I'll pretend that this is just rhetoric here and what you are really saying is, "bitcoin is very bad for the enviroment and it is therefore reasonable to be hostile to it"
By 'environmental impact' of bitcoin, are you considering:
A) its use to capture flare gasses and combust them effectively, reducing their emission to the atmosphere, including methane, thereby _lowering_ emissions
B) it acting as a reliable buyer of renewable energy, making renewables more price competitive, to the point of even being used to bring the world's oldest hydroelectric plant back online
C) it acting as an initial customer to bring on new sources of energy that aren't cost competitive if they have to be hooked up to the grid?
How would you value A,B, and C roughly, as compared to the fact that yes, people do use energy on this thing?
Lastly, what do you think the equivalent emissions of similar existing financial systems?
I have a suspicion that the energy "wasted" in proof of work systems is nothing more than a tokenization of the energy necessarily "wasted" in the unavoidable bureaucratic processes humans rely on to reach consensus themselves. I'm skeptical (but hopeful) that alternative systems like proof of stake can actually avoid this waste rather than just shifting it into other parts of their overall ecosystem.
The first part is right, but maybe consider digging deeper.
War is a consensus algorithm. The way it works is, people who are dead stop objecting. Same with people who fear for their lives.
Bitcoin replaces war, says US Space Force engineer Jason Lowery.
https://www.trustnodes.com/2021/08/14/bitcoin-is-a-war-deterrent-and-in-the-interest-of-us-national-security-says-space-force-engineer
I agree with this, war is just "proof of military might" and the potential that Bitcoin could reduce the necessity of war is a very promising idea.
Also what if all countries could just make a smart contract not to wage wars or all their money will be forfeited - thus no more wars. Such takes always amuse me. They sound eligthening at first, but as soon as you think about them for literally five seconds it's clear that it will never work and be a terrible idea to try.
Yes war is a consensus algorithm. So is politics. And conventional economy. We've had alternative consensus algorithms other than wars throughout the whole human history and yet the wars still happened. They happened exactly in the situations when the alternative consensus wasn't satisfying. Through the years we've managed to refine our consensus algorithms making using them more and more preferable to war. Replacing them with much less nuansed consensus mechanism of cryptocurrency is going to make much worse
I agree that "what if countries could just make a smart contract not to wage wars" is fanciful and not going to happen. I think this is just as unlikely as "all countries will agree to ban bitcoin." Countries will always follow their incentives, and there's a really strong incentive for lots of smaller countries to escape the dollar empire, especially if the bigger countries ban bitcoin.
Countries will go to war if they believe it is in their incentive to do so. Countries will not go to war if they believe it is not in their incentive to do so. It helps to understand my perspective if you get that Bitcoiners believe that bitcoin fundamentally changes global economic incentives. What I am describing is not a collaborative agreement to stop fighting war, but a Nash equilibrium where fighting wars is now a losing strategy for economic advancement.
You're totally right that there are multiple consensus algorithms and that these have existed for all of human history. What you may not have considered is that these consensus algorithms are arranged in something like a stack, based upon a tradeoff: cheaper consensus algorithms don't reliably provide consensus. The more likely a consensus algorithm is to _really_ provide consensus, the more expensive it is.
Talking it out between the two of us is cheaper than getting lawyers involved. Having the lawyers reach a settlement is cheaper than going to court. Accepting the court's judgement is much cheaper than trying to fight it out in a war. Surrendering is cheaper than fighting to the death.
Conflicts between nation states follow a similar path, but with economics being the last 'layer' before war. As of right now, two things hold:
- economics isn't' that definitive as a consensus mechanism
- success in warfare allows you to rewrite the history of the economic game, changing who owns what, meaning there is a strong economic incentive for winning wars
Bitcoiners believe that in the future, the following will be true:
- credit will be much, much harder to come by, especially for operations like war which aren't likely to provide a return on investment
- most wealth will be ephemeral, i.e. personal relationships, networks, brands, customer trust, and bitcoin, which means it'll be extremely difficult to impossible to steal by means of warfare
So, bitcoiners think warfare will still exist, it won't be nearly as effective as a top-layer consensus mechanism for determining political outcomes. War will be limited to 'who has control over this piece of land here' - which is still, to be sure, plenty of room for violent conflict. It's just much less room than the present.
> What you may not have considered is that these consensus algorithms are arranged in something like a stack, based upon a tradeoff: cheaper consensus algorithms don't reliably provide consensus. The more likely a consensus algorithm is to _really_ provide consensus, the more expensive it is.
I don't think I get any new insights here. Of course, peope prefere to do cheaper consensus algorithm at first and then raise the stakes and use more expensive ways to arrive to the desired outcome if they are not satisfied with the output of the previous algorithm.
I believe, you claim is that bitcoin is going to produce the actual consensus cheaper and more reliably? Why would that be the case? Can you maybe give an actual example?
Like, right now there is the first country with its borders which are acknowledged by the United Nations. Then there is the second country that wants part of the territory of the first one. The second country send an ultimatum to forfeit the land or there would be war.
However in the bright crypto future there is the first country with its accets written in the blockchain. Then there is the second country which wants the accets. The second country sends an ultimatum to transfere the assets they want to their cryptowallet or there would be cyberwar. What's the difference?
> I believe, you claim is that bitcoin is going to produce the actual consensus cheaper and more reliably?
Oh no, the opposite. Bitcoin's layer 0 is an extremely expensive as a consensus algorithm. This is necessary because it produces definite, global consensus on a socially constructed fact. This is why it needs to use that much energy; systems that aren't using that much energy aren't really producing a trustless global consensus. Systems with proof of stake just playing the old game: a group of persons with ownership over a system agree on the state of that system.
An actual example of how i think this plays out, is as follows: Hopefully, (if not for the sake or argument) we can both agree that economics constrains a country's ability to engage in warfare. I think Bitcon will constrain the economics of a nation to prevent them from issuing too much credit. If americans had to pay the financial cost of the wars in afghanistan and iraq in real time, we'd probably have seen them very differently than we did.
Bitcoin, once it's widely seen as a means to escape inflation over long periods of time, constrains a countries economics by preventing them from borrowing enough money to fund the kind of warfare that characterized the early 20th century. The Bank of England wasn't able to raise funds to fight world war 1, so they had to print a huge amount of money and lie to the public about it. If bitcoin had been a thing, i believe deceit would have been more visible, English morale would have faltered, and the war wouldn't have been such a long-grinding, bloody mess. State-backed fiat money lets nation states fight with literally any amount of wealth inside their borders, instead of having to negotiate and letting the citizens keep some of their wealth intact.
A centralized financial system means you reach a consensus of "we all agree that this bank is extremely good at record-keeping and unlikely to steal anyone's money" and then only a few entities (the bank and its governmental auditors) have to continue to expend energy on keeping the ledger accurate.
Also, Bitcoin's consensus algorithm doesn't give you consensus on *anything* other than "these coins were sent to this wallet by this user." It doesn't save you a single joule of energy on the social component of the transfer - whether you can trust the person they're being sent to, whether those funds were transferred intentionally, fraudulently, or by mistake. So I think it's simply wrong to say that the energy Bitcoin uses is saved from other parts of "humans coming to consensus" - it's not capable of affecting the most important parts of that process at all.
As a sibling commenter alluded to, you need to at least partially factor in the cost of the military in maintaining the centralized financial system you're describing
The military is a cost you need to pay regardless of if your financial system is centralized or decentralized. Your coins aren't worth anything unless you can defend the underlying goods and services that they represent. How does Bitcoin reduce the amount of money you need to spend on the military?
There is a bitcoin sticker that says, "Make War Unaffordable."
Any major war you can point to in the last 100+ years was funded by massive amounts of debt. If your opponent can steal from the wealth of their entire populace to fund their war, you can too.
Hard money makes this kind of large scale impossible by dramatically increasing the cost of seizing your citizen's wealth.
To fund the first world war, Britain had to break their gold standard in secret and lie about it to the world, because they couldn't raise the funds necessary to go to war:
https://www.ft.com/content/1a9f7e7e-7c43-11e7-9108-edda0bcbc928
How many wars were fought *before* the abolition of the gold standard? Napoleon was perfectly capable of arming a million men and marching them off to Russia without the help of fiat money.
Also, nothing about hard money or Bitcoin prevents a government from taking out absurdly huge loans to fund a war, the loans just have to be denominated in Bitcoin.
(War has gotten more unaffordable lately, but that has more to do with its increased destructiveness and a lack of return on investment.)
> "we all agree that this bank is extremely good at record-keeping and unlikely to steal anyone's money"
Lots of us do not agree that banks are 'unlikely to steal our money'.
Billions of people in developing nations would like to have a word with you about how American banks are stealing their wealth by means of exporting inflation, and making deals with corrupt local governments which take out debt in their names.
> It doesn't save you a single joule of energy on the social component of the transfer - whether you can trust the person they're being sent to, whether those funds were transferred intentionally, fraudulently, or by mistake.
This is a good point.
Advocates of hard money argue that in atmospheres of easy money creation, people's way of thinkin about everything changes. When asset prices are blowing up, everyone gets greedy ad thinks really short term. We believe that he root of civilization is the capacity to delay gratification, and that easy money creation shreds this.
You're completely ignoring that some solutions are orders of magnitude more efficient than others. Yes, proof of work does replace some bureaucratic processes. That does NOT mean "it's all the same, nothing matters."
Sure, but I guess what I am saying is that we should consider the possibility that proof of work might already be maximally efficient. I'm not fully convinced that the alternative solutions which claim greater efficiency actually achieve the same "consensus-reaching power" without just shifting the "inefficiencies" into more external parts of their ecosystem.
But of course, it would be great if I was wrong about that. I'm just not convinced.
Btc block reward falls 50% every 4 years, so as price stabilises (stops going up 10,000x) energy use should slowly tail off.
^ conflates energy with carbon, misunderstands the importance of decentralization and how it is actually achieved, ignorant of the positive effects on demand on renewable energy technology and baseload generation, doesn't care at all about disadvantaged masses around the world who need a monetary system that doesn't exploit them.
I'm not really interested in a debate with crypto shills, but I recommend you actually speak to some people from the developing world and ask how they transact. Overwhelmingly it is not through crypto.
What about the infographic at the beginning of Scott's post?
(I may be biased, since I am from a developing country myself with a corrupt government.)
I already do. As part of my primary employment. Bitcoin, not crypto.
They really, really don't. Do they warrant hostility? Sure, maybe. Personally I don't find it that compelling, but I think a reasonable person can say "this is genuinely bad". But infinite hostility? Almost nothing in the entire existence of the human race warrants infinite hostility, let alone crypto.
This is a crazy take. All human activity has 'environmental impact' and it's not for you to decide which is legitimate. Bitcoin uses about a thousandth of the world's electricity production, paid for by willing users; and I don't see any grounds for you to oppose it, just as you have no say over the remaining 99.9% of electricity use.
Moreover (not that it changes the moral issue), Bitcoin mining is geographically flexible and incentivises the consumption of low-cost, sometimes stranded energy, so that the electricity mix used is almost always greener than the local grid as a whole.
Geez, I really wish you'd communicate those first two sentences to the California Legislature.
Read a bit more about the incentives of bitcoin mining. There are unprecedented global implications of a decentralized energy consumer of last resort. We will see massive buildout of low cost energy supply, with positive effects on the globe. Miners are capturing energy from flare gas and methane from landfills, and converting these to CO2 in an economically stable and mutually beneficial way. The ability to monetize stranded sources is driving buildout of hydro power in areas where no energy infrastructure yet exists; there are a few very exciting projects in Nigeria in recent months. This does not even take into account the possible benefits of an open, permissionless, and immutable monetary supply for the globe. This OP, and the comments at large, are remarkable in showing how early we are on the bitcoin adoption curve.
BTW I have no time or sympathy for ‘crypto,’ which is generally a cesspool.
Is the environmental impact greater or lesser than that of the banking system that isn't crypto? What is the environmental impact of the Bank of America or the New York Stock Exchange?
Please stop spreading misinformation.
Alternatively, there are many other things which are actively polluting and destroying our environment. I'm not opposed to your principals, but your anger is misplaced. I would ask that you redirect your concerns to things which are actually negatively impacting our environment.
Also gaming has environmental and social impacts which are far more impactful than crypto. Should be infinitely hostile to gaming?
Compared to what? Banks waste a lot of resources buying fancy clothes and fancy buildings so that people will trust them, etc. Bankers commute in cars to jobs that could be automated. Fiat currency with artificially low rates incentivises malinvestment in extremely-low-return-on-assets boondoggles that undoubtedly have environmental impacts.
Proof of stake is still shitty. Staked eth is indefinitely locked up and can't be used for anything else. The security and decentralization are much worse than bitcoin.
this puts bitcoin's energy usage in perspective: https://ccaf.io/cbeci/index/comparisons
It's somewhere between the amount of energy Americans spend on TV and Refrigerators. Much less than gold mining.
Do note that all of these countries may have economies or banking systems that are basket cases but still have, you know, functioning internet infrastructure. Crypto is cool online money but it sits astride a gigantic technological and social edifice that is substantially more vulnerable to circumstance than a good old greenback. And it doesn't do anything an international bank couldn't do in principle; of course, these banks are regulated in PRACTICE, and in the case of crypto, while censorship resistance is theoretically possible, it's quite a bit harder than the blockchain concept makes it seem, and most of its virtues in this regard are a function of its novelty rather than any actual cryptography.
In other words, no, you can't program your way out of society. The metaverse is just a special case of the actual universe.
I have no idea who you are arguing against. I've never heard anyone express the claim that crypto would be just fine even if there was no Internet.
Just the idea that crypto can step into the fold in the case of state failure which was somewhat suggested by the examples of "high-crypto" countries. Crypto is great in the narrow sliver of probability space where your banking system is in deep trouble but the economy is still halfway functional. Is that a virtue, or is it damning with faint praise?
I think that's actually a lot of countries, eg the long list of countries I cited here that do in fact use lots of crypto. I think with Starlink the number of places where Internet infrastructure outpaces financial infrastructure is only going to increase.
That long list of countries all use less crypto than Vietnam, and that chart gives me no information about how much crypto Vietnam uses relative to, like, the size of its actual economy. Maybe they do! I have no idea though, because chainalysis normalized their statistic to whatever the level of Vietnam is.
the number of countries that fit into that "small sliver" is independent of the their current crypto adoption. If you are right you have just identified the potential market size. No one is claiming that crypto is mazed out on its adoption
Would you like to give a rough estimate of how much crypto they'd need to be using for you to change your mind? I ask only because it looks like some goalpost-moving has been done / is going to be very likely.
It's also totally unclear where the actual data the chart is based on comes from. There's some explanation of the measures used to construct the data but nothing on the underlying source of data.
This source--in one article--cites one survey saying 6% of Vietnamese people own cryptocurrency and another saying that 41% do, with no sources and no explanation of the discrepancy: https://vietnamnet.vn/en/vietnam-in-global-top-10-for-cryptocurrency-ownership-rate-814640.html
The Statistia global consumer survey is the most clearly described data source I've been able to find: https://www.statista.com/chart/18345/crypto-currency-adoption/
According to this survey, 32% of Nigerians and 21% of Vietnamese respondents owned cryptocurrency.
However, it's important to note that the survey is "Representative of the online population." It looks like what this means in practice is that survey respondents are recruited via online ads, and then samples are reweighted/stratified to be representative by age and gender.
This means that heavy internet users will be oversampled within age and gender, and this will skew results more in countries where internet access is less equal. In other words, the design of this survey (and presumably other surveys attempting to measure cryptocurrency penetration) is almost certainly going to exaggerate crypto usage everywhere, but especially in developing countries.
Hmm take the amount of crypto use in the USA and multiply by 5 (or whatever the factor is.) (I'm assuming the scale is dollars)
What would the value of BTC be in $$ if everyone believed the solid practical use case was poor bankless farmers in Vietnam buying some animal feed from another bankless poor farmer? One surmises far less than $17,000. It's hard to imagine a large number of First World miners burning megawatts to mine BTC out of an altruistic desire to assist Third or even Second World people without access to a good banking system (but prosperous enough to afford Starlink receivers and the monthly subscription, which I assume Elon Musk insists on receiving in dollars).
Strike (a bitcoin company) allows people to send their preferred local currency over the bitcoin network. The price in USD per bitcoin is irrelevant as to its utility in sending money. Strike accepts whatever currency, swaps it to bitcoin, sends it to the receiver via the lightning network instantly and nearly free, then swaps it back to the preferred currency of the receiver. Neither the sender or the receiver touched bitcoin yet it facilitated their transaction. It's brilliant.
I guess. But smartphone banking apps did this years ago and have already transformed Third World access to the financial system in a way that is still in the hypothetical future for crypto.
...I mean, Musk is right there working on decoupling internet access from regional infrastructure, and if you can't afford Starlink you probably can't afford the Bitcoin transaction fees either
What is your definition of a halfway functional economy? Are there economies in worse shape than Venezuela? This doesn't seem like an actual limiting factor in practice
I have definitely heard goldbugs make this argument before. Both ways - either that crypto will still be valuable after societal collapse, or that it won't be worth anything and you need gold.
We cannot achieve what is possible, unless we dream of the impossible.
Crypto may not be perfect, but it's a great reason for hope.
> you can't program your way out of society
Citation needed, and in the recent decades we've been pretty successful at programming our way into society being our bitch.
You need barely any bandwidth to transact on-chain, even running a full node is not that expensive, and with brain wallets you don't need connectivity nor even any physical item to transfer an arbitrary amount of wealth out of your authoritarian shithole country.
All of the supposed benefits that cryptocurrency brings the developing world could be solved much more efficiently by letting them use the US dollar, the euro, the yen, the pound, etc. (This was a large discussion in one the last open threads). There already are stable currencies that aren't prone to hyperinflation or confiscation- they're just not widely available to people in say Venezuela for 'regulatory' reasons. (And trust me, people in 3rd world countries really want US dollars- like really really want them).
Maybe crypto will magically their problems. But seeing as its utility has been speculative for a decade now ('in the future crypto will do x!'), I think it's just as reasonable to say 'in the future people in Venezuela or Ukraine or Vietnam will be able to use eurodollars (1) freely, and thanks to [unnamed technological advance] their government won't be able to stop them'.
Or, maybe there's a synthesis where DollarCoin, EuroCoin or PoundCoin blends the two
1. https://en.wikipedia.org/wiki/Eurodollar
I'm willing to bet that the US dollar is used 10x more in Vietnam than Bitcoin. The chart at the beginning is normalized to one, there's no absolute scale on the y-axis and it's no proof at all that crypto transactions play a meaningful role in the economy.
I live in Vietnam. Nobody uses the US Dolla here. I don't even know what you'd use it for. People who are afraid of inflation, currency devaluation, and bank safety use gold.
Bitcoin definitely gets used more than the US Dollar.
But nobody "uses" Bitcoin here. It is all just people speculating because they've heard other get rich quick stories.
I agree that crypto would have no utility in the counterfactual world where there are no dictators or counterproductive regulations and everyone in the Third World can efficiently access First World level services. This seems a lot like saying "all the supposed benefits that chemotherapy brings could be solved much more efficiently by having there be no cancer."
I guess my argument is that many future uses for crypto are famously speculative ('crypto's going to do x in the future! Just wait!'). So it seems just as fair to imagine a world where residents of developing countries can freely access the US dollar to pay for goods & services, rather than Hyperinflating Local Currency. That's not any *less* speculative to imagine than typical crypto-talk
I think it's less speculative to imagine that people working on a technological problem will solve the technological problem, than that dictators will suddenly become nice. Even if these two things are both equally unlikely, I think it's useful to be exploring both possibilities in parallel, so that we have two lottery tickets instead of just one.
I am referring to a possible future technological advance that will allow people in other countries to use the dollar or euro more easily, for banking and to pay for goods & services. Imagine someone with the risk tolerance of Travis Kalanick creates a banking app for Latin America that transacts in dollars exclusively. I'm sure the government of Argentina would be Very Very Mad about this, but if tons of Argentines are using it.... are they going to lock up half their population?
So, Uber for 3rd world payment infrastructure, in dollars. I'd still argue that's *more* realistic than everyone in Argentina using Bitcoin or Ethereum for banking, payments, etc.
I think stablecoins are exactly the thing you're proposing here!
I think that stablecoins are the thing he's proposing here *in space*. And that he is proposing that a similar thing is achievable *on earth*
In stablecoins, the stable part is based on trust in some entity. Presence of an entity that's trusted to devalue everyone's money makes the technical problem simpler, but stablecoins don't seem to try to use that. For example, letting that same entity roll back transactions _en masse only_ is not a significant (or any?) additional vulnerability. Letting that entity stop all transactions from occurring is obviously not an additional vulnerability.
So, Chaum-style cash with such an entity as the "bank" would obviously not have some properties that stablecoins-using-some-variant-of-byzantine-consensus have. But maybe we could have something that's somewhere inbetween that would be just as good, _without the assumptions that PoW byzantine consensus requires_? (Note that in PoS setups, that entity can censor transactions, because they can inflate their stake arbitrarily.)
I'm in Argentina, and there are various competing local crypto apps that use stablecoins pegged to the dollar, but from what I know, most try to use binance the most since they are reasonable afraid that the government will regulate the local ones. You can use a debit card from the app that converts the crypto at time of purchase for $ARS and buy anything at any business.
I don't think you need to wait for the future:
https://www.hks.harvard.edu/faculty-research/policy-topics/public-finance/how-mobile-banking-transforming-africa
https://www.nytimes.com/2016/09/22/business/dealbook/cellphones-not-banks-may-be-key-to-finance-in-the-developing-world.html
You don't need a technological advance at all, you need a policy change in Eurozone countries or the US. It would be trivial for a bank to let random third-world users sign up for an online account and receive and send US dollars to any other user of that same online bank (to pick a shitty but still good-enough MVP). Something like that would compete directly with crypto and probably win for most use cases.
The problem is such a bank would get shut down by their host government because allowing easy signups by people who never show up in person and don't have a verifiable identity would immediately make it a hotbed of money laundering and payments for illegal things. The US cares more about stopping that than it cares about helping Vietnamese citizens avoid shitty banking systems.
See the wikipedia page for Liberty Reserve for an example: https://en.wikipedia.org/wiki/Liberty_Reserve
I've considered this and I basically agree, but I think in practice if a US-based bank were to offer accounts to the citizens of say Latin America, and it allowed them to transact with each other in dollars and store money outside of those countries' purview- those governments would complain to the US so much that it's impractical. Part of the appeal is that the citizens of say Argentina want to store money outside of the government's control, so they can't seize it. This is of course illegal to do under Argentine law, and the government would get very very angry at the US for allowing this. And letting the citizens of Argentina transact directly with each in dollars and not the Argentine currency..... Argentina would be Big Mad. I think that's why the bank idea is unrealistic, and decentralized currencies are more likely
Cryptocurrency problems are pretty much entirely self-created. Thinking they will be solved without creating more I don't think assesses history well. And that someone might someday find a use case cryptocurrency is good for is kind of half the point. Why would those people share profits with present projects at all? Creating new coins is a command line parameter and happens continuously. Ergo, if someone solves these problems they will not share with current coin holders, and all current coins have an eventual value of zero.
I think Scott's main point there is not speculative at all; he's saying it's already happening that crypto is being used in the case of authoritarian governments and crappy banking systems.
Well, that's true but people already use cash transfers and dollars to avoid those problems. The main advantage of crypto over those is anonymity, but even that is dubious in countries like China.
Why are people using crypto if they already get what they need from cash transfers and dollars.
Clearly some people currently think that crypto is more useful and others think that cash, wire transfers, bank deposits, and various other alternatives like airtel minutes are more useful. If crypto has become/is becoming the primary way to send and receive remittances in some countries (as an example) that would be strong evidence that crypto has a valid long-term use.
I haven't been able to find data that seems credible on the actual use of cryptocurrency in developing countries relative to alternatives, for instance for sending and receiving remittances. If you know of any good data I would love to see it!
I wonder about the rate of use of crypto compared to other mean to transfer money. But overall the main advantage of crypto is that it mostly flies under the legal radar. That happens to be also its biggest flaw.
My feeling here is "let's let people use crypto if they want, and see if they find that they obtain some advantages that cash transfers don't offer".
My expectation would be "yes, that's why they use it now", but that could be wrong.
Also, the big cryptocurrencies like Bitcoin are only pseudoanonymous, and realistically, all transactions are public. Actually private cryptocurrencies are a little-discussed niche.
that would be fair if you were comparing two things that don't exist today, but instead you are arguing that something that does exist today is not valuable because it is theoretically possible to solve the problem a different way.
All of the supposed benefits that airplanes brings the developing world could be solved much more efficiently by letting them use teleporters
They don't have dollars in the 3rd world now? The title of this article- 'Argentina's black market dollar trade: illegal but part of life' https://www.france24.com/en/live-news/20220701-argentina-s-black-market-dollar-trade-illegal-but-part-of-life
They have black market dollars, and insane demand for them, in Latin America and Africa and Asia and Russia.... and everywhere else too. Do you know anyone who lives in the 3rd world? Earlier this year I had a long conversation with my Pakistanti contractor about the lengths he goes to use US dollars in his country
I didn't say that they don't have access to USD today. I was replying to your comment that "So it seems just as fair to imagine a world where residents of developing countries can freely access the US dollar to pay for goods & services, rather than Hyperinflating Local Currency."
The proper comparison is the current state for someone in a 3rd world country to use USD vs crypto. As you said right now it is very challenging to to transact in USD in places like Pakistan. Which makes crypto a better option in many cases. How do we know that crypto is better in those cases? Because people are using it.
As nifty775 (him-/her-)self mentions, "they have [...] insane demand for [black market dollars]" — suggesting that supply limitations create a use case for crypto right there, even absent any other advantages.
But people obviously cannot transact in crypto now- we see this most recently with the El Salvador Bitcoin debacle. Merchants refused to accept it, consumers refused to use it, and the whole attempt failed. Famously, 90+% of Bitcoin is held and not used for transactions. It doesn't work as a currency in practice. 'Because people are using it' is wrong- they're.... they're not using it. Crypto is a moderately interesting store of value but has basically failed as a currency at this point.
Here are a couple of good articles about how much the dollar is used on the black markets in Argentina. Bloomberg (saved in archive) https://archive.vn/SgTVD and an Al Jazeera piece from 2019 https://www.aljazeera.com/economy/2019/9/13/the-us-dollar-is-sewn-into-argentinas-economy-and-its-culture
US dollars are easy to confiscate.
A stable coin pegged to the dollar backed by a reputable company (e.g. Goldman Sachs .... don't laugh, or Fidelity) would be pretty useful.
It would even be very profitable for the backer because it would basically be a Money Market Fund (on the Internet!) where the provider keeps all the return from the cash (currently around 3% per year).
I do have to wonder why no bank has yet come out with a crypto product that's basically "Tether, but the reserves aren't held by a weird shady company that doesn't want to be audited."
It would be illegal. Banks are required to know who their customers are. They're required to attempt to detect and stop criminal transactions. If you built KYC and the ability to roll back transactions into a stablecoin, it would no longer be a stablecoin. It would be a bank account which happened to be kept on the blockchain.
"It would be illegal. Banks are required to know who their customers are."
Does every major country have a "know your customer" law? Because the stable coin doesn't have to be backed by a US bank. A reputable Swiss, British, Swedish, Japanese, ... bank would work.
It used to be possible to open a Swiss bank account where the bank knew nothing about you except the number on your bank account. This is the "numbered bank account" of Hollywood fame. It was frequently used to dodge taxes, launder money, and accept bribes. You can imagine that other countries were not pleased by this. Under international pressure, they gradually started asking customers for more information, including their name. These days the numbered account still exists, but largely as a marketing gimmick.
I don't think there's any country with literally zero KYC laws. There are probably some where the laws aren't well enforced, or where you can give a kickback to the banking regulator to ignore it. But then we get back to whether or not it's being run by a weird shady company. ;)
Also, Japanese banks now can issue stablecoins:
"Japan's parliament has passed legislation allowing Yen-linked stablecoin cryptocurrencies, thus becoming one of the first countries – and by far the largest economy – to regulate a form of non-fiat digital money.
The regulations stipulate that only banks and other registered financial institutions – like money transfer agents and trust companies – can issue the alterna-cash. Intermediaries, or those who are responsible for the circulation of the currencies, will be required to adopt stricter anti-money-laundering measures. The rules also define stablecoins as digital money and guarantee face value redemption."
https://www.theregister.com/2022/06/06/japan_regulates_stablecoin/
This is literally what Facebook tried to do a few years ago. The government gave them so much shit that they ended up scaling back and eventually giving up on the plans.
FWIW, Circle, the issuer of USDC, is a reputable, US based and regulated company
At that point, why bother with the crypto? Have a quorum of one: Goldman Sachs.
The idea would be that Goldman would not be part of the transfers (just like the federal reserve isn't involved in cash transactions). The blockchain would be used for transactions. Goldman would provide creation/redemption of the coins from/to US dollars.
Here's a podcast about some of the trouble Argentinians have trying to use USD now https://www.econtalk.org/devon-zuegel-on-inflation-argentina-and-crypto/ . A stable cryptocurrency won't solve all of those problems, but you can see the advantages it offers over just having cash
I could be hugely mistaken here, but I don't think there's any specific reason why any country couldn't use those currencies if they wanted to. Perhaps not in name, but many countries have their currencies pegged to the US dollar (or other baskets of currencies/commodities, which I'd say is kind of like a Eurodollar,) for this very reason. I have no clue what's involved in pegging a currency to another, but is commonly done. The downside is you lose authority over your own currency. We've seen issues with this in Europe, where the strong Euro has undermined standards of living and growth in places like Italy, which can't simply devalue their own currencies anymore and power out of a slump. There's also sovereignty issues and national pride and all those things.
Often use of US dollars is illegal. It was in Venezuela for a while and it was in Zimbabwe for a while.
The population won't trust the peg because the peg usually fails and then the folks holding the pegged currency (e.g. Argentine Pesos) rather than the backing currency (e.g. US Dollars) get hosed.
Folks in Venezuela, Vietnam, Zimbabwe, etc want dollars, not something that is worth a dollar today and will be waste paper tomorrow.
Fair enough re pegging, definitely not my area. How do pegs fail?
And, illegal to use dollars according to whom? The government of Venezuela (in your example) or that of the US? The former surely, the latter I'm not sure.
Hypothetically, if a given nation wanted to adopt the US Dollar entirely, would the US agree?
Pegs fail because the government (or central bank) running the peg decides to take the dollars backing the local currency (e.g. Argentine Pesos) and spend them. This is why folks want dollars, not a token that says it is the same as a dollar (until it isn't).
NOTE: During one of the recent Argentine un-peggings from the dollar (maybe the most recent one?), the Argentine government *also* converted all the local bank accounts that were holding dollars to Argentine Pesos at the 1:1 rate, so even holding dollars in the Argentine banking system didn't work. You needed your dollars where (a) you could spend them, but (b) the government couldn't confiscate them.
Dollar holdings are declared illegal by the local government (e.g. Argentina, Zimbabwe) not by the US.
Ecuador uses the US dollar as its national currency. The US doesn't have to agree :-)
Got it, thanks.
Usually pegs aren't 1:1 backed in the first place, realistically, the government doing the pegging buys/sells some bonds from the government being pegged to to control the exchange rate, they do hold a certain-sized pool to do 1:1 exchanges but that's just to suppress small, short-term variations. Unpegging doesn't always happen because the government has spent their pool or can't afford to continue manipulating the exchange rate either, it's because they actually need the exchange rate to change because of monetary or fiscal reasons (e.g. they need to increase money supply, or lower real cost of debt interest). (This doesn't necessarily mean that what got them into the pinch was any more *responsible* than spending reserved money though.)
Illegal according to the government of Venezuela. It is true that a country could decide to peg to the US dollar without US permission.
Thanks.
Yeah I would say it verges on suicidal, at least in the current world, for a state to actually use a foreign currency for its transactions with no option to unpeg.
The Euro zone's death reports have been greatly exaggerated.
El Salvador and Ecuador got rid of their local currency a couple decades ago and use the US dollar. I think Panama does too
using USD instead of a local currency is a bit different from using a local currency pegged to USD
Any country that uses the US dollar as currency is basically giving up any vote in their monetary policy and accepting huge risks of being forced into either inappropriate fiscal austerity or defaults. It may have looked like a good deal for the people running the country at the time but the people living there won't be enjoying the ride in the long run.
I was here to say this to Nifty 775 - using currencies of countries with stronger economies than yours is a recipe for disaster. I am sure the people in the short run enjoy stability, but in countries where an alternative currency is used by the people informally, a part of GDP growth is given to the country that prints that money. As demand for USD (for example) grows as the Argentinian economy grows, and the USD strengthens - but only the American government can print it, and thus reap the benefits of a stronger dollar. This is a simplification, but just to add to the already strong point of FeaturelessPoint above about giving up your monetary policy.
This is no different from being on the gold standard. For a small country without a strong banking system, the benefit of committing to a functional monetary policy (The US Federal Reserve) can easily outweigh the cost. In addition by dollarizing their economy they can attract foreign investment who don't need to hedge the currency risk.
El Salvador, Ecuador and Panama have done it for decades now. I think one of the quiet benefits is that it forces those governments to live within their means financially
https://en.wikipedia.org/wiki/United_States_dollar#Formal
Whatever you think of the infinite revolving tabs lots of governments run, it simply isn't the case that government borrowing is always worse than the alternatives.
Giving up control of your monetary policy makes sense if you expect whoever would otherwise have control of your monetary policy to be terrible at it. This is a rare scenario, but it's reasonable for some countries with a bad history.
I don't think it is suicidal, but it is basically impossible for a country to credibly commit to never unpegging
If all your alternatives are suicidal, sometimes it makes sense to choose one suicidal option. Ecuador seems to have done pretty fine recently, and avoided some of the issues that Argentina and Venezuela have had. Will they do better long-run? Hard to say, but I don't think it's *obvious* that using the US dollar is a worse option for them.
I don't think you can think of states as singular, responsible agents like that, especially not the ones where people want to use dollars or bitcoin instead.
It guards against other 'suicidal' things, like a dictator taking power and running the money printers directly into their cronies' pockets.
to be clear this is somewhat tangential to the point of this post. The utility Scott raises is for people unfortunate enough to be in a country that is acting poorly. The fact that any country could decide to be a democracy is little solace to someone living under a dictator
One of the key benefits cryptocurrency brings to the developing world IS the ability for them to use the US dollar, in the form of crypto stablecoins. The crypto adoption index includes stablecoins, and I'd bet a lot of the usage in developing countries is stablecoins.
From chainalysis: " users in lower middle and upper middle income countries often rely on cryptocurrency to send remittances, preserve their savings in times of fiat currency volatility, and fulfill other financial needs unique to their economies. These countries also tend to lean on Bitcoin and stablecoins more than other countries"
The dollar is used quite frequently used in many of those countries - but it's really difficult (and expensive) to get a dollar from Chicago to Caracas.
>If you split $1000 and invested it equally in all the top crypto projects of 2015, you would now have $25,400.
'If you entered this pyramid scheme/speculation bubble 7 years ago, you'd have a lot of money today' is a true statement for many types of pyramid schemes and speculation bubbles.
Did you read Footnote 2?
Did you mean footnote 3 (“I’m not focusing on investment returns in order to claim that crypto is a good investment”)?
I did, but perhaps I misinterpreted the meaning of these sentences:
>Some of this is that a few cryptos did very well (eg Ethereum) and drowned out the rest doing badly. But even in 2020 when Ethereum’s gains were mostly played out, on average you would have done fine.
I took this to mean that even though most of the 54 companies did badly, if you invested in Etherium in 2020 you would be doing well from that specific investment in 2022, so at least Etherium isn't a Ponzi scheme. Which I took as not much evidence that the other 53 aren't Ponzi schemes, if they did badly for the average investor who didn't get in early.
If instead these sentences means that if you took the 54 projects chosen in 2015, and invested in them in 2020, you would still be doing well by 2020 - then I misunderstood the evidence and that does change my understanding of the situation.
Though I'm not sure how *that* outcome gels with the clause about 'the rest doing badly', it seems like this clause alone implies that the *average* investors in the *average* project did poorly, which *is* the outcome you'd expect from a Ponzi scheme.
(as well as any other venture that didn't pan out, of course. I'm not claiming any of this is *proof* of them being Ponzi schemes, just that I don't see how the presented evidence argues *against* Ponzi schemes. Since I'm interpreting it as saying 'in most projects except for a few stand-outs, early investors did well and the average investor did poorly' - but again maybe I'm misunderstanding those sentences.)
This. It hasn't fully collapsed *yet*, but would if people actually started pulling money out.
See also: Alameda had 5 billion in shitcoins, up until they tried to cash out and discovered the true value was zero.
This is a general argument against banks.
Not so.
It's true that the average *bank* would collapse if there were a run on it, yes.
But the *value of the US Dollar* would not collapse if there were a run on the banks. If anything, I would expect the value to go up, as credit collapsed and there were fewer effective dollars in the system.
In essence, the banks are still *trading in something* that is in and of itself a valuable commodity. Even if the banks collapse, the commodity doesn't.
The claim against crypto is that the underlying commodity is *itself* worthless, and would collapse in value if people actually tried to trade with it at a normal rate instead of treating it s a speculation asset.
Ie, the accusation is not so much that the exchanges and projects creating crypto are perpetrating scams, but rather that the coins themselves are tulips or beanie babies.
I've often heard that one of the major reasons Bitcoin has done well and maintains value is that the early holders/investors have been willing to maintain huge stakes. If the early investors had tried to sell massive stakes of Bitcoin when the value hit [various points], the value would have collapsed.
It's not very reassuring that there's a potential timebomb hiding in the currency somewhere that may, or may not, go off. Mentioned as a positive in something I read last week was the possibility that the anonymous starter of Bitcoin, who potentially has a massive amount of Bitcoin, may not be able to sell off and tank the price - because he might be dead! Extremely reassuring, especially as that implies we can get locked out of our own Bitcoins if we die, meaning no inheritances for family, including a spouse.
...It is also true of things that aren't scams. The fact that somethings price has gone up is not evidence in of itself that it is a scam.
Absolutely.
I am not claiming that my reasoning is proof they are Ponzi schemes, and apologize if I gave that impression.
I'm saying that the logic presented in this part of the article is not evidence *against* them being Ponzi schemes, because we could expect to see this same evidence from Ponzi schemes.
How long do pyramid schemes usually last?
Looks like Madoff's company lasted 48 years.
It wasn't a pyramid scheme all that time. It was only once he got a reputation for consistent returns that he got a large enough influx of customers to turn it into a Ponzi.
Amway was found in 1959.
I don't have much knowledge of this domain area, but my guess would be that the median successful scheme (excluding tiny hyper-local schemes or ones that fail quickly) lasts something like 5-7 years, with long tales stretching into decades.
It's a lot easier to keep going if you can have people publicly take large losses and keep shilling you all the same. Arguably the pyramid scheme already collapsed this year (and that after collapsing in 2014 and 2017 as well), and yet here we are.
Amway would seem not to qualify as a pyramid scheme, having lasted longer than many indisputably legitimate businesses and selling large amounts of actual products.
Your definition is partially circular. Amway can’t be a pyramid scheme because it’s lasted a long time?
Anyways, the selling of products was Amway’s way around regulation. When you start looking at who makes money and how, it’s definitely a pyramid scheme.
Short durations are a defining feature of pyramid schemes. The reason it's considered legitimate to quash them is because they are going to collapse anyway rather than produce anything of value. There is not an infinite supply of people willing to invest in any scheme, so eventually they run out of new investors and cannot pay off existing ones. Selling products is something normal companies do, what's unusual about Amway is its salesforce. And the front-line sellers of products making less money than the people at the top is also a normal feature of companies.
The front line workers of Amway don’t make less money than the people at the top, they tend to *lose* money. And the money they lose is transferred to their “upstream”.
There's an old joke about this:
"Guy jumps off the Empire State building. As he passes the 90th floor a man leans out a window and asks 'Are you in trouble?' and our plummeting hero says 'Nope! Doing fine so far!'"
Well I love my job and I love my girl,
Who could ask for more?
Well I was washing windows on the 92nd floor.
Suddenly a gust of wind came up and struck from where I stood.
And as as I fell past the 80th floor I said so far so good!
I am in trouble now ya bet! But so far so good, I am not dead yet.
Andy breckman has a whole song on this theme and it is lovely.
I am not surprised that the trolls have shown up. The irony in an article which says "you know, I'm thinking that maybe this isn't all bad, and I'm going to take an objective position to question whether or not there may be a redeeming quality here..." and in a newsletter which is seeking objective reasoning.
We get it, you're going to blind rage against anything "crypto." Your takes are tired and boring, and would be better placed taking on real crimes, not broad and misinformed generalizations
You have not mentioned the problem of scale. From what I understand every other problem of crypto is downstream from the fact that it does not scale. (And any attempt to make it scale detracts from its main advantage of distribution so as to make it worthless).
Can you explain more about in what sense crypto doesn't scale? Are these the problems that are solved by things like Lightning Network, Arbitrum, sharding, or using a token like Solana which is designed to route around these kinds of issues?
(yes, Solana's not doing too well lately - but that's because scale hasn't become much of a problem in the real world yet)
The problem is basically that Transactions Per Second are multiple orders of magnitude worse than traditional payment processors. Things like Lightning Network have significant downsides compared to the raw network, sharding doesn't work well, and anyway these things don't make up the entire difference.
This is a technical problem that seems largely solved by L2s + sharding. This blog post is a pretty convincing (to me) discussion of what's actually achievable https://vitalik.ca/general/2021/05/23/scaling.html. Not 100% optimistic, but at least the naive "TPS fundamentally can't match traditional payment processors" seems to be being addressed in good faith by the 2nd largest existing project.
Ethereum L2s have high transactions rates per second, while also maintaining the security guarantees of ethereum, and generally allowing force withdrawals in the case that the L2 operators stop working. They are also here, working right now in the real world. https://l2beat.com/scaling/tvl/
Lightning network will be ready aaaaaaaany day now.
Is there something in particular you have attempted to use it for and failed?
(Obviously the answer is no; you've never attempted to use it at all. You're just repeating things you heard people say. The rest of us are using it fine, and have been for multiple years now.)
The fact that literally nobody I do business with accepts it *is* a failure. I can’t even attempt to use it if nobody I’m interested in buying goods and services from will accept it as a means of paying for said goods and services.
And I do business with some groups that are ideologically predisposes towards bitcoin and L2 bitcoin payments. None accept it.
I won't say scalability is a completely solved problem, but it's not really a binding constraint today and the rate of improvement on scalability tech is rapid.
As of today, the supply of blockspace far exceeds demand. High throughput chains like Solana or Polygon can process a few thousand transactions per second. And about 80% of the block space is unused. So usage can grow quite a bit before hitting any sort of roadblock.
Ethereum is really the only major chain where blockspace is relatively scarce. And that's pretty much because the Ethereum Foundation has prioritized maximum decentralization and heavily restricted the supply of blockspace so nodes easily run on Raspberry Pis. But even with Ethereum, optimistic rollups (like Arbitrum) are already in widespread use, can process 10X more throughput than the base layer, cost less than $0.10 per transaction, and have the same security guarantees as Ethereum itself.
Beyond that zero-knowledge (ZK) rollups basically allow for infinite scalability, because their blockspace consumption on the base layer grows logarithmically with the humber of transactions. ZK rollups are already being used for single-purpose applications like dydx, where they're capable of handling tens of thousands transactions per second. The only remaining challenge is making them efficient for general purpose compatibility with the Ethereum Virtual Machine. And here, you're talking about maybe a couple years at most. The main barrier being the overhead of generating the SNARK/STARK proofs, which probably will require custom hardware acceleration.
This sounds like baseless dismissal, or possibly misunderstanding.
Can you elaborate?
Any "exchange risk" discussion that manages to exclude both Mt. Gox and FTX is cherry-picking, regardless of whether you intended it to be or not.
Beyond that, all of your "use cases" boil down to either "money laundering" or "using money in a way the government disapproves of" more generally.
This is a non sequitur, he's nowhere denying that FTX was a scam, just leaving it out of a single statistic and even prominently noting that fact so that nobody is caught unawares that it was not in the list.
It's unfortunate that we live in a world where money laundering can be a good or even essential thing, but we do.
Figure out a better way to get a non-cherry-picked list of big exchanges and tell me what you find, I'm interested in knowing.
I think the essence of your comment is mentioning that there are some well-known examples of exchanges failing, and the essence of my comment is mentioning that this happens but is rare, so rare that some randomly chosen list of exchanges over some time period won't have any examples of it.
A 95% or even 99% rate of exchanges not stealing your money is actually really bad. For comparison, no actual US stock exchange has ever done this.
Plenty of banks have though. And "exchanges" on blockchain are really built as much like banks as like stock exchanges.
Perhaps but my bank account is FDIC insured.
Ah, but your bank is FDIC insured because nearly all of the the banks collapsed almost simultaneously.
If you counted bank failures that were bailed out by the government then banks would fail with alarming frequency.
I'm not saying crypto exchanges are reasonably built, but I AM saying that they are probably as reasonable as fractional reserve banking... they just don't have the blessed protection of a government that can print money... yet.
I'm not sure that's the relevant comparison. See the analogy to higher education, or to Ponzi schemes denominated in USD — we're not trying to calculate exactly how relatively safe crypto exchanges are compared to stock exchanges, or using dollars in general is compared to using crypto in general, or whatever.
Rather, Scott's point, as I read it, is something more like "crypto scams aren't as common as perceived to be" / "crypto use doesn't guarantee loss of all your savings", or maybe "crypto has costs — like being less convenient and more scammy than USD — in exchange for decentralization, and the costs aren't so high as to prevent many of its use-cases".
His point definitely *isn't* "crypto exchanges are just as safe as US stock exchanges", I would think.
I think Scott was quite clear that crypto is not as good as traditional finance in the US. So that's not really a useful comparable. A better one would between banks and/or exchanges in countries like Venezuela
But quite some share-selling companies did. Enron and Wirecard did even in our time, so highly regulated and extensively audited. To quote the famous German banker Carl Fürstenberg: “Shareholders are stupid and cheeky. Stupid because they buy shares, and cheeky because they still want dividends" and "Net profit - is that part of the balance sheet the board can no longer hide from the shareholders" (which applies to most joint-stock companies, so ... )
Well, here's the first list I found prior to the FTX collapse: Forbes listed FTX #5 out of the top 10 in their comparison of global crypto exchanges.
https://www.forbes.com/sites/javierpaz/2022/03/16/the-best-global-crypto-exchanges/?sh=4f1aaa09742c
I do agree with the overall point, that outright scams are in the minority of respectable crypto projects.
But I still think eg the analogy with universities doesn't hold, because of the significance of the two major exchanges that failed. A more fair analogy would be the alternative world where say Oxford (Mt Gox) lost everything due to a "hack" (maybe stolen by owners?) and Stanford turned out to be a total scam.
More concretely, on this particular list I wouldn't be too surprised if 30% losing their funds within 10 years. I would put 90%+ probability on the majority not losing their funds in 10 years though.
Note: Especially worried about Huobi after it got acquired by Justin Sun (who earlier eg launched his own ponzi coined modeled after Terra/Luna). According to their proof of reserves they are roughly 50% backed by their own token, HT, analogously to FTX's FTT token "backing". https://studio.glassnode.com/dashboards/proof-of-reserves?utm_campaign=por_dash&utm_medium=gn_email&utm_source=email
Weighted by percent-of-market, Mt. Gox was the largest exchange ever, right? Like, it was larger than several of the current top-10 put together, I think.
So by far the biggest thing ever in crypto was a scam, and you managed to exclude it, and to say that most of the exchanges are not scams. It seems at least worth mentioning in the article! "The biggest exchange ever was a scam, yes, but that's no worse than higher education". Try making that argument, see what it sounds like.
Mt Gox and FTX are both widely known as within the top 2-3 biggest exchanges by volume of their time. And anyone who thinks we're through the current run of large exchanges going bust (Tether/Binance especially) is... an optimist, to say the least.
Even assuming you can avoid depositing in a fraudulent exchange, there's the second order risk of crypto going through huge boom and bust cycles as fraudsters inject leverage into the system to pump up prices.
The theoretical winning investor from 2015 either lucked out and picked a reputable exchange from that time that is still around (are there any?), or has managed their keys themselves. The latter is risky enough that in general software engineers are not trusted to do it themselves without automation / dedicated support.
Broad misinformed generalizations are a feature of the blind rage against crypto.
There was a time when the United States entire stock market collapsed, not only a single excange. The system that replaced it investigated Bernie Madoff for 16 years and decided he wasn't doing anything wrong.
You're woefully misguided to suggest that a centralized exchange (which is not necessary and generally frowned on in crypto) is somehow representative of all aspects of crypto. This has nothing to do with what the article is about.
It's like someone saying the stock market is all bad because of Enron
Why would you want to use your money only in ways the government approves of? Is it still your money then?
Vietnam is super into crypto because Axie Infinity (a once popular Play to Earn game) focused on them for whatever reason. I'm guessing there's some "(amount of people with access to internet) / (income level that makes tens of dollars per day meaningful)" ratio at play
Axie suffered a massive hack (and got sort of re-equitized afterwards) but yeah bloom is off because the game itself is bad and the internal economy doesn't scale and once people stopped making money at it and started cashing out instead it all collapsed.
Because the founder of Axie Infinity is a Vietnamese. He dropped out of college in the US and went home to found the startup.
Interesting. I definitely wouldn't have put Vietnam on the list of "unstable countries where you need a shadow bank" the way that Ukraine and Venezuela clearly are, and that Pakistan clearly could be. (I'm less clear about Kenya, Nigeria, and India.)
As a "crypto person", as soon as I saw Vietnam dominating Scott's chart I thought "Oh dear I'll bet that's just another localized crypto Ponzi", and unfortunately my bet is Thomas is correct. Axie is (IMHO) very much a net-negative flash-in-the-pan crypto Ponzi (though quite likely built with good intentions!) and sadly other past countries that dominated similar charts were usually places where some Ponzi or the other had sunk in its teeth: Axie was originally big in the Philippines, and I don't recall exactly but I think I'm remembering Zimbabwe? https://newsbtc.com/news/bitcoin/bitcoin-based-pyramid-scheme-flourishes-zimbabwe-economy-thickens/
I haven't looked into the Vietnam case closely, but here's the first link I get: https://fortune.com/2022/05/04/axie-infinity-sky-mavis-vietnam-crypto-blockchain-startups/.
Despite all this, like Scott I'm a believer in the real potential for this tech in places with lousy financial infrastructure, like most developing countries and the USA. I have a crypto friend in Nigeria (whose reputation makes, eg, using credit cards very difficult) who argues pretty convincingly that crypto/stablecoins are achieving real adoption there. Sample article: https://www.bloomberg.com/news/articles/2022-08-10/the-most-curious-nation-about-crypto-is-nigeria-study-shows
Still, for the reasons Scott again described, even real adoption in (eg) Nigeria is likely to come with a bunch of outright grifts. Crypto believer though I am, I don't know if we're ever going to get past that combination. At best it will be like spam email: an annoyance, harming some, that most of us do manage to more or less get on top of.
false, they focused on the Philippines.
Ugh my mistake, you're totally right, I was misremembering - the firm was based in vietnam but Philippines was where it was popular
For those who are curious about Axie Infinity, I wrote two big deep dives on Axie for my then employer, Naavik:
This one in November 2021, when it was still zooming high:
https://naavik.co/deep-dives/axie-infinity#axie-decon= (scroll down to "Project Deconstruction)
And then this one the following June:
https://naavik.co/deep-dives/axie-infinity-part-2
I feel pretty vindicated about calling it.
It's true that Axie's founder is Vietnamese, but the majority of players were in the Phillipines.
Can this be the real reason? How could the scale of one game possibly be sufficient? Very funny if true.
If anything this shows how small bitcoin is that one game can have this effect.
As others have pointed out, this is wrong. Vietnam isn't even in the top 5.
https://www.statista.com/statistics/1314090/axie-infinity-players-by-country/
Complementary to this, Vitalik has a recent list of blockchain applications that seem exciting https://vitalik.ca/general/2022/12/05/excited.html
In particular, identity verification and the "hybrid" applications (e.g., voting) are non-obvious, have clear value, and really do make use of the blockchain decentralization in a valuable way.
Thanks for linking. 1 & 2 seem sensible.
I am extremely bearish on "3: the identity ecosystem", I don't see how you can meaningfully build an immutable system that's compatible with the "right to be forgotten" and other EU data protection regulations. These are likely to expand into the US too.
I am extremely bearish on "4: DAOs". Companies are amongst the most complex and ambiguous human social structures, and the idea that you can meaningfully encode them in a smart contract seems naive to me. (More generally, having actually tried to build something in this area, the idea that you can replace courts with code also seems extremely dubious to me.)
I'm interested in Liquid Democracy but I think it's a political dead-end for this generation. If we can't get people to trust paper-voting with recounts, how will we get them to trust some opaque ZK-SNARK-based technological solution? While in principle if we were all able to manage our own keys, and willing to give up some of the traditional voting properties of repudiation and resistance to compulsion, it's possible to construct a theoretically sound system, I don't see a way of solving the operational security problems at a national scale. (If a foreign state actor hacks your voting key instead of your crypto key, do they get your vote? Securing digital systems is incredibly hard.)
The right to be forgotten doesn't oblige your bank to erase your transaction history when asked. Anything you put onto the blockchain is immutable by its nature, so it's hard to imagine a reasonable expectation of erasure!
Beyond that, the blog mostly focuses on building persistent identity that isn't actually tied in any way to your ordinary human identity.
> Anything you put onto the blockchain is immutable by its nature, so it's hard to imagine a reasonable expectation of erasure!
Right, that's my point. The right of erasure exists absolutely in EU law already, regardless of your (or anyone's) opinions on what's "reasonable". That means by definition a business can't put anything on-chain that has a right to be deleted. Under GDPR, that's a lot -- specifically any "personal data" you gather when operating a service. It's simply illegal for an EU business (more precisely any business in the world collecting data on EU residents) to use a technology to store data that cannot support deletion requests.
And bank history is perhaps a bad example here; the Banking Secrecy Act (in the US) requires that payment processors preserve transaction history for 5 years, and then delete it. Again, this regulatory framework is incompatible with blockchains.
In both cases you can in theory make an argument that in a true DeFi app the user is putting their information directly on-chain, and there is no "Controller" (in GDPR parlance) or "Money Transmitter" (in BSA parlance) that would be regulated by those laws. Maybe you'd get away with this, but if there's any company operating the chain-backed service they will have problems.
I think it's questionable to assume that the regulators would allow an end-run like this. For example I think it's entirely plausible that the EU would ban blockchains (or specific usages) if there were widespread GDPR breaches occurring where there was no company on the hook for enforcement. Imagine, say, citizens are using a DeFi app, and then the inevitable security breach happens and millions of people's healthcare, banking, or other Personal Data gets leaked. "It's distributed, there is no-one to blame" is not going to go over well in practice.
I think it is important to draw a distinction between crypto-currencies (e.g. Bitcoin, Etherium) and *exchanges* where you give a stranger your money (in US dollars, or Bitcoin, or whatever) and then they run off with it.
Giving your assets to a stranger who runs off with them doesn't make the asset a scam.
This is fair but I do want to point out that as far as I can tell it's pretty rare for exchanges to run off with your money. Yes it's a big deal when it happens and gets a lot of news, but as I mentioned in the post I found a list of big exchanges and none of them have done that. The two big examples are Mt Gox and FTX but there are lots of exchanges and 2/X isn't "most" or even "many".
I still wouldn't put my money on a crypto exchange, of course, but that's not because there's a *high* risk of disaster, just *enough* risk.
So I don't follow crypto all that closely, but:
*) Celsius ? (maybe it isn't an exchange, but it also isn't a blockchain)
*) FTX
*) MtGox
*) Quadranga CX (the guy who died in India with the passkeys in his head and nowhere else ...)
*) Blockfi
Maybe these aren't exchanges, but they are other things where folks hand over their assets and then the assets become gone.
Celsius Blockfi Voyager FTX MtGox could all be considered CEFI or centralized finance, where because dealing with blockchain directly is beyond the technical ability or pain threshold of the masses you delegate to some single organization to do it for you, and that becomes a vulnerability point. Similarly all the hack stories target similar centralized pain points such as exchanges and bridges. True believers would tell you that true DEFI (decentralized finance, regulated by code) doesn't suffer these issues. They do have bugs that frequently get exploited resulting in large amounts of assets getting lost, but am at least somewhat sympathetic to the argument that those are growing pains and once you work out the bugs maybe they become stable trustworthy ecosystems.
I'm struggling with the two lines of problem. On one hand you have a system that's too complicated to use (and has some bugs that may cause you to lose everything you put into it) for most people. On the other hand you can trust someone else to handle the technical stuff for you, but you have to give them complete control over your money.
That seems like a system that's going to have a very hard time expanding to any kind of general use.
Back when Bitcoin wasn't worth very much in dollar terms, I lost 3 Bitcoin in an exchange hack. Fortunately, they were very honest, went through a bankruptcy proceeding, and made users as whole as they could (I got 1.5 Bitcoin back).
I think I had 2 Bitcoin in MtGox when it went kablooey. They keep sending me strange emails requiring me to take selfies while standing on one foot and register blah blah blah by this date, etc. on the claim that I'll eventually get something out of their bankruptcy. I think they mostly are just trying to make it as hard as humanly possible to claim so that few people will. It's pretty much worked with me, even though I could REALLY use 2 Bitcoins (my entire crypto portfololio now is less than half of one).
So anyway, I finally learned to not keep cryptocurrency in exchanges, both because they're more vulnerable than non-custodial wallets and because f*ck the state, the latter of which mostly explains why I'm interested in crypto anyway.
What percentage of crypto, by value, was in FTX and Mt. Gox when they went down? That seems more relevant than the sheer number or fraction of exchanges that have gone down.
I would also consider the absolute amount of money lost. For Mt. Gox the dollar value is pretty low (because of the price of Bitcoin at the time). For FTX the customer losses appear to be around $8 billion.
I'll note that the US stock brokerage industry in the 1960s arranged for several industry funded bailouts of bankrupt brokerages to keep the customers whole. The folks in charge figured that if the industry got a reputation where customer money wasn't safe at brokerages then that would be bad for everyone in the stock industry. Regulation came later.
And $8B of lost customer money even in an ecosystem of, say, $1T is bad. Random users don't look at this as an expected loss of 1%. They look at it as, "My money can vanish even if *I* am safe and prudent."
I'm not sure what percentage of crypto was HELD IN MtGox when it went down, but at the time more than 70% of transactions in Bitcoin were done THROUGH MtGox, so it's likely that a pretty good chunk was held in balances there. The total loss was in the hundreds of millions, not billions, of US dollars. My own loss was, IIRC, in the hundreds (I think I had two Bitcoins in there). Of course, my gain right now if I was renumerated in Bitcoin at 50% as a creditor would be about $17k.
The dollar amount was small because Bitcoin wasn't very valuable at the time, but the initial reports were that something like 750,000 customer bitcoins went missing.
In 2014 there were around 14 million bitcoins, total. Many were not circulating at all ... a wallet assumed (?) to be Satoshi Nakamoto's holds close to 1,000,000 bitcoins and hasn't transacted in years ....
So, 750,000/14M = 5% of the total in existence and maybe 10% of the bitcoins in actual circulation. The dollar amount doesn't entirely capture the size of the loss.
Thanks for that analysis!
You know, Wikipedia claims that ~20% of all BTC that have been mined to date have already been irretrievably lost, meaning nobody knows the key that would allow them to be transacted. Given that a loss of information over time is inevitable, entropy and all that, and historically stuff like ordinary detailed financial records gets lost at a pretty fair rate -- plus the fact that the total number of BTC is limited -- we can conclude that eventually all bitcoins will be lost. How long would it take? That 20% of them are lost after a mere ~10 years is not a great sign.
I had the idea for a short story (which I never wrote ...) that went something like this:
In the distant, but not too distant future, much of the world uses bitcoin as a currency. It is at least as used as the dollar is/was now. Also, because of what you said, much of the mined bitcoin has been lost.
Then, not too far after our story begins, our hero (or some agency or cabal or whatever) finds the passkey/whatever to one of the 'lost' stores of bitcoins. And now they have currency worth 10%/25%/50% of the existing currency. Without needing to counterfeit it or anything ...
Imagine if "someone" discovered a lost stash of US$/gold worth several trillion dollars today...
Having said *THAT*, in practice what the folks running the show may well do at some point is to uprev bitcoin to a newer version where coins that don't move for some period of time (10 years? 20 years?) are re-assigned proportionately to those wallets that are still in use. It isn't like we haven't seen these protocols modified over time...
Luckily exponential decay only asymptotically approaches zero. Bitcoins aren't infinitely divisible but they are pretty divisible, and I imagine the rate of loss will go down as tooling improves and people get more careful.
I think that Ukraine having high concentrations of crypto use may have more to do with foreign aid being laundered than any type of regular use by the hoi polio.
Why do you think laundered? It's definitely foreign aid - see the post - but it seems to be going directly to the government.
I'm vaguely aware of some conspiracy theory stuff, around FTX, that it was being used for donations/funding going to Ukraine and then the Ukrainian government using it for kickbacks to officials in the American government out of that aid.
https://www.factcheck.org/2022/11/bogus-theory-misinterprets-ftx-support-for-ukraine/
I don't know about laundered aid, but I suspect a decent amount of the crypto transactions in Ukraine and Russia are ransomware payments.
I'm also curious about the 'laundered' part. Anywhere I can read up more on?
I've been unable to find any source that offers evidence for the claim. It's all just "the US government gave money to Ukraine. Other people gave cryptocurrency to Ukraine, some of that facilitated by FTX, and FTX personnel also donated money to politicians. QED, the donations to politicians are a laundered return of a portion of the US government aid."
It's not so much that there COULDN'T be any there there as that there's no particular reason to suspect there's any there there. The more likely explanation is the usual/obvious one: Bankman-Fried and Salame were trying to grease the rails for a favorable regulatory environment by giving money to politicians.
Crypto is a really cool research project that went viral ~20 years too early.
All of the major issues are either already solved or a path to solving them is somewhat predictable.
But now bitcoin is giant! We can't just say "okay, XCash fixes all the problems we know about, let's play with this for ten years and then release YCash" until we've fixed all the environmental, usability, privacy, safety, contracts, regulations, etc., problems. Because none of the people who use Bitcoin want to lose all their investments, and humans are bad at solving coordination problems.
Hmmm...I wouldn't have put "you can't create a new token and claim it will solve all of crypto's problems" high on the list of crypto issues, but I see your point.
Also, I feel like there's a ZCash joke to be made here somewhere.
Yeah, lots of people are _trying_ to make new tokens, but none of the ones that are clear improvements on Bitcoin come anywhere close to it.
The joke is mostly just that ZCash is a minor variant of Bitcoin that improves its privacy but basically no one (only a market cap of $950 million!) moved to it.
ZCash also had a trusted setup process and an owner who took a stake.
The most important aspect of bitcoin, that can’t be recreated, is the absence of anyone in charge of it. This aspect seems strangely invisible to a lot of people...
Yeah, and the coins that solve _that_ issue are even smaller.
The Bitcoin developers are in charge of it, and this has already caused a split in the chain once (BCH vs BTC) when people couldn't agree on what the developers should do.
This is a kind of confusion. Which developers are "in charge?"
If any of these developers proposed a change that didn't have large scale consensus among the node operators, and put this change into the GitHub repository, all the other developers - and there are thousands - would just immediately go somewhere else.
The BCH hard fork was a good example of this. Someone wanted to make a change to the protocol. They tried to build consensus, but they failed to do this, so they gave up and created their own hard fork.
Among bitcoiners, the question "what should we do" is answered, by default, with "change nothing, unless there is a sufficiently compelling reason to change it that you can get the overwhelming majority of node operators to agree to the change." This doesn't mean nothing changes! There have indeed, been a number of changes, but these changes went through years long processes to build consensus among a huge number of people.
Bitcoiners are intensely jealous of the single most important property of bicoin: don't let anyone control it, ever. This means a strong stance towards leaving things totally unchanged.
Everyone else, who wanted to "make rapid changes", to "iterate" and "fix problems" got frustrated and left to work on other projects. This is Good. Bitcoin isn't for them. Most people couldn't understand the reasoning behind 1 MB blocksizes, saw a barrier they didn't understand it, and wanted to remove it.
Exactly. The blocksize war showed who is in charge of the bitcoin network: USERS. Not miners or exchanges or developers, but USERS.
yeah the good thing about network effects is also the bad thing about network effects
Three arguments against this:
1) the meta point: a year or two ago, some of us were saying all crypto was basically scams, and a lot of people were saying it wasn't. Since then, it's come out that major crypto projects stole billions of dollars from people. You should be giving us at least some bayes points here.
2) the population - crypto's a well-known scam area, so the sort of people it draws are scammers. Spend any amount of time in crypto -adjacent circles these days and you meet the sort of people who get into it - it's almost entirely empty scammers (SBF and Caroline Ellison were famous for being some of the most honest people in crypto). Even if the underlying tech had good usecases, it being almost entirely run by scammers is still bad.
3) you argue about the government resisting pretty halfheartedly. But governments are only really halfhearted about things they don't really care about. They're a lot more unambiguous about things that actually threaten them. If people started seriously using crypto to try to undermine the CCP, say, the CCP would effectively crush it pretty fast.
1. I think you're doing exactly the thing I warn against in the second part of this article. In the past year, the vast majority of crypto projects have gathered some extra evidence of *not* being scams! I think I, with my "some projects are scams but most aren't" perspective, would have earned more Bayes points than a "every project is a scam" rock (even though I would fail a few important cases like FTX). As I mention in Footnote 2, if you use dollars to represent Bayes points then this is definitely true.
2. I'm not sure how true this is. If it is true, I don't think it's necessarily a disaster. Suppose there are 1000 people working on cold fusion. 999 are scammers. 1 successfully invents cold fusion. Obviously in this situation the set of these 1000 people and the cold fusion industry in general is massively good for the world no matter how much the scammers outnumber the inventors.
3. I'm not sure this is true - I don't think the government is halfhearted about being against drugs, protests, or tax evasion. It's true that an infinitely powerful dictator with 100% buy-in from all other elites and army units who is totally unconcerned about economic and PR repercussions can always crush whatever he wants. But most dictators aren't even close to that. Witness the protests in Iran, where a government faced with an existential threat to itself is flip-flopping and embarrassing itself as it tries to navigate intra-elite disagreements and PR issues. Or China staking Xi's reputation on Zero COVID and then saying never mind. I agree a dictatorship can always choose to go all in on crushing dissidents, but I want to make that choice have as many downsides as possible, because in the real world once something has enough downsides most people including dictators shy away from it.
Re 1, I don't think this is a good metric. What's the failure rate for explicit scams? And what's an acceptable failure rate? Crypto may have had only 2-5 major cases of exchanges collapsing and taking customer money, but that's 2-5 more than the stock market has had in its much longer history. It could also mean that despite the rhetoric, a lot of people still trust do trust crypto and haven't pulled out of most of the ponzi scheme parts of it.
So I'd rather rely on specific, preregistered questions. The obvious one: a few months ago some of us were saying EA should be more worried about its funding and inspirational characters being so involved in crypto, and others in ea were pushing back. On this specific preregistered prediction, we were right and the crypto boosters were wrong.
Re point 2, I'll agree with the title of the post in that we shouldn't be maximally hostile to crypto - it is possible that some of the usecases in countries without reliable banking are good enough to make up for the downsides and scam risk. But this leaves the question of how hostile we should be, and I still think we should be significantly more hostile than we are now. In your cold fusion example, it would make sense for some careful VCs who do a lot of due diligence and are good at figuring out scams to invest, but not for ordinary people or careless VCs who rush in without any investigation. Our current situation is much closer to the latter (and there's also other arguments for this, like crypto's market cap being unjustifiably high even under optimistic real world use projections).
Most means more then 50%
> What's the failure rate for explicit scams?
I would have thought 100%, depending on how you define "failure".
> Crypto may have had only 2-5 major cases of exchanges collapsing and taking customer money, but that's 2-5 more than the stock market has had in its much longer history.
When you say "the stock market" and "exchanges collapsing and taking customer money", what do you mean? Does it count when there was a run on a bank pre-FDIC? Does it count all stock markets in the world or only the NYSE or all US-based stock markets, or what? It would be helpful to have a real comparison class here where there are real numbers!
> So I'd rather rely on specific, preregistered questions. The obvious one: a few months ago some of us were saying EA should be more worried about its funding and inspirational characters being so involved in crypto, and others in ea were pushing back. On this specific preregistered prediction, we were right and the crypto boosters were wrong.
Do you have a link to a place where this prediction was pre-registered, so that we can see what precisely was predicted?
So it sounds like you preregistered a claim that >50% of crypto projects are scams. Do you have evidence for that. You mentioned 2-5 major exchanges, what percent of crypto volume does that account for?
"but that's 2-5 more than the stock market has had "
This simply isn't true - the early 20th century was absolutely littered with investment scams. Narrowing the criteria to just 'exchanges' is just an arbitrary distinction. There isn't a rational reason to exclude any firm that is fraudulently telling investors that they are buying something and stealing the money.
the problem with cryptocurrency is that at some point the thing needs a gateway to the real world to have utility, and that is the vulnerability point where governments can crush it if they put their minds to it. Sure you can send coins P2P between friends and nobody will know about it, but if businesses aren't allowed to accept crypto under penalty of prison/shutdown, if banks can't take them, if you can't go to a neighborhood shop to convert your fast devaluing pesos to bitcoin, how can crypto ecosystem survive? Right now crypto is being tolerated in these countries because it's not yet a big threat to the state, but the day it becomes one (e.g. too much of economic activity moving beyond ability of state to tax it either directly or through printing money) then they will move to crush it and they will succeed far more easily than you seem to imagine.
1. There are two different definitions of "scam" going around here. One is an intentional stealing of money, where those running the scam know it's a scam and lie to everyone else. The other is a project that's poorly made, but not intentionally a scam. I personally think FTX is more of the second kind. Had they remained liquid they would have continued shambling on for years to come, enriching their employees and making poor financial decisions. I believe that the underlying value of most (not all) crypto is based on poor financial planning. Given this, the frequency of failures that lead to losses is going to be very high, even where it's not obviously a "scam" and may not be intentional. I think the definitional difference is where Shaked (and other crypto detractors, like myself) are disagreeing with you.
2. Any investment space filled with scammers, even if they aren't a majority or whatever metric you want to use to evaluate, is going to scare off normies and further entrench a scammer base. It's like your posts about a neutral social media site coming to be overrun by those rejected by other sites, rather than remaining neutral. I also think that comparing crypto to cold fusion is more than just a stretch. The benefits of perfect crypto, if it existed, would be far less than cold fusion.
3. This could be a much longer post, but frankly no government has been fully against drugs, protests, or tax evasion. The most obvious example is that rich people do drugs and evade taxes and often get away with it, even in well-run countries. It's like high class parties during Prohibition that served alcohol - often the politicians were there too!
The CCP tried to ban bitcoin mining, but even there they haven’t stamped it out entirely.
As for scams, yes I agree with you. Bitcoiners argue that everything that isn’t bitcoin is a scam. I’m willing to trust some stable coins, and that’s it.
Was SBF really "famous for being [one] of the most honest people in crypto"? Lots of people thought well of his EA efforts and political involvement, but I don't know that he was regarded as especially honest.
Not exactly about SBF's personal honesty, but here's Forbes earlier this year ranking FTX as #5 among top 10 global crypto exchanges: https://www.forbes.com/sites/javierpaz/2022/03/16/the-best-global-crypto-exchanges/?sh=4f1aaa09742c
FWIW, I thought he was, and I'm a crypto skeptic.
No. Alameda was pretty notorious for being slippery, creating projects with predatory tokenomics, and being general mercenaries. Literally weeks before FTX collapsed there was a widespread scandal in crypto circles because it was revealed that SBF was secretly lobbying for a bill that would have heavily regulated DeFi and favored centralized exchanges (like FTX).
That being said, the prevailing wisdom was that SBF was ripping off FTX customers by giving Alameda special access to the FTX matching engine or even front-running customer orders. Nobody expected that they were literally stealing customer deposits. Not because SBF was so honest, but more because everyone thought Alameda was hyper-profitable (it turned out they were in fact totally incompetent and burning money), and doing so would be stupid.
Inside crypto, the impression was that he was a shark, a shrewd player of the game with no ideological pretense. However everyone thought he was making so much money from his legitimate businesses that he would have no reason to scam anyone
>the meta point: a year or two ago, some of us were saying all crypto was basically scams, and a lot of people were saying it wasn't. Since then, it's come out that major crypto projects stole billions of dollars from people. You should be giving us at least some bayes points here.
That's like saying "20 years ago I said that stock exchanges were a scam, and ever since, the S&P500 crashed in value 3 or 4 times". It did, but if I held a S&P500 basket 20 years ago, it'd still have gone 300% up. Million of peoples lost money in 2008, 2020 and 2022 (me included), it's still not a scam.
Appreciate the reasonable take. Here are some counterpoints.
1) Scams have happened absolutely, but they are not defining of the entire industry.
2) This is misguided. The argument here is basically saying "Bandits are running wild, robbing stagecoaches and stealing the money from the banks. See how bad banking is!"
3) Yes, but... fact is that hope does exist in places which are otherwise a vast wasteland of hopelessness. That the battle is uphill is no reason to give up. For people with little else to loose, human nature will compel them to fight like hell, even if the chances are slim
My first thought reading this article was "what do crypto do that is both 1) moral and 2) not already done by Western Union.
Which I'll now amend to "what can stable crypto do that is both 1) legal and 2) not done by Western Union".
And it seems the answer is nothing. So basically any evaluation of stable crypto relies on evaluating the utility gains from people in dictatorships more easily breaking laws vs the utility loss of criminal more easily breaking laws.
Did you not read the very large part of the article which was about how lots of places don't (either effectively or literally) have Western Union?
Western Union, for what it's worth, is also an extremely common vector for scams (witness the top of every Craigslist page) with an opaque and (at least 10 years ago, haven't checked since more competition emerged) often expensive fee schedule that depends in part on arbitrage between two currencies.
The criminals breaking laws with crypto are — AFAIK — mostly breaking laws like "You there, putatively free and responsible adult! Don't ingest things that a slow-moving and hidebound government doesn't like, based more on perception and tradition than any systematic evaluation!", which I find it hard to get upset about.
But putting that aside, WU isn't decentralized, which means it's much easier to lean on, ban, or otherwise control; and it's also just not very convenient. I've had to use it sometimes and I hate it.
A lot of criminals breaking laws with crypto are laundering money stolen in hacks, accepting ransoms for ransomware, and similarly scummy things, they're definitely not all noble outlaws.
Correct. A good anonymous online currency, which crypto may be getting close to being, reduces the ability of governments to control people. That has bad effects, such as making it harder to catch kidnappers, and good effects, such as reducing the ability of governments to punish their political opponents or enforce bad laws such as the War on Drugs.
As I pointed out more than a decade before bitcoin was invented:
http://www.daviddfriedman.com/Academic/Strong_Privacy/Strong_Privacy.html
I thought the bulk of crypto use was in ransomware. Russian gangs don't seem like libertarian heroes to me.
You are ignoring the utility gains from people in non-dictatorships more easily breaking laws.
Do you feel the same way about end to end encrypted messaging
FWIW, I have in fact sent money to someone living in a totalitarian dictatorship, via Western Union. It worked fine. Although it probably would have been somewhat faster, cheaper, and involved less physical walking, if we'd have used a cryptocurrency.
A feature of the blind rage against crypto is the broad dismissal of anything that could potentially have any value.
It's actually my first rule of crypto naysayers:
Rule #1: Web3 must not have any redeeming qualities
Allow you to transact when Justin Trudeau says you shouldn't be allowed to. But also allow things like no middle man escrow that aren't possible without some kind of similar protocal.
It's cheaper and faster than Western Union and operates in all of the locales that Western Union does not.
Crypto is also easy for a malevolent AI to use, and should be banned/destroyed as an AI safety net (if you believe that a self-directed AI is possible).
This is honestly one of things about crypto that concerns me. But on the other hand a malevolent AGI could also file a Delaware C corp and open a bank account
Bank accounts can be frozen, and corporations require documentation, and both of them would currently require faking human credentials. Plus the need to get $ in the first place.
Mining (or stealing) some crypto is a purely computer based activity. The most likely vector I can predict is guessing the password for "dead coins" and claiming them.
This makes no sense. Mining requires massive amounts of energy and "guessing" the "password" for dead coins requires such a massive amount of time and energy that you'll spend the rest of the universes lifetime to do it.
Bitcoin could be useful since you could hack personal computers and steal "alive-coins" from people or you could hack other things and launder your wealth through bitcoin. I'm not sure how easy it is to stop laundering in the regular case, I'm guessing that an AGI would be able to figure it out.
Generally I think this is the wrong approach for trying to defend against an AGI. If you are fighting a malicious super intelligence you have already lost, focusing on defenses when we've gotten to that stage is a waste and banning crypto would be almost impossible and also super bad for other reasons. Focus instead on how we can align AGI.
Agreed that having to fight a malevolent superintelligence is generally-bad, but see also the example crypto hacks here https://gwern.net/fiction/clippy (and in real life) to see why the strength-of-the-cryptography alone couldn't cut it.
Coming from Vietnam, I read your “theories” about crypto use case there and know immediately I don’t have to read the rest of your article. Sure, our government is corrupted. Sure, we don’t trust our banking systems. But no reason to believe crypto is better. And, why bother with choosing which unreliable systems to put your money into when your daily wage could be just several dollars anyhow? And for the rich, the idea of borderless money exchange system makes it tempting because they can use it for money laundering.
So why do so many Vietnamese use crypto?
I'm unclear on what being from Vietnam even has to do with this user's argument — "no reason to believe crypto is better" doesn't depend at all on being Vietnamese, and s/he seems to agree with your characterization of Vietnamese banking.
See comment from Thomas Johnson above, Vietnam was a popular breeding ground for a "blockchain game" called Axie infinity, which recently suffered a "hack" and large loss of capital from that.
That comment is wrong. Axie Infinity was mostly popular in the Philippines, not Vietnam. Vietnam isn't even in the top 5.
https://www.statista.com/statistics/1314090/axie-infinity-players-by-country/
someone above mentioned axie infinity. i don't know how true that is but that game was huge last year in SE asia.
I also live in Vietnam: they use it because it became a well known "get rich quick" scheme a few years ago. That is the only reason I've ever had anyone talk about it here.
Nobody uses it for remittances. Those are cheap and easy to do. Nobody uses it for shadow banking. There are gold shops on every corner of you're worried about inflation. Nobody uses it evading currency controls. The currency controls mostly don't affect normal people because they have built in exceptions for education, medical expenses, selling your house and migrating abroad, etc.
The banking infrastructure is more advanced than in the US. Electronic funds transfer a between people have been safe, free, and instant for years and years. So they're not using crypto for that.
It is slightly annoying to get a credit card for international purchases (e.g. Amazon) because there's no national credit reporting infrastructure so banks are loathe to give out unsecured loans. But crypto doesn't really help here either.
Deposit insurance is relatively new and relatively untested. Banks have a poor track record of how they handle fraud by staff (if a bank manager forges your signature and steals all your money, the bank says it's up to you to pursue the manager instead of making you whole).
There is a generalised "low trust in everyone and everything that isn't family" that is mostly unfounded when it comes to banks. But the alternative is real property (gold, starting a business with inventory, buying land) and not crypto.
I also would guess those unbanked numbers are now out of date. Covid resulted in a sudden, massive push towards cashless payments and I've anecdotally seen a large increase in people opening bank accounts who never had before.
What people do with the gold they buy to protect from inflation? They keep it in their homes? They aren't afraid about it being stolen?
Many wear it. A single gold ring is 3-7 ounces, which is $3000-8000 worth of gold, which is 1-3 years of salary. But also yes people hide it in their houses or give to a trusted relative to look after.
Most people are more worried about their scooter being stolen than that someone will break into their house and spend time looking for hidden gold. I can't say I remember hearing a news story about it, actually.
Plus you can buy a safe for $60. It weighs 45kg and is going to deter any but the most dedicated of robbers.
Thank you.
On paper, Bitcoin/Ether could work as a store of value (scarce and fungible). In practice, I don't know if it is too early or simply gold is a good enough alternative.
The chart you posted doesn't give a number or percentage of Vietnamese people who use crypto. It just says that Vietnam uses crypto more than any other country. If you take any invention and rank countries by how many people there use it, some country will come out on top, and I don't see how the fact that it happens to be Vietnam in this case has any bearing one way or the other on whether the technology is actually useful for anything.
Yes, but you may know that crypto is used to some extent in the West, so Vietnam using it more is still an informative signal.
Still trying to double check your links (I'm having trouble even *loading the website* for your first project, BitAssets), but I already noticed that you accidentally swapped the links for the list of top exchanges and top stablecoins, and your source lists 13 stablecoins, not 10.
Also even assuming your numbers are accurate, saying "only two out of the top 10 stablecoins failed in the last two years" is **insane**.
Thanks. I've corrected the mis-link. The 10 vs. 13 is because I only counted dollar-based stablecoins so I could compare them more easily. I've added an explanation of that into the post.
Leveraged currency pegs are famous for failing even in traditional banking.
The stablecoins aren't supposed to be risky leveraged bets. They sold themselves as being as safe as bank deposits.
The British pound wasn't supposed to be a risky leveraged bet either, but Soros broke its peg anyway.
Yeah that's a crappy rate, much like US banks before FDIC 30% of US banks failed during the great depression.
But this ignores time frame. Those banks hadn't been operating for a handful of years.
It's also worth noting that cryptocurrencies are centralized in practice, if not in theory. In 2016, the Etherium devs literally hardforked the currency just to freeze one guy's money, and everyone went along with it. The crypto world is (currently) controlled by *different* people than the legitimate economy and they have different views, but they are no less censorious, given the opportunity.
This is true of every cryptocurrency except bitcoin.
It depends on how you define centralized. ETH classic is still running. The only reason that ETH is more valuable is that as you said "everyone went along with it". People were persuaded not forced. Decentralized doesn't mean that there is no voluntary coordination
It's a vivid demonstration that value is ultimately social and no amount of fancy tech can save you if noone likes you. The same argument also justifies all the government efforts which Scott rails against.
"Your money can be taken if the economy as a whole all forms a consensus to go along with it" is very different from "your money can be taken if one guy you've never heard of at Treasury phones another guy you've never heard of at BofA".
If you're selling the crypto as something that can allow an oppressed, unpopular minority to evade a government, then saying "don't worry, nobody can change the rules without majority support" isn't really good enough.
Crypto *does* allow the majority of global users to resist the idiosyncracies of a small country that only has a minority, but if the US or China started to pressure Ethereum developers into cooperating I wouldn't be certain the system would resist.
>If you're selling the crypto as something that can allow an oppressed, unpopular minority to evade a government, then saying "don't worry, nobody can change the rules without majority support" isn't really good enough.
Nothing will ever be good enough, this is an impossible bar to pass. If everyone in the world don't want to exchange with you, you're fucked, no matter what government, no matter what tech.
Which reminds me of the first part of https://slatestarcodex.com/2018/02/21/current-affairs-some-puzzles-for-libertarians-treated-as-writing-prompts-for-short-stories/
A system from which you can be banned at the whim of one person is worse than a system from which you can be banned at the whim of a minority, which is worse than a system from which you can be banned at the whim of a majority, which is worse than a system from which you can be banned once every person you could exchange with has decided to ostracize you.
Centralized banking (in a democracy) is a mix of the first 3 (One person will decide to fuck you over, but he derives his power from the government, a small minority, which derives it's power from the majority). ETH Classic is the last one: as long as someone else is still willing to use it, you can trade with him.
The difference is that currencies have network effects - they are useful in proportion to the number of other people who use them.
If the local fifth grade class starts using bottle caps as currency, that may be fun for them, but it doesn't increase their ability to buy from the local vending machine.
Similarly, if someone trying to escape from Russia needs to get money in a hurry, they'll have an easier time if you send them a coin like ETH that other people are using and they can therefore easily sell for rubles.
Your end case is intriguing. Let's say there were, indeed, only two people willing to trade ETH with each other. For what would they be trading? Why would A give B 1.0 ETH? What would he get in return?
Whatever they want to trade? Why would you give someone else 1$/€/£/¥/₹/₪ ?
Scott's argument in the original post here is that crypto is painful, but worth the cost in order to gain the benefits. If the cost is higher than expected or the benefits lower, that may change the calculation to a different outcome.
Scott's argument is that there *are* benefits, which is his gripe with a lot of criticism of crypto -included in the answers to this post-.
I think today it could. 5 years ago it couldn't.
The original Ethereum from before the fork still exists as Ethereum Classic, and you can still buy it. The ability to fork a cryptocurrency (which anyone can do, even you!) does not make a cryptocurrency "centralized". It's just the opposite, in fact, since you have to convince actual people to support your fork before it can be worth anything.
t's a vivid demonstration that value is ultimately social and no amount of fancy tech can save you if noone likes you. The same argument also justifies all the government efforts which Scott rails against.
Either we have very different definitions of "decentralized", or the goalposts are moving rapidly to the other end of the field. If someone claimed friendship was centralized because it was possible for everyone on the planet to *individually* decide not to be your friend, you would question what they thought the term "centralized" meant.
(And yes, all value is subjective.)
I'm not the one claiming that a weird technology can force people to be your friends.
Government efforts usually destroy entirely the minority. In this rare case, the minority survived.
Or, the government browbeats the critical stakeholders into supporting the fork it wants.
This is such an obvious failing in the whole “decentralized currency” argument that it’s hard to take anyone who advocates it seriously.
A hardfork is extremely difficult to coordinate. It basically involves convincing all of the relevant nodes in the network that they should point to the updated protocol. In a proof-of-stake system (like Ethereum post-merge), anyone validators moving to a hardfork risk having the entirety of their funds slashed if the fork doesn't succeed.
Does crypto completely insulate you against any centralization risk. No of course not. If literally every other person in the network against you, you're toast. (I.e. what basically happened to the DAO hacker who threatened the existence of the entire project immediately after it launched.) But the idea that crypto is "no less censorious" than PayPal is ridiculous. It's simply inconceivable to imagine there being an entire network hardfork to shut down OnlyFans because the NYT ran a scandalous front-page story.
Small quibble re: your analysis of the "Reinventing The Regular Financial System" complaint – I think some who make this complaint are arguing that crypto is reinventing itself out of all its unique advantages. As a cartoonish example:
1. People claim that smart contracts / DAOs / etc remove the need for fallible human administration: "code is law!"
2. Those systems all get hacked.
3. Said people now realize that fallible human administration has some real advantages, and they are even less equipped to implement it than existing institutions are.
To use your metaphor, it's like NASA saying "Turns out that access to a breathable atmosphere makes things much easier; we're going to move the ISS to a grassy field in Virginia."
Of course, many believe in the decentralizing potential of crypto without having "elimination of all fallible human administration" as an end in itself. For those people, this is all part of a learning process, a pendulum swinging back from a noble experiment, a working out of details.
But if you go too far "Reinventing The Regular Financial System", you will in fact reinvent all the fun entirely out of crypto.
Even in the legitimate world, the irreversible Zelle payment system has become a major vector for scams and people are trying to change it to stop the fraud. It turns out that ordinary people consider not losing their money all the time to be a major usability concern.
This is entirely true, and thus means that the only kind of database that you'd want decentralized is one that can't be incorrect, by definition.
> why would anyone trust their life savings to such a system?
Because we don't trust the centralized systems to be honest or fair. We think they are stealing from everyone's savings by printing their money and giving it to their friends.
I agree that most people don't want this system. And therefore, most people won't buy bitcoin for a while. It'll primarily be held by giant insitutions, and then there'll be bitcoin backed banks, and what most people will end up using will be something like "fiat bitcoin".
The world will move back to something a lot like the gold standard, with a few better properties like:
- anyone in the world can start their own bank or be their own bank, if they want to
- it's trivial to pull your funds out of a bank
- banks can show both proof of reserves and proof of liabilities to the public, the risk of bank runs is dramatically lower
You are ignoring the root problem we are interested in solving.
You trust banks and governments not to screw you. If you feel that way, and you can’t imagine why someone might not feel that way, then bitcoin will remain a seemingly worthless endeavor.
If a database can't be incorrect "by definition", you must be using a shitty definition. I guess you're one of the "code is law" folks?
That was the ~entire point~ of bitcoin.
Everything that came after was people who didn't understand bitcoin trying to 'improve' on it by creating what is more or less their own privately operated money.
This is basically my view as well.
I have a Fisher Space Pen in my pocket. According to this Scientific American article, it took zero public money to develop. https://www.scientificamerican.com/article/fact-or-fiction-nasa-spen/
This is definitely pure ignorance, but honestly the biggest surprise for me of this article is that developing countries are *most* of the users of crypto. I was aware of the obvious use case there, but I guess I hadn’t realized that the world had come so far in internet access that it was actually possible for so many people to own crypto in the developing world. The fact that more ppl own crypto in Africa than North America is really surprising to me. Its kind of a white pill in a way as well.
I was also surprised by this!
The obvious explanation is that the numbers are garbage.
A quick sanity check confirms this. Coinbase alone (which mostly serves the US) has 98 million customers. The *entire population of Kenya* is 55 million.
Sanity check of the sanity check - there are 250 million Americans over age 18, so if your number is right, about 36% of US adults have a Coinbase account. Seems unlikely to me.
I think the big graph led by Vietnam is about percent of people who use it, rather than absolute number. I later quote some other numbers on absolutes.
Yeah I was just thinking that. As a 27year old white guy college grad in a major city, I’m probably the narrow demographic that is most likely to own crypto. Yet I only know a handful of people that do, and half of those just have it leftover from buying drugs on silkroad a decade ago (some of these guys are very rich now lol). I feel like that number coinbase gives is garbage, or to put it less crudely it’s likely highly misleading.
The first website I found that claims to have information about where people are using websites from suggests that almost exactly 50% of Coinbase's traffic is from the US. Unfortunately they wanted me to register to find out the percentage of traffic from countries other than a particular five (and I can't tell if those are the next four most common, or just four big countries that it shows for all websites).
In any case, would it be weird if 1/6 of people in the US use Coinbase while 1/3 of people in Nigeria do, and if 1/6 of people in Mexico do, and 1/3 of people in Kenya do? Because that would already get you as many users in Africa as North America. (I assume Canada is a rounding error compared to many African countries.)
Honestly I think 1/6 of people having crypto in the US seems insanely high. Im 27, and even though I’m the demographic of ppl who you’d expect to own crypto I only know a handful of people that do, and half of them it’s just leftover from when they bought drugs with it almost a decade ago.
Also Looking at internet numbers, it looks like only 40% in Nigeria even have internet access. So I doubt 1/3 of the country has crypto. I feel like it’s more likely that coinbase’s number is misleading than anything
There are 200 millions people in Nigeria. 32% use cryptocurrencies.
https://www.bbc.com/news/world-africa-56169917
That’s insane considering (from what I just read) internet access is only at about 40%. That means almost everyone who has internet has crypto.
That's not what your source says. The linked article claims that 32% of Nigerian respondents to the 2020 Statista Global Consumer Survey claimed to use crypto. The GCS is reasonably high-quality as online surveys go, but it's still an online survey in a very not-online country.
I didn’t even click the link to see lol, but 32% of internet users would be 13% of the country, which is a lot all things considered.
I'm not sure what you mean by coinbase mostly serving the US. I'm not american, I don't have a US bank account, and coinbase works perfectly for me. Do you have any statistics on what countries coinbase users come from?
1- As others pointed, the data is probably bad
But
2- And it's been a pet peeve of mine for some time: I really feel like the western collective perception of the third world hasn't updated for ~20 or 30 years (if not more). When I think of kazakhstan, I think of goat herders in yurts. Not whatever this is https://en.wikipedia.org/wiki/Baiterek_(monument). I could do the same for Azerbaijan and the flame towers. Africa have less vanity architectural project (or not as urban, cf https://en.wikipedia.org/wiki/African_Renaissance_Monument), but has modernized tremendously compared to what the previous few generations knew of it. We're stuck in the past (or at least, I am), and not just with regard to Africa. If I had to sum up south America in a few words, I'd immediately come up with "drug cartels and marxist guerilleros". Only then would i ask myself "wait a minute how long has it been since I last heard of FARCs & such?"
It's easy to get misled if you just go on old stereotypes and don't bother to look up the facts.
I was recently in a debate with right-wingers over border control where one person recommended accepting all Cubans and denying everyone else, apparently under the assumption that this is the 80s and Cubans are boating across to Florida and not realizing that *a lot of the people showing up at the Mexican border today are Cubans". They *are* the migrant crisis that conservatives rail against (along with Venezuelans, Haitans, etc, of course). (And of course, that's before you get into obvious issues like the fact that this policy would result in everyone claiming to be Cuban.)
The FARCs are still fighting, for what it's worth. (Their truce with the government broke down.)
If you are in a country with a developed banking system and not in a group that payment processors are likely to act against, crypto is not just some neutral thing that is only of interest to other people. It can still be used to facilitate terrorism and ransomware and have direct negative impacts on you.
Cash can also be used to facilitate terrorism and drug deals. Would you support a ban on cash?
If cash had no useful legitimate uses, I would.
what are the legitimate uses of cash that can't be done with other parts of trad banking?
CAN'T be done with other parts of traditional banking (at least assuming that everyone has access to a smartphone at all times), probably not much. In terms of things that AREN'T handled by other parts of traditional banking:
1) There are probably still a lot of vending machines and laundry machines that can only be paid for in cash
2) In practice in the US a lot of people don't have bank accounts
3) Credit cards charge substantial overhead that can be avoided with cash transactions
4) This might change if I started using venmo or paypall, but I don't currently have another convenient way to pay a friend $5.
Buying food and water when a hurricane takes down the local phone system for several days.
Buying a gift for a spouse without a shared account showing the transaction history and ruining the surprise.
> not in a group that payment processors are likely to act against
how does one determine this reliably in the future?
are you confident that you don't have any beliefs that a future government might find questionable?
You seem to be asking me to justify things that I was never claiming. I am pointing out another kind of consideration that seems pretty much overlooked by Scott's post. He seems to portray crypto's regulation-resistance as more or less a pure good. I'm pointing out that the mere existence of regulation-resitanant financial technology does come with intrinsic downsides.
The US government does, in fact, have laws about carrying around large amounts of cash without declaring it to the government, in order to make it harder to facilitate terrorism and drug deals.
Many modern banks and other institutions have been implicated in supporting terrorism and ransomware.
Crypto did not invent the bad guy.
> So why do people think everything in crypto is a scam?
Because it’s the last car wreck they saw.
If 95% of crypto projects aren't scams, but 95% of scams involve crypto, does that mean "crypto is scammy"?
"95% of scams involve crypto" isn't even close to true either tho.
What if you restate that as "95% of scams on Twitter involve crypto"?
Most of the scams I see on Twitter these days seem to be shilling part-time work of some kind, with no obvious crypto involvement.
Tho' if you'd asked a year ago it definitely would have been 95% crypto.
If 95% of scams involve money does that mean that money is scammy?
No, it means scams are crypto-y.
https://en.wikipedia.org/wiki/Affirming_the_consequent
👏
Some of the high profile stablecoins that lost their pegs were basically more convoluted Ponzis, or at least very Ponzi-esque.
In that they would maintain the peg by printing and selling tokens, infinitely if necessary, to bring in more capital.
Generally nothing of use seems to have been built by the “builders” in the last couple years.
There were like 900 companies promising 20% interest with ZERO risk, but we still don’t have an actually decentralized prediction market.
I think people are right to conclude “crypto” is mainly a scam, even if the base use case of payments is still useful. People could have built something cool but they didn’t.
The problem with the space is that anyone can promise anything.
Bitcoiners have been saying for years, "this is a global revolution that will likely take decades to play out. Just be patient. It will take years for bitcoin to first become a long-term store of value, and as it rises, its volatility will decline. Only then will it become a reliable unit of account."
Meanwhile it's already a faster, cheaper medium of exchange than VISA, using the lightning network.
In most spaces, there are leading businesses with PR agencies and brands that are defined and managed.
There is none of that for bitcoin.
Most people aren’t used to interacting with a giant network that has very well defined values shared among a huge number of people, but with no official press releases and with an even larger crowd of people with different values all claiming to speak for it.
How accurate do you think those representations are, then?
Would you agree that most people who are hearing about EA from Sam Bankman Fried don't really understand what EA is about?
> Meanwhile it's already a faster, cheaper medium of exchange than VISA, using the lightning network.
Citation *very* much needed. To anyone else reading this, the Lightning Network is a joke that is hard to use and doesn't scale at all.
Morgan Stanley disagrees with you.
https://finance.yahoo.com/news/bitcoin-lightning-network-based-strike-112519630.html
You can find all sorts of dumb hot takes on the internet if you care to look. Why not look at the actual evidence? In the real world, the lightning network is a disaster and there's no sign it will ever take off.
Do you think Morgan Stanley is not credible on this subject?
> It will take years for bitcoin to first become a long-term store of value, and as it rises, its volatility will decline.
Note that this hypothesis has failed so far. Per https://charts.woobull.com/bitcoin-volatility/, bitcoin's 60-day price volatility has bounced around the same general range since about 2015, despite the price increasing a couple of orders of magnitude.
We are still in very, very early stages.
Think about it this way. Why did Scott title the post “why I am less than infinitely hostile to cryptocurrency”?
The worst crypto ponzi was the Bernie Madoff token
I need to point out here that Bernie Madoff was clearly a case of nominative determinism, given that he made off with his investor's money. As such, I would cut the man a little bit of slack.
An astute observation sir
> Crypto Is Full Of Extremely Clear Use Cases, Which It Already Succeeds At Very Well
Yep. And in the US a lot of use is driven by people like migrant workers or relatively underbanked communities. A lot of the critics are, to be frank, privileged upper middle class types who basically say, "The system works FOR ME. Why would anyone need to go outside it?" Yeah, okay, if you make six figures at a respectable job and live in a major city then crypto's use cases are less obvious to you. And the ways it does get used are most likely to be concealed back office because customers don't like change. This doesn't mean they don't exist. (You see a similar thing for stuff like check cashing or non-traditional banks.)
I was at a blockchain thing a few weeks ago and there was only one speaker from what I'd call the first world. Most of them were Eastern Europeans, Africans, and South/Southeast Asians. That's not a bad thing.
> Big Crypto Projects Are Very Rarely Scams
Yep. The vast majority of crypto projects are not fraudulent. And the scams are just normal scams that are being done in crypto. That doesn't mean it's not a problem. But it's not anything unique to the crypto space. What's happened is that regulators aren't competent at regulating crypto. Very often the stuff being done is already illegal but the US government just hasn't built capacity to catch it.
Seriously, the government's really bad on this stuff. And it's worse because the credentialed classes are the least likely to be familiar with it or its use cases. I think the government's going to choose to leave it unregulated (eta: or I should say poorly regulated, as in computer programs regulated by a bunch of accounting majors) and wait until people with master's in crypto studies become available to hire rather than give up their hiring standards. But we'll see.
Meanwhile, plenty of people can avoid the fraudulent areas. I have. Now, the issue is that for a market to be safe you shouldn't need a background in it to avoid scams. But that's usually done by the government and see previous point.
> Crypto Is Valuable Insurance Against Authoritarianism. 6259 writes: there are no other rights in substance without the freedom to transact.
Sort of. Decentralized projects CAN be built this way. They don't have to be. China has its own cryptocurrency. And they built in a bunch of monitoring tools. While building separate systems can be a valuable form of support and changemaking the technology does not substitute very well for the social and economic component. At the same time, it moves the needle in what I'd normatively consider the right direction.
> Yes, The Crypto Financial System Is Just Reinventing The Regular Financial System Except Worse In Every Way, And That’s Fine
It's not worse in every way. It's better in some ways, worse in others. It's a tradeoff and having the option is better than not having the option. This is in addition to your further "in space" points which I agree with.
> Crypto is an interesting technology that had one terrible piece of bad luck: its standard-bearer, Bitcoin, went up in value 10,000x over a few years.
Yep. One of my worst failed predictions is I thought cryptocurrency was going to decline relative to other uses ten years ago. I expressed on this very blog a long time ago that the worst thing that happened to crypto was the huge influx of random money. I compared it to someone who inherits a billion dollars at 18 and how that skews their life path. It became trendy and that caused issues.
I agree with you too about the awkwardness that this money did fuel some genuinely good development. But on the whole I'm glad the tide's going out. Assuming things don't get too bad the reallocation is deeply necessary.
Wait what? I live in one of the two hearts of the undocumented worker community (SoCal), and I've dealt with them (and hired them) plenty, and nary a one was interested in crypto. It's dollars in cash they want. Where do you see all these migrant workers wanting to be paid in BTC? Do you mean "a lot more than one would have naively expected" (which could be a dozen), or a lot in absolute numbers (which would have to be millions)?
It's that they use bitcoin for near bank transactions. They deal primarily in cash and then use crypto for things like sending remittances or storing money (or sometimes even cashing checks) in ways that aren't under the mattress. Often the crypto senders have cheaper fees. If you go to corner stores in their neighborhoods you'll often see bitcoin ATMs or crypto remittance counters alongside more traditional fare.
Hmm. Can't say I haunt Santa Ana changarros, so I have no factual basis to say you're wrong, but I find this incredible a priori.
You can find numerous studies which show that it's a decent sized minority of the market that's growing quickly.
Does it change your mind at all that the most popular crypto remittance companies have a user experience rather similar ways to traditional incumbents? They have desks open in the US and Mexico (or wherever). The person walks in and submits their money (often physical currency) which is credited to their account and then accessible in Mexico. The client has the option of keeping the money in dollars, pesos, or crypto and will say so at the desk.
I'm an empiricist. I would test this hypothesis by driving down to 1st Street and looking into the first few bodegas I saw. I could ask the gardener next time he comes with his mumchance crew but (1) they talk too fast for me, and (2) I try not to annoy or stress them out by asking personal questions, because while I know they know I know they don't all have papers, it's courteous not to bring that up even indirectly.
Yeah Cash + Western Union is typically what an unbanked undocumented worker might use for remittances. I can't imagine trying to convince i.e. a day laborer to get a crypto remittance set up for his family in Oaxaca.
Exchanges like bitso have undercut WU on fees and speed. Including significant on the ground presence in places like Mexico.
I think it would be helpful to go back to just about a year ago, at least as I unreliably remember it. Two relevant things come to mind:
1. If you don't watch sports this won't land as hard, but FTX was a prominent ad buyer of the Super Bowl, and ran ads with about a dozen sports and non-sports celebs endorsing it. They also bought naming rights for the arena where the Miami Heat play (deal now being unwound, I see). Saying "Just FTX" heavily underplays how big their public footprint was. One would be nuts not to, as is said here, "update on that".
2. I notice not a mention of NFTs, which over about six-month period went from idea to controversy to general collapse -- in fact, collapsing so hard that it's barely surprising that we've all forgotten about them. Sure, they're not coins, but they were in the ecosystem. But if you're talking about "what would you have done in the crypto space a year ago", all that stuff would be on the list.
It's perhaps notable that he picked lists from 2015 and 2020, which are both pre-FTX and pre-NFTs (or at least, pre-big public knowledge of either). But still, if there's some reason that the big use cases in 2021-2 were much more risky than the big use cases in 2015 and 2020, that's an interesting change.
I'd take those claims re Ukraine with a handful of salt. Prior to 2022, you could just send SWIFT without any hassle. In fact, UA banks prior to war were anything *but* sclerotic, copying a lot of useful innovations from European neobanks.
This is awesome. Thank you so much for writing this.
Any thoughts on the claim that “bitcoin is different from the rest of cryptocurrencies” because no one is in charge of it? Even the SEC and CFTC heads seem to agree that bitcoin is different.
I don't understand enough about how eg the Ethereum Foundation "maintains control" of Ethereum to have an opinion on the difference. I would be happy for someone to explain this to me.
Any blockchain cryptocurrency operates on a basis of some theoretically-decentralized class of agents collectively validating and authenticating the transaction history for each unit of currency. To oversimplify somewhat, any transaction agreed upon to be valid by a majority of the system's validation power goes through, and any transaction agreed upon to be invalid gets rejected.
If the validation authority is spread out among a variety of independent actors who are generally incentivized to act in good faith and no large bloc of validation power is coordinated to subvert the agreed-upon protocol for which transactions "should" be considered valid (except perhaps to implement a widely-agreed good-faith update too the protocol), then it's very hard if not impossible to abuse the authentication process to do something like arbitrarily issue additional coins to some ingroup, steal or delete coins owned by some outgroup, block certain transactions the ingroup disapproves of, etc.
The two main solutions to how to distribute validation authority are proof-of-work (validation authority is distributed proportionately to computing power devoted to some activity, usually coin mining) and proof-of-stake (validation authority is distributed proportionately to coins held by would-be validators). Bitcoin is proof-of-work, and Ethereum recently moved from proof-of-work to proof-of-stake.
If the staked coins are widely distributed among disparate classes of people with little shared interest except for their financial stake in the cryptocurrency, the proof-of-stake should work fine. The criticism of Ethereum here is that Ethereum's founders and early investors are suspected to hold a solid majority of Ethereum available for staking (about 70% of the total amount of Ethereum in being was initially allocated to founders and investors, and I don't think it's known with any confidence how much has since been sold or resold), and that about 64% of Ethereum currently staked for validation is held by a handful of organizations (three big crypto exchanges, some collectively-owned-through-blockchain thingy I don't really understand called Lido Finance) and a large number of "unlabelled" staked coins that might actually be mostly held by Ethereum founders and some major investors likely to follow the Foundation's initiatives. So if the Ethereum Foundation wants to abuse the protocol, the number of actors they would need to persuade to cahoot with them may be pretty small.
I'm less familiar with the arguments for how Bitcoin's proof-of-work validation authority is immune to similar risks. A quick glance at stats about current mining activity as published at https://btc.com/stats/pool seems to indicate that 80-85% of current Bitcoin validation authority is shared by the five biggest mining pools (Foundry USA, AntPool, F2Pool, Binance Pool, and ViaBTC).
Proof of Stake vs. Proof of work is a good point which is orthgonal to what i originally meant, namely, the absence of a 'bitcoin foundation' that is doing development and then 'coordinating hard forks'.
Bitcoin mining is very different from proof of stake for a few reasons:
- switching costs for miners to move between pools are nonexistent; this is not true for staking
- anyone can start up a new mining pool and it only requires miners
- mining requires extensive investments _outside_ of bitcoin
meanwhile, with staking, the process of validating eth transactions is much more complex due to 'miner extracted value', and the staking process ends up rewarding people who are already the biggest holders of Ethereum.
The Ethereum Foundation decides how changes to Ethereum's code will be made. They raised from the initial sale of ether, and now that ethereum has changed to proof of stake, it's possible they will be accused of running an illegal security.
There is no equivalent entity for bitcoin. Changes that happen to bitcoin happen only after a sufficient number of bitcoin nodes signal support for a proposal.
Yes, the Ethereum Foundation does try to build "community consensus" around their changes. But the fact still remains there's a specific entity with specific people that propose changes, and then a large audience that can either say 'yeah, we will go along with this', or can maybe say 'no'. Nobody has any idea what the latter case looks like, with the possible exception of 'Eth Classic.'
Meanwhile, with bitcoin, lots and lots of people said 'we can improve it', did their hard forks, and these failed. There was an event in 2017, called 'the block size wars', in which the operators of major cryptocurrency exchanges (like coinbase) worked together with the largest manufacturer of mining hardware in an attempt to get everyone to adopt a change. Users said 'no thanks'. So Bitcoin has already shown it is resistant to attempts by coordinated, wealthy parties, to change bitcoin for their own purposes. Ethereum hasn't demonstrated this, and arguable the one real change that the Ethereum foundation did do was hard-forking after the DAO hack, breaking the idea that 'code is law.'
The Ethereum foundation having his position means there is a group which has the capacity to do things like, change Ethereum so that KYC compliance is built in at the base layer. It is entirely possible that they would do this, especially e.g. if told by state authorities, "if you don't do this, we will jail you for running an illegal security."
Some people would reject this proposal, of course. This already happened once before, with "ETH Classic" being people who split off from the main Ethereum chain after they disagreed with the decision, taken by the Ethereum foundation, to Hard Fork Ethereum in respond to the DAO heist.
The existence of stablecoins and DeFi protocols makes this kind of split impossible: stable coins are all going to follow the leader and be worthless of other chains. If a change is proposed by the ETH foundation to add a whitelist of allowed addresses in at the base layer, I think a lot of people will go along. The people with the most Ethereum staked up are going to want to play ball as well. I think this means there's a decent chance ethereum ends up being owned by some government.
It doesn't work anymore like this. Eth development is far more decentralised today than in the past. There also more implementations.
I doubt any KYC change would fly, like I doubt any changes to Bitcoin 21m limit or proof of work would fly.
Switching to proof of stake and having a large amount of ethereum on regulated exchanges gives exchanges outsize influence and centralization risks:
https://www.coindesk.com/tech/2022/10/14/censored-ethereum-blocks-hit-the-51-threshold-over-the-past-24-hours/
Being infinitely anything seems excessive. The more sensible version of this headline is just that you're not hostile to crypto, just as you haven't exhibited hostility toward space tech.
One thing to consider when talking about cryptocurrency: a financial disclosure.
I know you’re not promoting or commenting on any specific technology here, but since this is in the realm of “number-go-up” stuff, it’s generally a good idea to have a general disclosure about holdings/etc. I can imagine reading an essay about meme-stocks by someone I trust, and then finding out later that some significant fraction was of their net worth was in meme stocks at the time, and that eroding my trust somewhat, even if they really had no intention of trying to convince anyone to buy meme stocks.
Similarly here, I’m aware from previous comments on ACX grants that you have held cryptocurrency in the past, and it’s probably worth disclosing in some way here.
(Maybe I missed it, in which case disregard this comment and apologies!)
I've added a footnote mentioning I own some Eth.
I'm trying to figure out what happened to "Gems" another on your list from 2015, and I can't find anything about it. Do you really think that the people who "invested" six figures into Gems back in 2015 are happy now?
It seems like you are using an insanely strict definition of "scam" in order to justify your position, but a neutral observer would come to very different results. The real questions are "did the project succeed? are the people who FOMO'd into the ICO happy now?" Whether the project managers *explicitly* rug-pulled or just quietly walked away or were criminally incompetent and went down in flames, the end result for the so-called investors is the same, and there is no way that you could advise people to invest in the old ICOs with a good conscience.
Yes, my standard was "I googled the company and checked if there was news about it being a scam".
90% of all startups fail. I don't want to define "scam" as "failed startup" or else 90% of the tech industry in general would be scams, which I think doesn't match the connotation.
What people mean by "scam" is context dependent. The crypto ecosystem *is* full of garden variety scams, but if someone says something like "don't invest in ICOs, they're a scam", what they really mean is "near 100% chance of losing your money".
As for whether tech startups are a scam or not, it's possible. I'd say they are less scammy on average, but there are certainly some that nearly everyone would consider a scam (e.g. Theranos) and the rest is a spectrum. But it is *irrelevant* because the government forbids ordinary people from investing in startups anyway (and for a very good reason!).
The people investing in startups are wealthy funds that aren't risking much on individual companies and have expertise in helping companies to succeed and at least historically have done due diligence to figure out which companies actually have promise (though in recent years, due diligence fell out of favor due to bubbly-market conditions).
They forbid ordinary poor people from investing in startups, the proverbial dentist certainly isn't a trained investor, just an Accredited one.
"though in recent years, due diligence fell out of favor due to bubbly-market conditions"
Speaking of FTX, I strongly recommend reading an article by a writer for Sequoia which was one of those who invested in it, because the description of how the partners were charmed into throwing money at Bankman-Fried thanks to one Zoom call has to be read to be believed. Short version: Sequoia was looking for investment opportunities in crypto, Bankman-Fried appearing to be making money hand over fist, and they wanted in. The article is only from September of this year, but the difference between Then and Now makes it wonderful reading in "how the hell could anyone have fallen for this?" way, the reporter is such a gushing fanboy about Bankman-Fried that he surely must be waking up in a cold sweat every night now hoping it was all only a nightmare:
https://web.archive.org/web/20221027181005/https://www.sequoiacap.com/article/sam-bankman-fried-spotlight/
"As Covid-19 descended, Michelle Bailhe, a young gun at Sequoia Capital, and veteran partner Alfred Lin were starting to closely examine the crypto space.
…Bailhe spent months researching the space full time, focusing her energies on the exchanges. She met with every founder and every company that would have her. And she built a map—a landscape, as such a document is called at Sequoia—of the entire market.
…The problem, as Bailhe saw it, was that FTX didn’t appear to need any money. She was correct, but what she didn’t know was that SBF was starting to think about raising money anyway.
…FTX did need money, after all. And it needed that money from credible sources so it could continue to distinguish itself from the bottom-feeders who came to crypto to fleece the suckers. So, in the summer of 2021, when FTX started to raise its Series B from a who’s who of Silicon Valley VCs, Bailhe and Lin hit the “Don’t Panic” button. “Embarrassingly, we had never tried to reach out to Sam, because we figured he didn’t need us,” Bailhe admits. “I thought they were just minting money and had absolutely no need for investors.” Learning otherwise, they quickly contacted SBF and organized a last-minute Zoom call between him and the partners at Sequoia—at four California time on a hot July Friday afternoon. Bailhe was adamant, putting her reputation with the other partners on the line: “I’m like, ‘No, it’s worth it. Cancel your afternoon.’”
The Zoom went well for all concerned. SBF looked relaxed as he answered questions, talking, as he usually does, in complete paragraphs about topics of extreme complexity. Ramnik Arora, FTX’s head of product and another ex-Facebook engineer, remembers the meeting clearly: “We’re getting all these questions from Sequoia toward the end. He’s absolutely fantastic.” Arora locks eyes with me, and I am mesmerized. Arora is intense—calling to mind a Bollywood version of Adrian Brody.
“Unbelievably fantastic,” he says, shaking his head.
Bailhe remembers it the same way: “We had a great meeting with Sam, but the last question, which I remember Alfred asking, was, ‘So, everything you’re building is great, but what is your long-term vision for FTX?’”
That’s when SBF told Sequoia about the so-called super-app: “I want FTX to be a place where you can do anything you want with your next dollar. You can buy bitcoin. You can send money in whatever currency to any friend anywhere in the world. You can buy a banana. You can do anything you want with your money from inside FTX.”
Suddenly, the chat window on Sequoia’s side of the Zoom lights up with partners freaking out.
“I LOVE THIS FOUNDER,” typed one partner.
“I am a 10 out of 10,” pinged another.
“YES!!!” exclaimed a third.
What Sequoia was reacting to was the scale of SBF’s vision. It wasn’t a story about how we might use fintech in the future, or crypto, or a new kind of bank. It was a vision about the future of money itself—with a total addressable market of every person on the entire planet.
“I sit ten feet from him, and I walked over, thinking, Oh, shit, that was really good,” remembers Arora. “And it turns out that that fucker was playing League of Legends through the entire meeting.”
“We were incredibly impressed,” Bailhe says. “It was one of those your-hair-is-blown-back type of meetings.”
…The B round raised a billion dollars. Soon afterward came the “meme round”: $420.69 million from 69 investors."
i see this "90% of startups fail" heuristic get thrown around a lot, and it's way too simplistic. This article is a good start to unpack the question a bit: https://www.failory.com/blog/startup-failure-rate
also, there's a reason why VCs do DD (or at least are supposed to do DD. a lot of them didn't in past few years and are paying for it now) and retail investors don't get to invest in start-ups. ICOs were marketed to the unsophisticated masses with near total freedom to lie, that makes them basically scams in my book just from a process point of view (and yeah, the 2020-21 SPAC era is cut from same cloth).
On the bright side, at least the SPACs let you cash out for $10, so you only lose money if you buy in higher than that. The real losers of the SPAC boom are the sponsors, who lose everything if a deal falls through.
the reason why SPACs got popular for a while was because most people didn't cash out at despac but bought into the hype. Especially retail investors. Most professionals were playing other side either as sponsors or the merger arb crowd who just did what you describe. Nowadays every one just wants their $10+interest back and deal doesn't close and SPACs are dead.
Can someone explain how crypto as a hedge against authoritarianism works in practice?So if you’re in Venezuela and your government prints too much money, what do you do exactly to get around it? Can you pay a neighbor for a television through Bitcoin?Buy groceries with crypto? How exactly? Do you use an app or what? Or do you just put your Venezuelan currency into crypto and sell when you need money?
You mostly just don't hold local currency. As a business owner you accept it, because the government would be mad if you didn't, and also it's how they pay their employees, but you work hard to exchange it for almost anything else as fast as possible. When Venezuela's inflation started getting bad initially, I remember the USD and the Brazilian Real were notable for being in high demand in Venezuela.
On the ground level of exchanging cash, it largely works like Venmo. You just transfer it to them via your phone. Phone banking is absolutely huge in a lot of low-income countries, because nearly everyone in the world has a cell phone and cell service. Local tech companies build their infrastructure around this.
So there are apps that are like Venmo for crypto in Venezuela? It seems weird they would have something like that while we don’t (as far as I know)
We do, actually. I regularly use Coinbase to pay people willing to take BTC.
Interesting! What percentage of people you run into would you say have it?
Real life, not many individuals where I'm at, and definitely no stores. The tools for accepting payment in USD are good enough that it really is pretty hard to break through without a compelling desire for decentralization.
Digitally it's about who you'd expect, my VPN, modafinil importing, and video games. It's honestly funny that the US leads so much in crypto tech development, because we will probably almost never be a primary userbase for it. But I guess it's a decent way to continue leading in the international service economy, literally building the financial exchanges of the developing world.
Since you are kindly answering basic questions, here's another one: Do you have to keep your crypto in Coinbase to make this work? If you keep it in cold storage, how do you send it?
Sure. So let's say you're in Venezuela and the government prints too much money. Now, unless the world has completely collapsed this has relatively little effect on the rest of the world. The government knows this and has to put in place capital controls, seize bank accounts, prevent people from leaving, prevent people from accessing banking abroad, etc etc. None of this will work as well against decentralized assets. Whether that is crypto or a bunch of gold bullion. The government can, theoretically, go house to house seizing your gold or your crypto. But this is a much higher bar and so much harder to do. Not to mention it's pretty easy to hide a thumb drive.
So you have an asset which still holds value and which you can transact with in a quiet manner. This is probably better than just having ration coupons and funny money of dubious value. Now, let's say you want to do something. Buy a tv. Firstly, if both people have crypto then you can transact in that. You can either do it peer to peer (transmit from your wallet to theirs) or through an exchange. Usually an offshore one. This works basically like a bank transfer.
If they do not use crypto then you can exchange your crypto for bolivars (at a probably insanely good rate) and use that. There's a variety of things from crypto exchanges to credit/debt cards to atms that would allow you to do that.
You don't even need to make it obvious that it's crypto. Often hyperinflating regimes are desperate for foreign hard currency. So you could, for example, sell your crypto to an American. The American would give you dollars. You can bring the dollars into the country and pretend they're remittance payments or whatever. And then you can trade your dollars for bolivars and spend the bolivars.
Because of its decentralization cryptocurrency acts like physical dollars or commodities like gold. Except it's very easy to hide or move. This makes it appealing to criminals in the same way that physical cash is. But it also makes it appealing to dissidents. Also in the same way cash is.
Crypto as a hedge against authoritarianism works in three ways, none of which are foolproof nor unique to crypto, but crypto provides an additional route to circumvent authoritarian policies and make them at least marginally harder to enforce.
One is that transactions conducted through crypto are harder to monitor, trace, and audit than electronic payments through the traditional banking system. So if the Men in Black want to figure out who's been donative money to some particular dangerous radical, they can get a court order and subpoena PayPal, Venmo, Apple, JP Morgan Chase, BofA, etc and get a list of everyone who sent him money. But if you give him money via a direct bitcoin transfer, then the MiBs need to somehow figure out that the source wallet is yours and the destination wallet is Curtis Yarvin's or whomever's.
Another is insurance against simple kleptocracy. If you've got money on deposit with a particular bank, then a suitably autocratic government can pass a decree instructing the bank that "your money" is now "our money" and should be transferred to the treasury's or the President's nephew's personal account for safekeeping. That's a lot harder to do with directly-held crypto, since they'd need to know you have it so they can go looking for it, and then they need to somehow "persuade" you to give over your wallet info and credentials to them.
The last is a workaround for prior constraint of purchases. If the government wants to forbid commerce in a certain good or service, or at least limit it to specific regulated channels, then they can order conventional payment processing networks to refuse to process payments to anyone known or suspected of selling such things. Crypto decentralizes the transactions enough to make it nigh on impossible to exercise prior restraint, and anonymizes it enough (see point #1) to make it tricky to punish forbidden transactions retrospectively.
Similar advantages can be gleaned through using physical cash (especially foreign cash) or valuable trade goods like precious metals, but crypto allows anonymous and difficult-to-trace payments to be transacted electronically at a distance instead of needing to be handed over face-to-face or via dead-drop.
Crypto is of course vulnerable in these cases to rubber-hose cryptanalysis, and if you don't hold the crypto in an offline wallet, then whatever exchange you use is potentially vulnerable in the same way a bank or online payment provider would be. For residents of third-world authoritarian regimes, online crypto exchanges are often beyond the reach of local enforcers by virtue of being based in the US or Europe, but such exchanges are emphatically not beyond the reach of American and European law enforcement agencies.
Russ Roberts' Econtalk episode, "Devon Zuegel on Inflation, Argentina, and Crypto" covered this topic pretty well: https://www.econtalk.org/devon-zuegel-on-inflation-argentina-and-crypto/
Private currencies spring up all the time--think of hawala networks, for instance. They also have the advantage of circumventing corrupt or dysfunctional (or honest and law-enforcing) state financial systems. And they also typically have a private authority who's accountable if the private currency gets looted or otherwise collapses. The relevant question, therefore, isn't, "what's the advantage of private, non-governmental financial systems over governmental ones?", but rather, "what's the advantage of *strongly decentralized, collectively managed* non-governmental financial systems over centralized ones?"
And in fact, this question has a history. When Napster and its descendants became popular as music piracy vehicles, a lot of the same sort of people who now tout cryptocurrencies as the future of financial systems began touting "P2P" as the future of data management systems. What they gradually discovered over the subsequent few years--although it really should have been obvious from the beginning--was that the *only* appeal of decentralized systems over centralized ones is the lack of a legally liable party for the government to target. In every other respect, it's a lot worse--and it turns out that when escaping legal liability is the goal (and all the disadvantages of dealing with a sleazy, beyond-the-law black market are still less bad than the alternatives), there are plenty of simpler solutions than constructing horribly clunky decentralized systems (centralizing in a sleazy out-of-the-way jurisdiction being an obvious example).
P2P networks went away, of course, as soon as the music industry adapted and made their product available at a competitive cost. Western financial systems, like recording companies before them, are naturally slow to give up their old ways (and old profits), but they're ever-so-slowly beginning to catch up--and when they do, cryptocurrency will quickly join P2P on the scrapheap of bad technologies briefly made attractive by a few transitory quirks in legal and commercial circumstances.
From your mouth to God's ears.
Scott, I assume you're looking for more than what Venmo/Zelle currently provide, then--what properties (apart from immunity to government regulation, of course) are you looking for in future bank-blessed media of exchange?
I still believe in the original cypherpunk and crypto-anarchist arguments for P2P systems, mesh networks and cryptocurrencies and I have been mentally rolling my eyes for years at the people claiming that these things are dead, that they’re going to die, that they aren’t practical, or that Netflix replaced them. To me the time since Bitcoin was invented (2008) seems very small and I have been impressed by how much its adoption has increased since the early days. It could have had near-zero adoption so far and still have a user base as small as it did in 2010 and I would still expect cryptocurrency to become widespread and have immensely valuable applications some day. Tokamaks were invented in 1951 and we’re still not using nuclear fusion to produce our energy, but it’s going to happen eventually. Quantum computing was invented in 1980 and we still aren’t doing anything useful with it, but that’s going to happen too (and not just using it to break cryptography; there will be other applications, and valuable ones). Same for nanotechnology.
A lot of cryptocurrency companies are scams? Well, a lot of nuclear fusion companies and quantum computing companies are scams too! So what?
It’s just going to take much more time than this, multiple decades, half a century and more, that kind of time. 2008–2022 is a very short time period. If most of the technical problems with cryptocurrencies or nuclear fusion had already been solved and people were still not adopting them, then I would update negatively based on that. But the technical problems remain. There are huge amounts of research that need to be done, huge amounts of code that need to be written. The transaction fees must be made smaller, the technology stacks need to be drastically simplified, usability needs to be hugely improved, native user interfaces need to be created for more platforms, everything requires much better security.
If an existential catastrophe doesn’t happen first and prevent this from happening, the world economy will eventually run on peer-to-peer blockchains with smart contracts and public-key cryptography and zero-knowledge proofs, atop mesh networks. I am highly confident (80% probability) in this (in the entire conjunction, that is, with sufficiently broad interpretations of “blockchain”, “smart contracts” and so on that include technologies inspired by them or sufficiently similar), and also highly confident that it will take less than two centuries to get there.
It’s not just the cryptocurrency systems themselves that need improvements: our computer hardware and operating systems need serious security improvements, if we’re going to be relying on them to a much greater degree to run the world economy. Those security improvements will happen, but it’ll take time, much time!
The arguments for why it is superior technology are just plainly correct. Nuclear fusion is plainly a superior way to produce energy for reasons of physics. Cryptography and peer-to-peer systems are superior for reasons of computer science, mesh networks are a superior way to make computer networks. The arguments have continued to seem as correct to me as they seemed when I originally learned about them and many of the technical arguments were empirically borne out. For example, the (critically important) game theory arguments for why decentralized oracles should be possible were correct: the markets on Augur did resolve correctly. People think of Augur as a failed experiment, but the reason people didn’t use it is that the Ethereum transaction fees were too high and that usability wasn’t good enough. And these are problems that will be solved eventually! The markets DID resolve correctly. That is very impressive and important and is what really matters! Augur successfully created a system that gets information about the external world inside of a blockchain in a completely trustless manner. There used to be people who thought that was impossible, you know? There also used to be people who thought proof of stake could never be secure. Who thought that Bitcoin would get 51% attacked if it scaled. Who thought you couldn’t solve Zooko’s triangle. Time and time again, game theory and cryptography were proved to be highly capable and able to do—reliably, too—things that people thought were impossible.
Problems of scalability, usability and backward compatibility are not new concerns. We have known since the beginning that those things would need to be solved, but also that they can be solved.
Look, public-key cryptography was invented in 1970, and we are STILL using silly signatures made on paper with pens. Because the usability problems have yet to be solved in a sufficiently thorough way to ensure widespread adoption. This does not change the fact that public-key cryptography is fundamentally superior signing technology and that it will eventually fully replace written signatures. This will just take TIME. It has only been FOURTEEN years since Bitcoin was created. That is a very small number of years. Cryptocurrency has already been unreasonably successful, much more so than it should need to be to convince us that the original arguments for why it is a promising technology were indeed as correct as they seemed at the beginning.
Your faith is touching, but as someone with a fair bit of technical background in both cryptography and quantum computing, I can tell you that 1) cryptography-based cash, like pure peer-to-peer technology, has a forty-year-long history of being touted as the Next Big Thing, only to fail completely to catch on for lack of a compelling value proposition; and 2) quantum computers can only solve a very limited set of problems more efficiently than classical ones, and are therefore highly unlikely to be very useful beyond breaking cryptosystems.
In the case of technologies that have the potential to solve really important practical human problems, boundless optimism that engineers will eventually overcome the barriers preventing widespread adoption is understandable. However, in the case of technologies that fundamentally have very little benefit to offer us, such optimism seems like a terrible waste of psychic energy.
>cryptography-based cash, like pure peer-to-peer technology, has a forty-year-long history of being touted as the Next Big Thing, only to fail completely to catch on for lack of a compelling value proposition
This is just mocking a tech for not being fast enough. Cryptocurrencies were not more than a glint in David Chaum's eye in the 1980s, in the 1990s there were (failed) startups, in the 2000s there were blog posts, open source programs and all around niche non-academic interest, and in the 2010s and beyond there was a worldwide network that you can use to pay for coffee. This is undoubtedly progress, even if in fits and starts. The roots of the internet were in 1960s ARPAnet, yet it only toppled governments in 2011.
The idea evolves too : the cryptocurrencies that were touted in the 1980s and the 1990s were actually just centralized protocols with the banks as a central arbiter as always, starting from ~2005 the idea of merging P2P and cypto in one cocktail quietly began to be toyed with.
>However, in the case of technologies that fundamentally have very little benefit to offer us
I mean, it's fine if you personally find it hard to understand what's so attractive about crypto, but others find it massively attractive and fundamental. If cryptocurrencies become mature tech then you're "only" a cheap and robust Internet away from complete collapse or massive erosion of state power. A system that has been a human reality for ~10000 years, and it will be choked and deprived from one of its central and most important privileges that it has been consolidating for about the past 2 or 3 thousand years. This requires solutions to other hard problems like decentralized power and decentralized internet, but crypto is a piece of the puzzle too.
>quantum computers can only solve a very limited set of problems more efficiently than classical ones, and are therefore highly unlikely to be very useful beyond breaking cryptosystems.
I want to understand more about this and I'm not a physicist but I'm not afraid of (reasonably light, like first-course level abstract algebra or number theory) math, and I'm not afraid of moderately heavy computer science. You have a recomendation ? Scott Aaronson keeps piquing my interest with his "Quantum Computers are not simply magic parallel computers" remarks but I never really understood what actually *is* quantum computers to my satisfaction.
Regarding those early cryptographic cash systems, the main feature they offered was anonymity--but it turned out that wasn't attractive enough for them to gain any traction, for all the reasons that critics of today's cryptocurrencies cite. Again, the problem wasn't that the technology hadn't advanced to the viable stage, but rather that the features weren't attractive enough to drive widespread adoption. Bitcoin's main innovation, IMO, had nothing to do with cryptography or distributed systems technology, but rather with finance: by creating a financial instrument with the scarcity properties of a collectible (i.e., large but strictly limited supply), it set ideal conditions for an investment bubble to form once it reached a relatively low threshold of investment.
Regarding Quantum computing, it essentially allows for probabilistic computation under rules of probability that are very different from the standard ones. This allows it to solve certain mathematical problems that happen to be at the core of the most widely used asymmetric cryptosystems, but beyond that its application appears to be very narrow. (These asymmetric cryptosystems all rely on a certain kind of strong mathematical structure, which quantum computing seems almost tailor-made to exploit. But that structure is only relevant to a very narrow class of computational problems.)
To add more detail, in case you're interested: quantum computing is good at solving the "hidden subgroup problem"--that is, if a function is constant on some subset of an exponentially large (Abelian) group, as well as on each coset, then a quantum computer can find the subgroup. It turns out that both factoring and discrete log--the problems on which the hardness of RSA and DH are based--can be reduced to hidden subgroup problems, and are hence efficiently solvable by quantum computers. But the applicability of the hidden subgroup problem is necessarily limited--general search problems, for example, don't include hidden subgroups.
Forty years is a small amount of time too, but I was talking about decentralized currencies based on blockchains, not merely cryptography-based cash. Cryptography-based cash is older and obviously will catch on eventually, of that I am practically certain.
We’re still using passwords for authentication, you know? Our societies have been slower at adopting public-key cryptography than we would like. That doesn’t mean it isn’t going to happen anyway, eventually. Of course it’s going to happen. Our currencies and financial systems are going to be based to a much, much greater degree on cryptography, eventually. Look at how long it has been to get from client-side certificates to WebAuthn. And we still mostly aren’t using WebAuthn to log in to websites yet! We’re still using passwords! It takes TIME. The usability problems take time to solve. It is not a mystery why a fundamentally superior technology has not been universally adopted yet when the usability problems have not yet been solved. But they are solvable and the benefits to solving them are way greater than the costs, so they will be solved, eventually. Human societies from 200 years in the future (if no existential catastrophe before then) won’t be using silly passwords for authentication, the silly ACH network for transferring money, silly stock exchanges that are only open for trading for eight hours a day on weekdays, silly IP addressing, silly coal plants to produce their electricity, silly written signatures. Human societies from 200 years in the future will be using public-key cryptography, fusion power, distributed hash tables, defi and smart contracts. But it will take TIME to get there, because there remain a lot of technical problems that need to be solved.
"Human societies from 200 years in the future"
God granting we're still around then, and it's not the cockroaches scrabbling over the ruins of our civilisation, but maybe it will be that way.
Or maybe the AI will own all the crypto, and if you want your ration of gruel, then dance monkey-boy, dance!
(That's if I believe the AI scaremongering, which is as likely for 200 years future us as fusion powered hash tables).
Yes, everything I wrote is assuming no existential catastrophe happens first.
"1) cryptography-based cash, like pure peer-to-peer technology, has a forty-year-long history of being touted as the Next Big Thing, only to fail completely to catch on for lack of a compelling value proposition;"
Satoshi built on the inventions of the past and combined them in a unique way to remove their downsides (https://medium.com/@nelsonmrosario/the-bitcoin-white-paper-references-857f001f4878). Proof of work, a difficulty adjustment, and a decentralized ledger combine to create an asset that is digital, scarce, global, censorship resistant, and can be teleported. It's gold that is scarcer, more divisible, easier to store, easier to verify, and can be beamed around the world. These properties are immensely valuable, but it takes time for people to grok.
P2P has never went away, of course, even for music. Understandably, it's more prevalent in shitholes like Russia, where streamers weren't particularly excited to go in the first place, but very quick to pull out. And for movies/TV shows it's probably as big as ever, even in the West, due to crazy proliferation of subsciption services.
Sure, but now that it's clear that it's not a revolutionary general-use information management technology, but rather a specialized tool for evading legal accountability for illicit distribution of content, it's a lot less technically interesting.
Scott: Sure there are scams in crypto but there are also valuable use cases.
Commenters: *lists scams* QED
Eh, not convinced.
I can see how having a currency outside of the one controlled by the current government could be useful, and accept that in particular circumstances that could be crypto, but most of the time you'd be better off getting USD and keeping it under a mattress.
But perhaps your mad government won't let you get USD, but will let you on the internet, and haven't caught up enough to restrict Tor. In that case, crypto could work if you're savvy enough to use it properly, you don't expect unreasonable gains, you avoid the obvious scams and rug-pulls and get lucky avoiding the non-obvious scams, don't engage with the wrong smart contract or DAO, manage to balance the security and accessibility of your keys, you steer clear of NFTs and don't get hit by a phishing attack...
If that's you, you might get some utility out of crypto for... buying... something... that is perhaps more crypto... um...
The list of "best new crypto projects" you've linked contains:
- a spreadsheet
- somewhere to buy NFTs
- a batshit idea for NFTs that represent your ideals in a never-to-be-realised society that will be forgotten about by March
- two projects too complicated for the article to explain
These are not things to get excited about.
You could also buy games off Big Fish Games and pay with Bitcoin! At least, back in 2014 you could, I don't think they still support it:
https://venturebeat.com/games/big-fish-games-partners-with-coinbase-to-accept-bitcoin-payments-for-games/
Getting USD isn't always great, even if your government doesn't care. Paper USD tends to trade at a premium, which screws over your exchange rate. Remittances average a transaction fee of 6%. As long as your community is willing to use crypto as a form of exchange, it's probably easier than traditional currencies under most dictatorships these days.
Remittances have fees because running a lot of bricks and mortars locations in the recipient country so you can actually cash out is expensive. If all you care about is a Venmo-clone or whatever, then you can easily have negligible fees. And it's not like it is easy or cheap to cash out of cryptocurrencies, even in the best of circumstances.
Digital remains high due to money laundering regulations, unfortunately:
"Most forms of cross-border funds transfer require the cooperation of a bank at some point in the process. An MTO, for example, needs accounts at banks on both ends of the transfer corridor. However, in response to stronger anti-money-laundering (AML) standards, banks have been terminating or restricting their relationships with MTOs.
From the perspective of a bank, mobile payments create similar risks. As is the case for virtual currencies like Bitcoin, mobile payments systems can be used to conceal nefarious activities (see here). Meeting the Know Your Customer (KYC) standards that banks demand (and governments expect) is expensive. As a result, these factors may continue to throttle the speed with which cost-competitive technology firms make inroads into the remittance business."
https://www.moneyandbanking.com/commentary/2018/2/18/the-stubbornly-high-cost-of-remittances
He describes a best case scenario where streamlining those regulations drops the cost of remittances to merely 5%. USD transfers are constrained not just by local regulations, but by US regulations on banks.
>If that's you, you might get some utility out of crypto for... buying... something... that is perhaps more crypto... um...
Somewhat ironically, the Mennonites who built my shed offered to accept bitcoin.
Agreed. For people who can't download an app that's not on the app store or something, decentralization is meaningless. Even the most basic measures by their goverment could effectively block them from accessing crypto. Honestly I feel like paper money is more "decentralized" in the sense that it is truly accessible for everyone(and it doesn't even need internet).
"If Nancy Pelosi’s text messages are any guide, Democrats have joined libertarians in the “actually pretty worried about the government becoming an oppressive dictatorship” club."
That part made my jaw drop, because Bit...sy, you *are* the government. Who the hell do you think is going to be the oppressive dictators? Take a look in the mirror and then work on *yourself*.
(Good grief, I know political parties live on "we are pure angels, our opposition are raging devils", but this takes the cake).
As for the magic beans - if Vietnam can make it work, good luck to the Vietnamese. But so long as it's been treated as 'useful for illegal purchases', the blackmail spam that keeps turning up in that one work email account of ours always demands payment in Bitcoin, and people are treating it as "buy now, make a zillion percent return, then sell before the suckers wise up", I'm going to stick with the currency of my nation, thanks all the same.
I don't think this is an unreasonable fear. Nancy Pelosi is claiming that the Republicans are going to do some kind of coup or voter fraud or something to win elections they don't deserve to win, and then once they seize power they'll do some combination of suspend the Constitution or use gerrymandering/voter suppression/the Supreme Court to lock themselves into power forever and end checks and balances. I think weaker versions of this claim are plausible and stronger versions a bit paranoid so far, but it seems like the sort of thing they *could* do and I don't think that the Democrats being in power now makes it impossible or even much less likely.
Well she would say that, wouldn't she?
I have no trust in the Democrats (or Fine Gael/Fianna Fáíl if they could get their snouts out of the trough long enough to be that kind of large-scale corrupt) or the Tories or Labour or any political party in the world you care to name virtuously restraining themselves from doing this teeny little thing that sure, maybe if you look at it from one angle it's kinda dictatorial but since we're the Good Guys it doesn't count.
I mean, look at the to-do around Twitter and Hunter Biden's laptop (and I'm wincing about that because I don't want to know what Hunter Biden's dangly bits look like so if they censored that I'm quite happy about it). The Democratic party in power is happy to exert authoritarian restraint on free speech. Gerrymandering electoral districts is equal-opportunity. Running attack ads about how your opponent eats babies ditto. And the Democratic Party had no problems at all with Supreme Court judgements enforcing decisions against the will of a lot of the population when the judges and the judgements went *their* way.
Back in the Obama days, the Democratic partisans were rejoicing about the whole "demographics is destiny" angle, presuming that they would be in power forever and ever due to that. A one-party state forever is pretty much the definition of an oppressive dictatorship, even if its proponents assure us they will be benevolent dictators.
I'm not at all claiming that Democrats will never do authoritarian things, just that when they claim Republicans might do authoritarian things, they're expressing a reasonable worry!
I suppose it depends on how one defines "reasonable". It's unfair for me to be picking on American politics, so I'll give you an example from my own country.
I do not think it is at all reasonable for politicians from the two mainstream, and currently co-governing God help us all, parties to be stoking fears about a third party as "if they get into power, oooh watch out" and that third party has/had actual ties to actual terrorists.
So Nancy Tweedledee declaring Donny Tweedledum is going to oversee the authoritarian dictatorship of doing away with free elections does not impress me, because for every "well what about Jan 6th/Russian asset/piss-tape" claim from the Democratic side, there's an equivalent "well what about BLM protests/CHAZ and CHOP/mandated vaccination" from the Republican side.
Point of order: a one-party state forever is not the definition of an oppressive dictatorship. You can have a one-party state in which power comes and goes *within* that party according to the party membership (this is how the PRC is supposed to work, although not how it actually works, and AIUI how the Japanese LDP actually works), so it's not definitionally a dictatorship. And "oppressive" definitionally requires "oppression" of some sort, which is not *in theory* required for a one-party state to endure.
A majority of one-party states *are* oppressive dictatorships, but e.g. Japan has been de facto one-party since 1955 (the LDP has been out of power for four years in that period) and is both not really a dictatorship and not especially oppressive.
So you would be happy to live in the glorious future state where the Dear Leader/Leaderino/Leaderinx gets 98% of the vote in the perfectly democratic and free elections forever?
My scepticism is in part because I'm sure that there has been Democratic vote-fiddling as well as Republican vote-fiddling in every election those parties have ever been involved in, because people are people. I'm not claiming the Democrats *or* the Republicans are corrupt on a national scale, but I'm sure that individuals at whatever level have at times done things to tilt results their way, be that gerrymandering, finding 'lost' ballot boxes, or pouring money into campaigns for the worst candidate on their opponents side:
https://www.npr.org/2022/11/11/1135878576/the-democrats-strategy-of-boosting-far-right-candidates-seems-to-have-worked
The entire point of elections is to have a choice. If your 'choice' is "you can have any colour so long as it's black", then it doesn't matter if the party engages in the ritual of holding an election or just declaring the results they want, since the votes are in practice meaningless: you can choose Approved Candidate #1 or Approved Candidate #2 is not a choice, be it Japan or places where I am given to understand Republicans won't even run candidates because they don't have a snowball in hell's chance.
And what does it mean "win elections they shouldn't have won", anyway? Stacey Abrams is very loud on that, does anyone accept she is correct? Maricopa County flipped red to blue, and on the surface that looks dodgy until you dig into it and find out that a mere 5,000 vote switch was enough to do this. Suppose there was an equivalent county where they flipped blue to red, on what looks very dodgy and suspicious grounds: do you imagine Nancy would consider that "an election the Republicans should not have won"? Suppose it were then proven to be legitimate, as in Maricopa, where a small shift did make that difference?
"They shouldn't have won that election" means nothing more than "We wanted that seat".
I don't dispute anything you've said in this latter comment, and agree with your broader point.
I'm just saying that your claim earlier that one-party states are *definitionally* oppressive dictatorships is not actually true; one does not logically imply the other, and while there is a strong correlation IRL it's not even 100% (there are one-party states that are not oppressive dictatorships, and oppressive dictatorships e.g. Saudi Arabia where the dictator doesn't even bother with a party or elections).
I'm not a huge fan of one-party states, but I am a big fan of precise language.
I think we'll have to agree to differ here. Slavery is still undesirable, even if the slave-owner is a nice civilised master and treats their slaves well.
Not that one-party rule is the same as slavery, but a bad thing is not improved by being implemented kindly.
In an unusually lucid post a couple years ago (pre Jan 6), Moldbug proposed a takeover scheme of that sort, which, according to him, wasn't even egregiously illegal. However, he concluded that there's neither will nor vision in the GOP for something like that, which has been borne out so far, and there doesn't seem to be a good reason to expect this to change in the foreseeable future.
"You are the government right now" has never been an obstacle - the Republicans were yelling about election fraud in states where the governor, legislature, and secretary of state were all Republicans, because something something Deep State. Heck, in 2016 Trump was yelling about fraud in states where he *won* because he thought he should have won by *more.*
At least the Democrats have the justification that a fringe group of Republicans really did try to overthrow the government.
"At least the Democrats have the justification that a fringe group of Republicans really did try to overthrow the government."
And Republicans have the justification that rioters were allowed free rein to set up their own no-go zones and kill people, with the city governance standing there letting them do so, and sympathetic media coverage at the time and afterwards:
https://www.vox.com/policy-and-politics/2020/7/2/21310109/chop-chaz-cleared-violence-explained
If the worst associated violence with the entire BLM phenomenon wasn't any kind of justification that the Democrats were allowing anarchy and rule by mob, then it's no justification that a bunch of nutjobs tried 'occupy Congress' tactics.
One of those two specifically said that they wanted to stop the election from being certified and attacked a specific place in pursuit of that goal. The other one was protesting police brutality, and then the police decided to throw a temper tantrum and say "fine, we won't enforce *any* laws here if you hate us so much." (And also they faked radio messages about the Proud Boys coming to attack protesters for some reason? Because that would definitely calm things down? I have no earthly idea what the Seattle PD was thinking.)
Like, the BLM protests were certainly more destructive due to sheer scale, but I'm just talking about motives - if you're going to talk about how your enemies want civil war then I'm going to pay attention to the people who are actually saying that they want civil war.
> then the police decided to throw a temper tantrum and say "fine, we won't enforce any laws here if you hate us so much."
I've started hearing this over the last few months; do you have a source for it, or some idea of where it's coming from? My impression at the time was that the protesters did not want the police to come into the CHAZ/CHOP, not even to investigate a murder, and would have violently resisted any effort by the police to enforce laws in the area. And that the decision on the part of the police to not force their way into the area, was intended to de-escalate the situation. So I'm curious about where this alternative narrative comes from.
I don't know what the regulatory restrictions or implementation difficulties are, but man, I really want DeFi to be a legitimate way to get a loan for a car or a house. I love the idea of the early Local Bank, where the community pooled their money to help each other buy the things they need, and it seems so possible to create that in crypto.
well, P2P finance platforms like Prosper or Lendingclub were what you describe in early days, and then they discovered that many many more people wanted to borrow than to lend so the funding side became near totally institutionalized, and then even later they discovered the credit quality was actually pretty shit because in their rush to grow they didn't do proper underwriting, and now LC stock price is down from ~150 to 9, and Prosper still hasn't managed to go public and nobody talks about it anymore. Less familiar with dev world options like Grameen but results seem pretty mixed there as well.
The problem, like everything in crypto, is that the "crypto" part doesn't actually add anything. You're just talking about a bank with an extra-convoluted funding mechanism, and the "bank" part is doing all the heavy lifting.
No, I specifically think it would be great if individuals could make small contributions to, say, a mortgage that they believed to be a safe investment. Something like Kickstarter, but with a contractually obligated return on your money. There is, at least, a distinct difference here between a decentralized and centralized version.
This was the dream with peer to peer lending. The way it shook out it mostly ended up being institutional money making the loans. Which is honestly probably for the best. Do you really want to be responsible for repossessing your neighbors car?
Yeah, I'd call that an implementation difficulty, but it doesn't really feel like it should be insurmountable. Getting it going probably looks a lot like starting a dating website, but you substitute "individuals willing to lend" for women.
"Yeah, I'd call that an implementation difficulty, but it doesn't really feel like it should be insurmountable."
So if you want the community benefits, you have to be willing to do the Little Red Hen part. And if you have to repossess your neighbour's car, then *you*, Antilegomena, have to go knock on his door and ask for the keys while he's pleading with you that he needs it to get to work, he's behind with the payments because the kids are sick and you know the cost of medical treatment, and his wife is crying on the doorstep beside him.
Does it look so good now?
" I love the idea of the early Local Bank, where the community pooled their money to help each other buy the things they need"
That is what we call a 'credit union':
https://mycreditunion.gov/about-credit-unions/credit-union-different-than-a-bank
> Crypto is a few hundred interesting projects, plus a long tail of thousands of scams.
I think your arguments fall short.
By calling some of them "not scams" I think you are focusing only on the most blatantly fraudulent aspects and glossing over the pervasive "let's create an asset bubble" vibe that is foundational to all crypto, and that most people are talking about when they say it's all a scam.
Crypto relies on both technological concepts AND collective belief in a particular instantiation of that concept. (E.g. in bitcoin as opposed to some equivalent fork of bitcoin.) It is that collective belief, and the behavior required to maintain it, that can't lose its smell of scamminess, and that people might rightly avoid for ethical reasons.
Personally, although I see some technical value in cryptocurrency, I find it unethical to participate in the MLM-like bubbles of any of them. Doing so is still necessarily trying to profit at the expense of the people who come in later.
If you agree there's some technological reality, doesn't it become a combination of real value + selling-to-the-next-guy-later, which is what all investments are? I'm not buying index funds because I want those sweet dividends, I'm buying index funds so I can sell them to someone else after they go up (which they'll presumably do indirectly because of the dividends)
Stock buybacks seem to be the more common form of giving Real Value to stocks these days, which is kind of funny to think about since it means stocks are almost just a really circuitous kind of loan.
(1) I don't think so, and (2) I also don't think that makes it ethical.
1. There is real technological value there, but buying units of a particular instantiation of that technology isn't an investment in the tech, it's an investment in that particular instantiation of the tech. The value of that particular instantiation is driven almost entirely by bubble dynamics and not the underlying technological value. So I don't think it's like investing in an index fund. When you buy stocks you are helping money to be allocated to productive uses. When you invest in commodities you are helping to make sure that supply and demand for the commodity match up better. Buying crypto accomplishes neither. As far as I can tell, the value being created with crypto looks like it's much smaller than the amount of money being spent on it - that would be what makes it a bubble, and unlike most of the popular ways to invest money.
2. Do you ever participate in viral internet chain bullshit that says stuff like "send this to 10 of your friends"? I don't, because I think it makes the world worse to have the sorts of people who are willing to do that instead of the sorts of people who are not. Cryptocurrency looks kind of similar, in that it's standard in that sphere to have a model where people are financially incentivized to spread adoption. I don't want to live in a world that selects for hyper-aggressive/contagious memes, so I try my best to not create that world. Even if it were in service of something valuable, I'd be really reluctant to participate in anything that uses those kinds of tactics.
Tulip bulbs in the Dutch Republic circa 1636 actually had a real tangible value. Not a real value anywhere near their price, but the value wasn't strictly zero.
The difference between crypto and stocks is that stocks represent shares of a business with an underlying revenue stream, and you'll at least potentially get some of that money over time via dividends or stock buybacks. Obviously, there is a layer of zero-sum gambling on top of that as people compete to *predict* the net present value of that cash stream, much like how a prediction market fluctuates day-by-day as people guess about the underlying probability. But the underlying value *still exists*. With crypto on the other hand, the fundamental value is zero in most cases.
For a crypto Layer 1 platform, like Ethereum, the cash flow is the ETH burned to pay for transaction fees on the network. With sufficient activity, the token becomes deflationary - this is in a way similar to stock buybacks.
DeFi projects engineer their tokenomics to achieve the same effect, more or less succesfully, but there is no fundamental reason why tokens cannot accrue a revenue stream, aside from the SEC making life difficult for any project that gets too close to being an actual security
Can you really separate "real value" from "selling-to-the-next-guy-later", like that? (This may be a misinterpretation of what you're saying, but I'm running with it...)
You mentioned Warren Buffett in a locked post; that's not what he does. He buys things things that he thinks should be worth more than other people think they should be worth, and waits for those other people to realize that they were wrong. Sometimes he waits a long time, although not as long these days, now that he has a reputation.
Would you honestly be OK with an investment that you believed was nigh-worthless, as long as you could sell it to some sucker and make a profit?
Or do you perhaps believe, somewhere deep down, that those index funds become more valuable because progress is real, and the economy grows because more human value is being created, and that the world of 2030 will be better than the world of 2020 which was better than the world of 2010, and so forth back to the Stone Age, and that the index fund is a little piece of that world?
I think I'd express even a little bit more skepticism, but I agree with the overall premise that it's not all scams.
On "Crypto Is Full Of Extremely Clear Use Cases, Which It Already Succeeds At Very Well", I think this simplifies down to "Crypto lets you avoid state financial regulations (for now)". Sending crypto to a Russian is easier than Paypal because you don't need to do KYC / Anti-money-laundering checks, which in your specific case is probably a net good, but in general most people in the US don't support removing those checks (I claim). Sending remittances is better using Bitcoin because the government can't tax them / inflate their value away.
I'm generally here for a bit of civil disobedience and think it can be just to ignore unjust laws. And I strongly agree that giving people protection from government incompetence causing hyper-inflation is a positive thing.
On the other hand, (not an economist) I note that most countries consider it very important to control monetary policy. (The EU being a counter-example that sort of proves the point, given the challenges post-2008). While the libertarians / gold standard folks hate this, controlling the money supply is the way to avoid runaway inflation, and so if countries lose control of their monetary policy, it's unclear to me that's a good outcome. So this could be a situation where a little bit of crypto is a good thing, but if we get too much of it, small economies might be dominated by crypto which could be politically destabilizing at the national level.
"Big Crypto Projects Are Very Rarely Scams" seems like a low bar to me, though I think it's a fair point to argue against the "all crypto is Ponzi" position you're explicitly highlighting. Going back and checking out the "Most Promising Crypto Projects Of 2015" is informative; I don't see much that's amounted to anything in there. This is my big complaint about web3; so many projects launched, so few actual meaningful products. (The Pirate Bay and Prediction Markets being the two product categories I do think are meaningful, both in the "avoid government regulation" family.) I do see some solid use-cases for NFTs (I did some prototyping here in 2018 before NFT meant trading "bored ape" GIFs) around digitizing assets that are currently illiquid but which could be traded given a market -- but this is hard. (Houses are a great example of a bad idea that people sometimes think would work for NFTs, but I think there's possiblity around short-term commercial debt for example).
"Crypto Is Valuable Insurance Against Authoritarianism" I think this is the best ethical point to argue on, but I think that politically it's a weak one. No state is incentivised to allow "insurance against authoratarianism" when it also allows you to use the darknet and avoid taxes. If we look at TOR, it's boosted by the US State Department as a weapon against illiberal states, and opposed by just about every other branch of government (CSAM, drugs, etc). _Maybe_ there's a case here that given enough regulation of the on-/off-ramps of domestic usage, the US could come around to considering Crypto as a TOR for finance, weaponizing it to undercut regimes that dont share its values. I haven't thought too much about this.
"Yes, The Crypto Financial System Is Just Reinventing The Regular Financial System Except Worse In Every Way, And That’s Fine" -- recently I have been wondering if there is a more general principle here. Maybe it's a good idea to periodically give a localized exemption to a broad class of laws, and see if the results are dominated by A) the harms we would predict, or B) new value we couldn't predict. For example, I think there's a strong case that Uber/Lyft (in some jurisdictions) demonstrated that taxi medalions were drastically harming consumers, and should be abolished. But we'd have never found that out without someone ignoring the rules and running the experiment.
Similarly, I think the crypto fiascos are very strong evidence that all of the financial regulation we have is actually doing good work, complex and painful though it might be. Without the SEC but with the modern internet, we would have a hellscape of boiler-room scams and ponzi, and everybody would be losing their shirt, instead of collecting a cool 10% per-annum for decades on end.
Without the A/B test though, it can be hard to be sure! The big challenge is getting a meaningful test, without also harming innocent bystanders.
My understanding of short-term debt is limited to using it for payroll, and that sounds like a *disastrous* thing to tie to an NFT to trade.
I'm not proposing that you get paid in NFTs.
Companies wouldn't be trading the NFT, though, they would be trading a representation of the debt used to fulfill payroll. And, I've come full circle back to "this is more onerous than what we currently do" and I've gone cross-eyed.
Can somebody give me the Simpleton's Guide to NFT, because I've tried to understand it and keep bouncing off since it seems absolutely stupid? Granted, that may be because of the art trading stuff, if there is a reasonable/sane reason for this thing, explain it to me!
TLDR: an NFT represents a digitized, tradable ownership stake in some unique asset.
Fungibility means "instances are not unique" or "thing can be exchanged for another thing of the type". So dollar bills are fungible, because it doesn't matter which dollar you have. In modern markets, commodities are fungible too; a bushel of wheat or barrel of oil are fungible, (eliding some details about grades/types of the commodity) and this enables futures trading.
A non-fungible asset would be a unique asset like a house, or a used car. You can't simply trade one for another without knowing anything more about the asset, they have unique characteristics that determine their value. You care which one you own. You can also think of this as the asset having a persistent identity.
In crypto, a normal token is like a dollar; they don't have identites. (In Ethereum, you "create a token" by publishing a smart contract that conforms to a standardized structure called ERC20, and which keeps track of the token balance for each Ethereum wallet). The system does not keep track of which token is which; like dollars in a digital bank account, or water in a tank (ignoring atoms). You could create a FavorToken and use it to track favors between friends; but this wouldn't record the specific favor that was done, just who has accumulated more or less favors. You couldn't use a fungible token to represent ownership of a car or house, nor a personal loan for $1000, nor a mortgage.
There is another type of smart contract in Ethereum that does keep track of individual asset identites. It's called ERC721. The smart contract defines a broad type of thing, and each token has a unique ID that identifies instances of that thing. So if your asset is "non-fungible", i.e. has an identity, then you can create one non-fungible token per asset.
So you could mint a HouseToken that keeps track of which wallet owns a particular house. Or CarToken that tracks who owns a particular car. Now your asset has been digitized, and you can transfer ownership of that non-fungible token as part of a transaction (say, I give you 1 ETH, you give me your Car-token).
You can attach other data to the NFT too. For example, cryptokitties added some unique data for a "genome", and then some off-chain logic to render that unique genome into a cute image. So each cryptokittie is unique, and can be bought and sold.
Other recent examples of NFTs are IMO dumb; "owning" a GIF or image is stupid because these things are digital and can be trivially copied, and there are very few places where your notional ownership is recognized. (Maybe there will be more in the future). But the optimistic case for NFTs is that as more and more things are digitized, the human desire to own a scarce object will cause us to create digital entities that are artificially scarce, therefore expensive, therefore high-status.
As well as using NFTs to artificially scarcify digital resources, it's possible in principle to use a digital token to represent common-law ownership of a real physical asset. You can write a contract that does this, at least in the US. But there are some clear problems with this for things like a house; if my wallet gets hacked and someone steals my house-token, does that mean the hacker owns my house now? The courts probably wouldn't see it that way. This is an area that is under active research.
Thanks, that's a lot clearer than "These nine hundred people all 'own' this artwork because they bought NFTs, even though it can be copied by any idiot with graphics editing software".
Agree with most of what you said, except that: No, Sillicon Valley Cannot Be Less Than Infinitely Hostile To Crypto.
And the reason is sanity. They can't change their minds on it now, very few people are that strong.
Can you imagine being aware about bitcoin and crypto since close to the beginning, on top of the tech news, understanding the technology, at least at a high level, and deciding to pass? Then watching the number go up year after year after year? Madness. It HAS to be a scam.
And this is not just about missing out on any generic investment opportunities, there are always lots of those that don't drive people crazy, because it's not "their area". They aren't "supposed" to know about it. But with Bitcoin they were indeed supposed to get it. But they didn't :(
For bonus points, can you imagine being very knowledgeable about technology *AND* about finance, and not getting into crypto? Would you become the biggest crypto-hater in the world? It makes me sad every time I see his posts.
Scott probably already knows this, but attributing the "space pen" to the space program is basically apocryphal. Quoting wikipedia:
>The claim that NASA spent millions on the Space Pen is incorrect, as the Fisher pen was developed using private capital, not government funding. The development of the thixotropic ink cost Paul Fisher around $1 million (equivalent to $8.6 million in 2021) [...] NASA never approached Paul Fisher to develop a pen, nor did Fisher receive any government funding for the pen's development. Fisher invented it independently and then, in 1965, asked NASA to try it. After extensive testing, NASA decided to use the pens in future Apollo missions. Subsequently, in 1967 it was reported that NASA purchased approximately 400 pens for $2.95 apiece (equivalent to $24 each in 2021).
https://en.wikipedia.org/wiki/Space_Pen
I think if you are making a space pen, you are part of the space program. I agree it was not made using public money. My only point was that people are spending lots of money to make space versions of things we can do on Earth, which it seems like Fisher did.
Fair enough, especially because the only non-space-program motivation Fisher could have had is that "yeah but it works *in space*" was excellent marketing, which kind of follows the exact point you made in the following paragraph.
Great article, I largely agree with you.
One point you don't touch on is that unfortunately Governments, regulators, financial institutions etc. do have tremendous recourse in cutting off crypto, just like they do normal banks. It's a public ledger, so all transactions are visible, and governments could, if they wanted to, Blacklist crypto wallets. Unlike physical currency you fundamentally need an offramp in order to spend crypto on most things, and if your wallet is marked as unspendable evil terrorist money that it is a felony to take money from, it's permanently useless as nobody will ever accept it for cash.
See below an example action taken against the IRGC - I am not a fan of the IRGc but it could be done to anybody.
https://beincrypto.com/treasury-department-blacklists-more-bitcoin-wallets/
I don't know much about crypto, which I find difficult to understand well, and--surprise!--that makes me wish it would go away (so I won't feel so left out). My technical understanding is no better now, but this post has made me more aware of how my underlying biases have limited my judgment, and I appreciate the argument.
kudos to you. No seriously, very few people in these comments have been able to consider that both "crypto is useful to some people sometimes" and "cryptos is useless to me" can be true
I, on the other hand, understand the technical parts very well, which is why I'm so skeptical of them.
I also like to think I understand the technical aspects well, but I don't know of any major technical concerns that are unlikely to have solutions. Are you concerned about scaling?
IMO, the legal/political/social aspects are far more concerning for long term crypto adoption.
The problems aren't technical (at least not in a world where people are wiling to hardfork the code to make improvements or switch to a different coin). The problem is that what it is trying to do is fundamentally a bad idea.
1. The basic problem Bitcoin is trying to solve is dispute resolution. In the real world, we resolve disputes using reputation mechanisms, the legal system, etc. But online criminals can't avail themselves of the legal system, and would like something better.
2. Satoshi's only true innovation was coming up with a system for dispute resolution via Competitive Coal Burning and then setting up a system where users would indirectly pay for said coal burning via transaction fees and mining reward-induced inflation.
3. The cost of "mining" isn't a bug. It is a feature. Really, it is **the** feature of Bitcoin. Any change to the system which reduces the mining overhead means that the amount of money required to hijack the dispute resolution system is also lower, making it less secure. Alternatively, you could move to a centralized or de-facto centralized system as some cryptocurrencies have done, but then you lose the entire reason-d-etre of bitcoin (see #1).
4) Therefore, use of cryptocurrencies is *inherently* costly. This isn't a problem that can be designed away with fancy technology. The *purpose* of the system is to be as wasteful as possible, with users paying for that waste. However, all users get charged, regardless of whether they care about 1) or not.
5) This means that for users that do *not* care about dispute resolution via Competitive Coal Burning and would rather resort to the legal system they know and trust, bitcoin will never be cost competitive with centralized systems, because of the coal burning tax.
6) This means that to the extent cryptocurrencies are used at all, they will tend to only be used by criminals and other undesirables because anyone who can use the normal system will (as it is much cheaper). This in turn means that the system will tend to be politically easy to ban, since there is little legitimate usage. (So far, this has only partially come true because a series of speculative bubbles have led ordinary people to throw money into it for no good reason. But the government *has* done its best to regulate the space and less scrupulous countries do ban it entirely.)
Note that none of this is a technology problem. It is a *goal* problem, and thus applies to *any possible bitcoin-like system*, no matter how clever.
This is a fundamental problem that is rarely spoken about in bitcoin circles, and when you bring it up in places like stackexchange and reddit, you just get downvoted out of the conversation without anyone ever actually addressing the issue.
Ultimately bitcoin's security can be at best *equal* to the energy spent, as Level 50 says. This cost is currently being paid almost entirely by the block reward, but this can not go on forever because of bitcoin's "halving" rule which is touted as a critical feature by those who do not understand the implications. If you look into the future as the block rewards go to zero, this means that all of the mining must be paid for by transaction fees, which means that the fees must be higher than the value of the transactions you could reverse in the mined blocks. This gets complicated, but if you are interested here is a recent NEBR paper that goes into some detail...
https://www.nber.org/papers/w24717
Again, this is very complicated and it is very hard to have rational discussions about this in the normal places so I am happy to go as deep as anyone wants to into the details.
Also note that this is not my fundamental objection to bitcoin - just a technical one. I will start another thread for that one! :)
What about PoS based systems, which I take it aren't bitcoin-like?
They are no longer "trustless". Without PoW, there's nothing stopping people from forging arbitrarily long chains. I'd say it falls under the "become centralized" option.
For Bitcoin POW systems I mostly agree with everything you've said up to your point 4 and 5, where I think you suggest cryptocurrencies are inherently more expensive than other payment networks or dispute resolution methods. The legal system can be extremely expensive (the "lawyer" tax) and it seems plausible there are some agreements that can be done more cheaply via blockchain based payments or smart contracts. Is the "lawyer tax" always less than the "coal burning tax"? I doubt this is true for all applications, and definitely not obviously true to me.
Additionally, not all financial transactions are the same, and the cost, speed, and availability vary widely, especially for international transactions. This is a big part of what Scott's post is about: there are currently competitive use cases for cryptocurrencies right now, and they're finding use despite the huge host of problems with the networks. I don't disagree with your skepticism (and there are some nonsense ideas like BTC will entirely replace other currencies) but when there are examples of legitimate use that don't have great alternatives it's hard for me to accept the claim that the only large use case will be for illicit purposes.
As a last thought, I don't think you can just dismiss POS as "centralized" and so equivalent to other centralized services. POS systems probably are more centralized than POS, but "centralization" is not really a binary property. Compare Ethereum vs. Visa (or Western Union or something). Ethereum uses a POS system but it's more decentralized by any useful measure, and can again be a plausible choice if a given centralized service doesn't offer the exact service you want or give you the guarantees you need.
What legitimate use cases? Coiners talk about them all the time, but they never seem to materialize in practice. If crypto is really so good, why does noone even use it in El Salvador?
I'm also not so sure about Ethereum being more decentralized. But I guess the hard part would be coming up with an objective way to measure centralization in the first place.
Brief thoughts from someone (me) who runs a magazine trying to be the 'Wired of web3', called Culture3 (http://culture3.xyz/)
Tether is definitely not 1:1 backed by high-quality liquid assets like, e.g. Circle's is.
But I don't get excited by the argument of 'crypto is a use case, only for developing economies like Vietnam, so I wanted to share a couple more use cases
- NFT ticketing is used by UEFA (eg for the Euro 2020 (2021) football tournament, by singers like Lewis Capaldi, and by Ticketmaster, who have made 5 million NFT tickets so far: culture3.xyz/posts/nft-ticketing
- Decentralised data storage is a data storage solution that will outlast AWS. I admit that today it is expensive (less than 1 terabyte is stored on Ethereum), but it is used today, and the cost is only going down: culture3.xyz/posts/decentralised-storage
- Arpeggi is a company fixing a major problem when it comes to music sampling, which has become problematically concentrated industry: culture3.xyz/posts/arpeggi
- Dequency is a company disrupting the $3bn sync licensing industry, where it takes 9 months minimum for royalty payments to be received: culture3.xyz/posts/dequency
- Golden is basically niche wikipedia, and it is better because, well, imagine if you had an easy way to a) compensate and b) coordinate people documenting research about ivermectin, at scale: culture3.xyz/posts/golden
- Less tangibly, within 15 years, most property deeds will be on blockchains. In the UK, Mishcon de Reya ran a blockchain prototype which reduced the time it takes to transfer a house on the UK land registry from 22 weeks down to 10 minutes. In the real world, American cities are using blockchain companies to manage their land registries: culture3.xyz/posts/nft-real-estate-okada-propy
Fundamentally, these blockchain use cases come down to one thing, in my view: when data should be shared between parties, like real estate, music sampling, any form of licensing, or anything else.... then there is usually an unambiguous use case for blockchain
Separately, and more ambiguously, I think web3 is well-positioned with many cultural trends, that I won't go into (unless requested). There's already enough above for me to be slated for!
You say you're not interested in crypto use in Vietnam, and I'm the opposite. I'd really like to read about crypto use in Vietnam, or any other country where there's interesting usage. (It might also be a hook to write about non-crypto cultural stuff happening in another country.)
I did read a good article about crypto use in Argentina: https://www.freethink.com/hard-tech/crypto-argentina-black-market-cash
I wouldn't (and didn't!) say 'not interested'*. I just think there are better ways to convince people who don't live in (eg) Vietnam that crypto is useful
*We have an article coming out soon about basically this thing in the context of Latin America; I get what you're saying
NFT tickets don't actually work in practice.
https://medium.com/@0x84003239/ethcc-stole-our-200-tickets-bf0904b9354a
https://rekt.news/ethcc-detychey-vs-touts/
That Medium link sounds less like "they stole our tickets" and more like "we tried a dodge in order to make profit, it failed".
"This gave us the idea for a simple way to make the non-transferable NFTs transferable and, on March 23rd, we successfully bought 200 tickets with the plan to sell the surplus tickets for profit (and hoped our purchase would push EthCC to use a better mechanism design next time).
With their pride hurt, EthCC decided to do what we honestly thought was unthinkable for a crypto-native organization. They went against the on-chain sale mechanism they designed and unilaterally invalidated our tickets:"
If you don't follow what is on the blockchain, then putting things on the blockchain is completely pointless.
I feel you are using a bit of a straw man. My argument is not that there are no bad examples of NFT tickets. My argument is that there are multiple really good examples.
What would a "really good example" look like? Are there *any* cases where people did things with the tickets that the organizers didn't like and/or got hacked, etc., and the organizers decided to follow the blockchain anyway?
Right now, I see multiple examples where the organizers ignored the blockchain and none where it mattered, so it seems pretty clear that in practice, the blockchain is just a marketing gimmick and doesn't actually serve any purpose.
"NFT ticketing is used by UEFA"
That is not necessarily a recommendation:
https://www.theguardian.com/football/2022/sep/22/i-had-to-leave-concerns-raised-over-state-of-uefa-amid-cronyism-claims
I take your point about the signal - appreciated - but this article says nought about the NFT tickets, and I think the signal of UEFA using them is still very strong overall. Also worth noting that my argument is that NFT tickets better than other ticketing mechanisms, not that NFT tickets will solve governance problems.
(Many crypto folks would say that crypto can solve those problems! decentralisation; onchain. But this obviously relies on very many assumptions that are highly contestable.)
An interesting essay from one of the best writers out there. Unfortunately, it's not much more than a magnificent sleight of hand. This essay makes five interesting points which all fail in very interesting ways. I'll pick them out one by one.
I suppose this is the first decent defence of crypto I've read in a while because it simply bites the bullet. It admits all of crypto's flaws straight up and argues not that they are going away (first old trick) or that they are not really flaws (second old trick) but that they are worth accepting in light of crypto's benefits. This is an unacceptable bargain but I'll come to that later.
First off, this essay attacks a very naive view of crypto: it's all a scam. It needs to do this to succeed. But this is not what sophisticated critics of the crypto industry think. This is the filtered version by people who can't grasp nuance. What crypto critics really assert is the crypto industry is fundamentally unnecessary and everything it has come up with is a version of unnecessary: smart contracts and nfts aren't necessarily fraudulent. They just have no actual utility compared to viable alternatives.
Second, the main argument is that crypto is some sort of hedge against authoritarian governments by allowing common people a degree of financial latitude. This is wrong on two counts: the first is that the fact that people in broken financial systems resort to crypto tell us very little about crypto's utility. In the seventies, the Irish used pubs instead of banks and wrote their debts on tissue paper. Venezuelans began to employ jewelry and gold as media of exchange. People have found different solutions throughout human history. Crypto is merely the latest and not a particularly good one.
Second, we have direct evidence, beyond philosophical theoretizing, of a country that went fully on crypto. El Salvador adopted Bitcoin as its official currency last year. The country is now not only at risk of default and in serious financial crisis, Bukele is also more authoritarian. He has used the crypto transition to centralize power and crack down on dissent. There's no reason to think of crypto and authoritarianism as natural antagonists. They are,in fact, well suited for each other. A permanent, public, pseudonymous database which is constantly updated is a dictator's wet dream.
Also, economics is always political. Someone is always in charge. There are no power vacuums. If you surrender your financial sovereignty to crypto, you surrender it to people, hackers, whales, shadow banks, and institutions that have no legal or political responsibilities to give a damn about you. At least a central bank and a government have notional duties to do that on paper.
Third, comparing the crypto industry to space is extremely disingenuous. I'm not a big fan of the space industry: a lot of it in my opinion is people trying to execute crappy science fiction stories in real life. But to dismiss it all as a sort of more expensive, less efficient simulacra of planet earth is to do a great disservice. Because of the space industry,we have gps, we have transformations in the communications industry, we have geostationary satellites. And those are just direct innovations. There are also indirect innovations like treadmills and scratch resistant glasses and better insulation, among many others, that were downstream of NASA fundamental research. Put more obviously, there are things we should be thankful for in the modern world that happened because of the space industry before and without which we had no alternatives. What's the same for crypto. What's the GPS level equivalent for that industry. In thirteen years, what can we point to tangibly and say this happened because of crypto and changed millions of lives forever. Everyone who hasn't pulled the wool so far up over their eyes knows the answer to that question.
Finally, the argument that there's just a small sliver of crypto that's rotten and this is comparable to everything else is a very very generous interpretation. It is Bill Gates foundation level generous. Everything in crypto, strictly defined, is criminal activity of some form or the other. Ethereum and Ripple are unregistered securities. Every major exchange is insider trading and wash trading. Every stablecoin is guilty of legal misrepresentation. And these are the ones that are not engaging in outright fraud a la FTX.
Is our financial system perfect? Nope. Is it great? Nope. But is it infinitely better than crypto? Absolutely. Will that change? I'd put money on Xi Jinping becoming president of the USA before I put money on that. And for all the extreme libertarians out there, there's cash and there's gold. They don't come with possible surveillance. And they are LINDY. Also, be a normal person. It seems to work for some reason.
Many people in these comments have made the claim that crypto is mostly scams so I don't think that is a straw man argument. It just isn't the argument that you are making. If I were The Venezuelan I'm sure that I would have found it very valuable to be able to transact in gold. Not as good as some other option (that isn't available) doesn't mean something has 0 value
Vietnam: Has China-like capital controls but has not yet banned crypto. 'Nuff said.
Crypto projects: several other ways of looking at it. The same dynamic exists for pyramid schemes, for example, or successful multi-level marketing schemes. Past performance is not a predictor of future performance.
Ukraine: also a center of cyber crime, including ransomware - which is itself a major cryptocurrency use case.
India/Pakistan: both have capital controls. Hmm - likely your index is describing capital controls resulting in "cryptocurrency adoption". Or a recap of China/South Korea from 2015...
This is the first very good article you've posted in a long while, very happy you knocked it out of the park here.
Small nit though, much of the 'decentralized' aspects of crypto are essentially meaningless because people do things like e.g. letting the exchange own their wallet so they don't have to deal with the hassle of owning their own keys, even though that defeats the entire point of cryptocurrency. The most infamous example of this is NFTs just being URLs to JPGs hosted on some random server somewhere, most often an AWS instance, which detractors of crypto like to point out ad nauseam.
Yeah, I think of this as "the decentralization technology is ready and available when people need it, which is great, but so far at least in developed countries they don't"
Do your return calculations take into account costs such as transaction costs, holding costs, theft and loss ? Or do they, nonsensically or dishonestly, assume those are all 0 ?
The cost of a Ledger hardware wallet is ~$150, but doesn't scale with the amount of crypto you put on it.
How many exchanges/holding outfits have disppeared, taking their clients' money with them ? That's not reflected in prices, and you've got to account for that. That's a kind of theft/loss. There are other that must be accounted for too.
You're making the same mistake as people who estimate the cost of their iPhone to be purchase price - resale price. There's also the cost of repairs, AppleCare...
You can count them on the fingers of a single hand, and like Scott points out, if you were prudent and weren't looking to juice extra yield out of your assets you would safely hold them on a hardware wallet with close to 0 risk aside from a straight up robbery
> if you were prudent and weren't looking to juice extra yield out of your assets
That's a problem, isn't it? In the centralized finance system, you don't need to "juice" extra yield because you have a full range of choice between interest-bearing savings accounts and equity investments.
In fully decentralized crypto, however, there's no way to earn (real-terms) yield. Yield comes from an interaction with the real world, and that interaction is a point of centralization and regulation. Once created, such yield can be transported (e.g. from a hedge fund to a decentralized-finance secured token-loan platform), but that only obscures the original source.
Cryptocurrencies seem to have real value as a medium of exchange, but that's just one of the functions of a currency. You don't want to store your assets in an ephemeral medium, just like in yesteryear it would have been silly to keep your life's savings in traveler's cheques.
_Revised & Expanded List of Things that Make Sense iff you Live in a Failed State_
* Male genital mutilation
* Cryptocurrency
MGM -- say more about why it makes sense? (I come from a developing country with a corrupt govt and prevalent MGM, but it still doesn't make sense to me)
Circumcision is helpful in preventing STD/STIs. It's particularly valuable in countries with low levels of condom use, sex-education, and health services and those where HIV is prevalent (those don't exactly correspond to failed states, but they're mostly developing countries like the ones Scott says benefit from cryptocurrencies).
Google "HIV and circumcision" (or just read the Wikipedia article on it) for more info.
>When something goes up in value 10,000x, it’s hard to think of it in any other context. Whatever it was before, now it’s “that thing which went up in value 10,000x”. And so both crypto believers and detractors have treated crypto primarily as a thing for going up in value
One minor caveat is that Bitcoin was *designed* to make number go up - the increasing difficulty of mining and the hard limit on the number of coins in existence means that it was deflationary from the start. And (speedrunning yet another bit of finance history) deflation means that people hold their money instead of using it.
Someone who's doing cryptocurrency development needs to invent an answer to "how do we algorithmically decide how big the money supply should be?" Or perhaps even more deeply, "how do we bootstrap a crypto project aside from giving a worthless token to people and promising Number Goes Up?"
"And (speedrunning yet another bit of finance history) deflation means that people hold their money instead of using it."
People buy TVs even though they decrease in price over time. People will spend a deflationary asset/currency, just with a lower time preference. Less immediate consumerism and more thoughtful long term thinking about how to carefully spend money seems like a good shift in mindset.
I didn't see anyone deal with the first graph yet, so if so, they probably got it better than me.
Saying that, I have no idea what that chart is pretending to show. Thanks Scott for the source link, and what follows is not about Scott's commentary, but the graph just confused me more than anything.
Countries are scored on a scale of 0 to 1. All right, that's not a problem, people do that all the time, but...
"Our methodology
The Global Crypto Adoption Index is made up of three metrics, which we’ll explain in detail below. We rank all 154 countries according to each of those three metrics, take the geometric mean of each country’s ranking in all three, and then normalize that final number on a scale of 0 to 1 to give every country a score that determines the overall rankings. The closer the country’s final score is to 1, the higher the rank."
Why is it a geometric mean of three ranks? Why normalize those ranks? Smarter people than me, feel free to let me know.
But my real problem, is they don't actually describe how they weight the data. It's PPP weighted (somehow), I get that, but then suddenly in the third rank its weighted by PPP and internet access. When I first read their methodology I was shocked India was so low. But that makes sense, Indian internet coverage is pretty high. But then looking at their top level results, 'all' of the variation comes from the third category:
Category 1: India - 2 Vietnam - 4
Category 2: India -3 Vietman - 2
Category 3: India - 72 Vietnam - 3
This is not a description of 'regular joes' using crypto as a replacement for banking. This is a description of a very wealthy few not having any other option how to get their money out. Let me know why I'm wrong.
When you discuss the one advantage of Crypto (decentrality), you have to understand that even this one advantage is guaranteed in the same way that regular cryptography is safe from attack through large semiprimes: It's not guaranteed, it's only very expensive. It's security by economics.
Proof of work crypto has a 51% attack scenario:
https://www.investopedia.com/terms/1/51-attack.asp
As long as one party controls more than 50% of the network's hash rate, they have potentially total control over future entries into the blockchain, which is essentially the key to the entire vault. Controlling >50% is indeed expensive for large networks like BTC so it has held firm, but it's much more feasible (and really happening) for any number of smaller networks, potentially leading to a higher-order of centralization of the big networks getting bigger because they're safe from attack. Also, since BTC is "the thing that went up 10,000x", everybody wanted in on it and bought tons of ASICs, whose price is highly correlated to the price of the coin it's supposed to mine. If and when BTC has gone back down 9,999x, reaches some kind of stable price point, and the Ponzi demographic has lost interest, all that mining hardware can be had for very cheap (you can already check ebay for listings), making such an attack much more attractive. Even today, the 3 largest pools already make up ~60% of the hash rate.
https://btc.com/stats/pool?pool_mode=day3
Proof of Stake can be discussed much more easily: The 51% attack is already baked into the design. If you own 51% of a proof of stake coin, you own the entire network.
So that's two levels of decentralization (distributed ledger and multitude of secure networks) secured not by mathematical proof, but by mere economics, which can drastically change on a whim.
The risk with someone having >50% of the hash rate in a Proof of Work coin is that they can hold blocks in reserve, and only transmit a longer chain when someone else manages to find a block, thus mining every block going forward. Proof of Stake coins don't necessarily have this same risk.
Cardano's Proof of Stake algorithm, for example, pre-determines which pools are allowed to mint blocks in which time slots, and it does that days ahead of time. Even if you controlled 51% of the ADA in existence, 49% of the blocks are still going to be mined by other pools.
It's also worth noting that having control of all blocks mined still won't let you violate the rules of the protocol. You couldn't just print yourself more Bitcoin, or steal Bitcoin from someone else's address. Your newfound power is basically just the ability to choose not to include certain transactions (effectively a type of financial censorship).
(If guess if you outright double the hashing power of everyone else on the network, you could potentially scam people by making a big transaction and then undoing it later through a blockchain re-org, but that's even harder and more expensive to pull off than the "simple" 51% attack)
> Your newfound power is basically just the ability to choose not to include certain transactions (effectively a type of financial censorship).
I.e. still the entire point that Scott makes in favor of crypto, not being reliant on a single actor to allow your financial transactions.
But still not allowing arbitrary inflation or confiscation, so the worst case for Proof of Work is still 2/3 better than status quo.
I don't think this changes my mind on crypto, but I am mulling it over. Right now, it feels akin to living in a world where I was almost bitten by a snake, I know people who have almost been bitten by snakes, know a few that *have* been bitten by snakes, one of whom died, and many of the people that I know know of someone who knows someone that brings a snake around with them that keeps biting people. It's usually the same dingus doing it, and nobody talks to them because of it.
These are very interesting snake facts. They fit an important ecological niche, which is generally in places that I am not. That has value, and provides a net benefit to the environment. But, I still don't like snakes.
Scott, you know if you lease out your newsletter to a crypto booster, you're supposed to tell us, right? Blink twice if you're being held against your will. More generally, I agree with most of the points, but the opening strawman joke is (slightly) funny because the anti-crypto position is mostly a strawman.
Speaking for myself, I'm only 80-95% anti-crypto. Remittances and working around failed states is valuable, but I question whether you really need crypto for that. Look at Wave in Africa for a great example of a non-crypto fintech for underserved populations. Most of the other use cases seem like BS. There are actually tons of scammers attached to crypto (this running list is great: https://twitter.com/web3isgreat), and I don't think citing scammers elsewhere is much of a defense.
"It used to be 100X worse" isn't very convincing either. The web worked well pretty much immediately, even if only to put up text and blinky tags. We've been waiting what, 12 years since Bitcoin and 7 years since Ethereum launched? When is something compelling supposed to come along?
I'll be interested to see if this all changes over time. Maybe at some point the next generation of crypto or some future version of Ethereum is awesome. But I'm not holding my breath, and I think at this point crypto is a big money sink and a distraction from innovation that creates real value.
Bitcoin's two strongest features are avoiding monetary debasement and protection from payment censorship. You covered the Paypal example for the latter, but I'm not sure you gave enough credit for the former in this post.
I'm not impressed with this so far. We've had the worst inflation in decades and Bitcoin has still lost orders of magnitude more than the dollar. I agree it's a potential hedge against the US experiencing hyperinflation, but I think this is very unlikely and am not too interested in hedging it.
"Bitcoin has still lost orders of magnitude more than the dollar."
Over what period of time?
Ten years ago, two pizzas sold for 50,000 Bitcoins.
Today, one Bitcoin could buy 1700 pizzas at Papa John's sale prices, say ten bucks a pop.
How has the dollar price of pizza changed over that period of time?
"We've had the worst inflation in decades" -- that would be since ~April 2021.
And as Scott points out in the article (and plenty of others point out in the comments), the fact that Bitcoin has gone up 100000000x is a point _against_ it. That's not how a useable currency behaves.
I didn't say it was a GOOD thing that Bitcoin has gone way up rather than "lost orders of magnitude more than the dollar" over that period. I just pointed out that it's the former rather than the latter.
Defining the period matters. The dollar has lost half its purchasing power since 1992, and 97% of its purchasing power since the Federal Reserve was founded in 1913. That kind of stat is often used as an argument against the utility of fiat currency. Shorten the period and use a period of low inflation and that argument becomes less persuasive.
I agree that Bitcoin gaining so much so quickly specifically and trading at such volatile pricing in general is a bad thing for those of us who are interested in cryptocurrency as a stable store of value/unit of account, and reliable medium of exchange, rather than for buy low, sell high speculation.
Scott was clearly referring to the period of the last 16 months.
Losing half of your value over the course of decades is not detrimental for a currency. If I know what a sandwich cost in X and don't have to update more than once a year (ideally not more than 10%), then X is doing an okay job of being a currency.
Right now, the US dollar is doing the worst it has done by that measure in 40 years. And yet, it is still doing better than bitcoin has at almost any point in its history.
Going back to the broader point, yes, debasement is real. But most of us don't live for more than 2-3 30-year periods, and there's very little reason to think that Bitcoin will hold its value over long periods. If you don't want your savings to lose value, invest them in something productive.
Slow, controlled inflation is a *feature* in "fiat currency", not a bug. And I say this in the most serious, un-cynical way possible. Deflation is terrible for actually-existing economies, for everyone except the few who are sitting comfortably on a pile of F-U money.
Purchasing power increasing over time is good for economies. It's better when goods and products get cheaper over time rather than more expensive over time.
“Freedom of speech is hollow if you can’t pay the print costs for your magazine. Freedom of religion is hollow if you can’t pay the rent on your church. The freedom to protest is hollow if you can’t pay bus fare to the protest site.”
In which Scott nearly realizes why civil liberties are better safeguarded under socialism than capitalism.
Wouldn't a socialist government *own* the printing press, church, and bus?
Yes it would, and it did. That's why "samizdat" (decentralized publishing) existed.
I don't think it's contradictory to say both that the government should not be able to prevent you from building a church, and that the government should not be forced to buy you a church with taxpayer money. I agree that if the government does not give you money to do things, you may exercise your rights less than you would otherwise. I take both positive and negative rights seriously but think that in the process of balancing them it's fair to treat the negative rights as more compelling sometimes.
It's important to distinguish between "rights" - positive things that every person in the society is supposed to have and "priviledges" - positive things that only some people in society have.
If we say that being able to publishing a media outlet is part of our RIGHT to freedom of speech than everybody who can't, lack this right. And freedom of transaction doesn't solve this issue unless everybody is wealthy enough or is guarantied to be subsidied by the goverment.
What freedom of transaction is required for in our society is to preserve the PRIVILEDGE to the freedom of speech that more wealthy have over less wealthy. And this does not have to be a bad thing! But it is much less heroic and virtuous sounding.
Then again, to continue the point that the (banned ?) user was making, how hard is it for an adversarial entity (not necessarily the gov) in your examples to kick it one step back ?
They won't prevent you from paying the printing costs of your magazine, they will make it hard for you to earn them in the first place, they will pay better writers and buy more popular magazines that can justify your oppression in more luxurious words that you can't even begin to understand. They will pay a more competitive rent for your church so the landlord evicts you, they will buy all the buses available at the time of the protests and fill them with their cheerleading goons. None of those are illegal activities. None are prevented by cryptocurrencies.
Pitching socialism as a solution is very misguided in my opinion and an easy trap that a lot of anti-capitalists fall into, but if you charitably substitute socialism with just "not capitalism", and essentialize capitalism to "A system that allows and encourages unlimited and unchecked wealth growth", you can't escape the conclusion that you don't *need* a government to oppress someone under capitalism. Capitalism is so democratic, even oppression is no longer the exclusive privilege of the government. Capitalism hates monopolies so much, even the monopoly on violence is not spared its reach. And the redistributed capabilities for violence and oppression are not equally spread across a population, but extremly narrowingly. So that, in effect, you have a mini-government next to the actual government, in the form of rich people, using money and the huge influence associated with it as its executive branch.
Understanding Capitalism as a feedback loop where money leads to more money (as long as they are invested with enough savvy), and keeping in mind that money is a reification of power and physical influence in human societies, then your argument leads us that any society where not every group has the always-gauranteed ability to feed, protect, reproduce and transport itself, is in the exact same trap you're describing. Inequality is the root of all authoritarianism.
Freedom of religion is not about paying rent on a church, you can always have your services in your own home. Freedom of religion is the government or some other body not being able to tell you "you can't go to your services in the building you own".
Now, in some cases (like Covid) maybe the government or some other body can *ask* that you don't go to services, but if you get "you can't go to services because singing hymns means you might spread Covid" but then "of course you can go protest unmasked in crowds in public because racism is a bigger threat to your health", then that is not freedom of religion.
At least Catholicism has worked out discipline about assisting at Mass remotely, but I did think it was hard on denominations that wanted/needed to go to church on Sunday and were told "No, public gatherings are a health risk" (and then turned on the TV news and saw streets packed full of protesters who were not being told "No, public gatherings are a health risk").
https://www.dioceseofcleveland.org/news/2020/04/04/participating-in-mass-from-home-during-the-coronavirus-quarantine
I think you are ignoring the real world performance of money market funds. It was news when primary reserve fund broke the buck and returned .98 on the dollar.
The other thing to note is banks do two different things: maturity transformation and facilitating transactions. Crypto doesn't really do maturity transformation. Furthermore use in transactions is at odds with being a good investment and capacity is very limited.
The problem isn't that there are some interesting and good use cases for crypto. There definitely are, as you highlight! The problem is that it appears a big reason why people use crypto isn't to actually "use" it but instead to treat it as a growing asset. And when that's the reason why most people are putting money into an asset, we normally call that a bubble.
Think about all the legitimate reasons to buy tulips, and how difficult it can be to use tulips for those reasons when there is a tulip bubble. That's crypto. The legitimate uses are actually harmed by the speculation, and there is an awful lot of speculation. You helped your Russian friends buy plane tickets, and that's great! Except had you done that when Bitcoin was crashing because of the speculators leaving, well, that might've been an additional headache.
I guess what I'm saying is, your second point about how much money you could've made really, really undermines your other two points, and is also not a good reason for supporting crypto (even if it does prove your point they're mostly not "scams" in the traditional sense).
This is a fair point. But, you can use these blockchains to send stablecoins just as easily as the volatile assets, so you can opt out of the speculation entirely if you want.
And to preempt a few obvious counters:
1. There do exist decentralized, censorship resistant stablecoins (see DAI, LUSD, etc), so you really can retain those properties.
2. There are (or at least could be) stablecoins for essentially any asset. In fact, there are stablecoins that aren't "pegged" to any other asset at all - some would consider these the only "true" stablecoins. See RAI for an example.
For Americans wondering what it's like having your currency collapse and needing to use crypto, I recommend Robert Kroese's Mammon trilogy (also has asteroid impacts and other disasters).
I think calling cryptocurrencies "decentralized" is inaccurate[1] to a sufficient extent that it papers over the major weakness. It's not like what gold bugs say about gold, in that you've got inherent value in your pocket that doesn't depend on *anybody* else -- no bank, no other individual, no communication network. Cryptocurrencies only work so long as you have sufficiently wide and fast Internet communication that you and the person on the other side of the transaction are in reasonable contact with the blockchain. If you *don't* have that kind of Internet connection, or your connection is compromised (e.g. under goverment control), then your cryptocurrency is useless.
This isn't going to be a problem if you're in a small country with a weak government and much of the Internet infrastructure is controlled by benign or at least neutral governments outside your own, so that can work in Venezuela or small African countries, even Ukraine or Russia. But I'm dubious that this would work if China or the US went full-on fascist and decided to stamp it out. The Internet unfortunately has a delicate fixed physical infrastructure[2] that is trivially easy for the government to control, if it really wants to[3], and it could hardly fail to really want to if cryptocurrency were threatening its grip on political power.
That doesn't take away from your point that cryptocurrency has reasonable somewhat niche use cases, e.g. for small countries with weak governments and disastrous economies, or for uses (like prostitution or gray market drugs) that are more the subject of modest social disapprobation than outright criminalization and zealous prosecution[4]). But extrapolating from there to the notion that if Hitler is cloned and wins the 2024 US Presidential election and decides to nationalize the entire US economy and set up Konzentrationsläger for Untermenschen that you'll be able to laugh it off if you have $100,000 in crypto in a cold wallet is...naive, I suggest. Clone Hitler will not forget to have his new Brownshirts take over the Internet backbone servers before putting Congress under house arrest.
--------------
[1] "Distributed" is more accurate, because it emphasizes the lack of a central authority *but* the crucial requirement of relatively unrestricted communication between the participants.
[2] It doesn't actually have to be that way, IP was originally *designed* to work well with a highly distributed network, but in practice too much of the Internet has become centralized for the sake of efficiency, e.g. Wikipedia lists a mere 15 Tier 1 networks worldwide, and only 6 within the US (AT&T, GTT, Lumen, T-Mobile, Verizon, and Zayo). Anybody think Verizon or AT&T are out of reach by Clone Hitler if he wants them to do anything in particular with respect to the packets traversing their network? It's an old standard of computer security that if the black hats have physical possession of the computer, nothing on it or which passes through it is secure.
[3] Although you could always hope to enlist the amateur radio community to provide TCP/IP over radio. I'd be happy to participate myself -- for a nice cut of your crypto transaction heh.
[4] What happened to Ross Ulbricht is an illustration of how much protection clever Internet technologies give you when the government *really* wants to nail you. He was 100% confident that using Tor and BTC made him untraceable. Oh, and in case any NSA spooks are reading, I totally did not imply that Tor could be broken, nope nosirree bob. Safe as houses.
Scott!
> Venezuela’s economy has been in slow motion collapse for the past decade. The average inflation rate during the late 2010s was 53,798,500%
I believe this is wrong, that's the consumer price index, not the inflation rate (https://tradingeconomics.com/venezuela/inflation-cpi). Won't claim to really know what a CPI is but they seem to be much bigger numbers, so I think you made a mistake here
I'll correct it, but I'm still interested in knowing more about the difference between CPI and inflation.
My dumbass understanding from reading the wikipedia page is that a CPI is computed on some basket of goods in a base year via some method (method left vague because the methods seem to vary based on which particular index, and also still escape me), and then the ratio of the price of that basket in some future year to the price in the base year, times 100, is the CPI. So that's why the numbers are higher, inflation is year-over-year while CPI adds up as you get further from the base year, and also it's just times 100.
Inflation is an increase in money supply relative to goods and services available for purchase.
CPI is an aggregate of price differentials on particular products.
"Price inflation" as reflected in CPI can tell you that inflation is happening, but it's not really inflation, it's a proxy measurement for inflation.
The CPI is a *level*, while the inflation is the change in CPI over time, and is a rate.
Venezuela's CPI is indexed so as to be 100 at December 2007. It's current value of like 5 trillion reflects total inflation since that time point.
The number 53,798,500% comes from wikipedia it seems, and reflects the inflation between 2016 and mid 2019 (it's an awkward range because wikipedia is citing some random news article from mid 2019); that is around 3 years, not 1 year. You need to take the cube root to get a rough annualized inflation number. So if prices increased 537985x in that time span, each year they increased around 80x, or 8,000%, as a rough ballpark. Current annual inflation is somewhat lower than that (early 2019 was the worst and actually briefly exceeded 300,000%).
1.) how much crypto do you own?
2.) crypto is x% hype and the hype is all negative now.
I think use cases are extremely niche though.
As for poor countries, something like Mpesa seems to work better than Crypto at bringing finance to the poor.
I think the only real major use case in the future are going to be getting around copyright protections. As that will become more and more disfunctional. Lifetime of the author + 70 years is way too long. And "similar works" are often way too dissimilar.
My guess is that creative industries will slowly become more decentralized as there will be more and more powerful tools available. And it will be increasingly harder to not be copyright trolled. So to get around it, you release your work and attach crypto adresses to it. Either in music or virtual worlds.
Convential economics claims that you need to force people to pay up, but I don't think that is true. Kickstarter has shown that people can be quite generous. We just don't like abusive greedy corporations treating us like financial pinata's.
I know some people who were involved in various "Mpesa for countries other than Kenya" startups. It seems to be really hard. I don't remember the details, but Kenya's government did a lot of things right to make Mpesa work, and most other countries did those things wrong and so their attempts to clone Mpesa failed. I don't have strong opinions about whether beating your head against the reasons Mpesa-for-other-countries fails is better or worse than beating your head against the various disadvantages of crypto, but I don't think Mpesa is *trivially* the right answer.
Scott, I would love to see those reports on how mobile money has failed outside of Kenya. Would you share links?
Question: What stops traditional international banks from thumbing their noses at the Vietnamese government and developing phone apps that would allow Vietnamese people to do the things they are currently using cryptocurrencies to do, but through a bank that is located outside their country?
Is it that the Vietnamese government has enough leverage against US banks that US banks are scared to do this? Is it that it would be less profitable for the banks than whatever the banks are currently spending their capital on instead? Is it just that it's too weird and banks are run by traditionalists?
(Genuine question, not rhetorical; I honestly do not know the answer.)
Exactly what I wanted to ask as well. Since most access crypto through an foreign exchange anyway, this seems like a strictly better idea, if legal. I hope Scott replies to this.
People use it to do finance in places with corrupt governments? That's supposed to be a *good* argument?
It sounds unlikeable character Pierce from Community saying, "Somalia has 1,900 miles of coastline, a government that knows its place and all the guns and wives you can afford to buy. Why haven't I heard of this paradise before?"
Just...
I realize I'm not contributing rational counter argument here.
But I'm too gobsmacked.
I still don't understand what point you're getting at.
If I understand correctly, his point is that depending on a person's character/values, if a person has access to crypto in a place with a corrupt government their response may be not "yay, I shall use crypto to heroically resist/subvert this corrupt government " but rather "yay, I shall use crypto to do all sorts of shady unethical sh*t and not get caught!"
I mean, he literally gave an example of how it's a good thing - he used it to send money to Russians who were trying to escape from Russia.
The problem is, that is probably not the typical reason people want to make clandestine payments to Russians. It seems at least possible that high percentage of the activity is funding bad things, so the mere fact that there's a lot of use doesn't tell us whether it's good on net.
> I’m less than infinitely hostile to crypto. This is becoming a pretty rare position
I don't think this is rare at all IRL.
On the internet, yes. Everyone is in 2 camps. A) Crypto is a scam B) Crypto is the best thing since hot water.
I'm an (ex FAANG) system engineer, I speak with developers, engineers, entrepreneurs and hackers all day. I have _never_ met a person IRL in my social and professional Silicon Valley circles that is in camp A or B.
Everyone I know is camp C: crypto has some promise, the current incarnation is a shit show, DeFi is a house of card, etc.
I think people in camp C have better things to do than fight holy wars in internet comment sections, so they're heavily under-represented.
Why would you help people avoid helping their country defend itself against an existential threat? Would you similarly help Americans not willing to invade a Mexico that was becoming a military and political proxy for communist China? A Mexico that was for good measure violating it's international agreements to not terrorize American communities in Mexico?
Ukraine is definitely not an existential threat to Russia. Russia has nuclear weapons, it's not under existential threat from any country no matter how powerful.
The only thing that can bring down a nuclear regime is its own stupidity. Such as, for example, attempting to launch a pointless, unpopular, underprepared invasion that the entire rest of the international community is warning them not to do.
You mean like Russian military presence in Cuba were not an existential threat to the US and yet scared the Americans so much it allmost precipitated nuclear Armageddon? Except that the USA hasn't already twice been invaded through Cuba?
That analogy might make some sense if the US had installed nuclear-tipped ballistic missiles in Ukraine prior to the most recent invasion, or at least started digging the silos for them. No US President rattled sabers over Soviet troops or influence in Cuba. It was the presence of nuclear weapons with delivery systems that was the problem.
It's a question if Scott readers from Russia consider country as theirs.
Also, you can make a case for helping those individuals, from both countries, who don't want to fight and want to leave, and let those who wish to fight, fight.
> A Mexico that was for good measure violating it's international agreements to not terrorize American communities in Mexico?
As I do not follow Russia Today, could you please unpack this analogy to me?
Did you mean things like this? https://en.wikipedia.org/wiki/Crucified_boy
It's interesting how some of the commentors comment on things like energy cost of cryptos and so on, as if they are negative. I, for once, find it a positive thing compared to a usual currency like dollar, ruble and so on. The point here is - the currency should have either a REAL mining cost or should be emitted by a known predictable set of rules. It is a good point where there is no organization or indivildual who can say "oh, let's just print a gajillion dollars, because we need them for fighting covid or whatever other weird cause".
I should note that my sample of "most people I know are in camp C" is heavily biased, because I speak about crypto mostly with _technical_ people.
Most people are non technical, and can't even be expected to understand the difference between cryptocurrency and blockchain. Or the more nuanced difference between Bitcoin (the software) Bitcoin (the internet currency) and Bitcoin (the phenomenon).
Setting aside the "is crypto a scam?" question for a second, I'd just like to say that if the NSA/CIA/"Deep State" is really doing some psyops behind the scenes, crypto seems like an obvious target. "Crypto is only used by terrorists and drug dealers", "Crypto is bad for the environment", "All crypto is a scam", etc. Or maybe it's not some extreme sinister psyop but just slight pressure from government institutions and media outlets. People with power don't like technologies like free speech, internet, guns, and crypto. They'd rather keep rolling with the existing power structures.
On the other hand, having loads of people with extra cash sink $billions into crypto only to have it all vanish in a puff of hall o' mirrors chicanery like the FTX implosion is a fabulous way to withdraw hot cash from the economy and dampen inflation. Much more palatable than raising taxes or interest rates.
Admitting that they missed out on the best financial opportunity of their life because they're not as smart as think they are? That would be both soul-crushing AND ego-deflating, both of which would make their lives worse.
It's much cheaper to just convince themselves "It's all scams!!!!!", and then try to convince everyone else too.
The only question is what mental gymnastics they would do if CC actually went 1st-world mainstream. My best guess is try to elect an anti-CC president to bring the CC-rich back down to their level. Crabs in a bucket.
> Conflict of interest notice / I am dumb alert: I do hold some cryptocurrency, mostly Ethereum, mostly because I received it a while ago as crypto, and want to wait until the end of the bear market before selling it.
This should be at the top of the article.
Definitely think conflict of interests being declared upfront should be declared more often up front, always bugged me reading scientific papers where the conflict statement is at the end.
> There are 8 Ivy League schools in the US, 400 high-quality research universities, and about 1,000 fraudulent diploma mills. Higher education is full of scams! If you’re a knowledgeable person following a normal educational track, you’ll probably be fine. If you click on spam emails that say “GET A PHD IN TWO WEEKS WITH THE UNIVERSITY OF PHEONIX” and wire them your life savings, you won’t be fine.
The University of Pheonix sure sounds like a scam.
A lot of people, though, treat the University of Phoenix the same way, and it isn't clear to me why. They seem to hold themselves out as a school where if you send them money, they will send you curricular materials. I don't see the problem.
A friend of mine at a respectable public university failed Operating Systems, a required class for her major, and made it up by taking University of Phoenix's operating systems class. This was considered acceptable to the administration.
Is the difference that taking a University of Phoenix class for state university credit gets you a diploma from State University, whereas taking the same class without matriculating at State University gets you a diploma from University of Phoenix? Where's the scam? State University has already admitted that University of Phoenix is just as good.
Thank you for this post. I would add that if crypto forces re-evaluation of some aspects of financial regulation, that would be a good thing. The public tends to support financial regulation in the abstract because of a vague sense that 2008 and other crises could have been prevented by "more regulation", but in reality the relevant macroprudential/soundness rules are a small portion of the overall regulatory burden. For example AML/KYC rules make it very risky for financial institutions to provide services to new/smaller companies. It was nearly impossible for our startup to open a bank account, and we only succeeded because I held a securities license (and was therefore considered low risk) from when I ran another firm. Back on crypto, the SEC is focused on picayune issues around what does/does not need to be registered as a security under the 1933 act. The reality of securities registration is that it primarily involves paying a law firm several hundred thousand dollars to produce a document that no one will ever read. So while requiring registration will certainly result in less crypto (because not everyone has that kind of money), it's far less clear how this will benefit the public, unless you are starting out from the assumption that crypto is bad and therefore less of it is always good. Finally, Scott touched on the way that financial regulation has become a way to ban or suppress things without accountability or democratic debate. If the government wants to ban (say) OnlyFans, instead of passing a law or going to court they can simply have the regulator go to banks/payment processors and say "hmm, this business seems risky, mumble mumble some potential future liability". And because the regulator has a ton of discretionary power over banks, and OnlyFans is just one client, they are inclined to comply out of an abundance of caution.
Disagree. Speculative financial instruments almost never cause financial crises. Financial crises occur when something widely assumed to be safe (bank deposits, a currency with a fixed exchange rate, AAA-rated asset backed securities) suddenly is proven otherwise. Almost no one thinks crypto assets are safe - aside from stablecoins where there is a case for better regulation.
Can you be more specific? I can't think of a crisis where derivatives played a major role, unless you mean the ABS involved in the 2008 crisis which I've already covered.
Can you transact with the traditional financial system and have the ability to prove to anyone at any time that you've done so? Can you do the same while hiding that fact from everyone unless you chose otherwise? Can you do something in-between such as proving that you have an account with > 100 dollars in it but without revealing the actual amount? Can you create a virtual asset which is quite reliably tied to the price of onions? Can you create one that's not actually pegged to anything with its own unique monetary policy? Can you build a prediction market? Can you create and deploy something else, some weird financial instrument which no one has thought of yet for whatever purpose you desire? No matter who you are or where you live it's no to most or all of the above, not because it's not theoretically possible but because you won't be allowed to or don't have the resources, this is so much the case that most of that stuff wasn't even imagined until crypto came around. If you value this type of experimentation, then crypto actually has a leg up and the rest of the performance gap has either already been closed or will be shortly. The question is, the one that ought to be central to any good faith argument for or against, do we want this kind of stuff to be possible or not?
Most of my disagreements with this post boil down to: “Did you watch Dan Olson’s video on NFTs?”
What I really, super don’t understand is why you argue that cryptocurrency is decentralized. Didn’t the ETH/ETH Classic fork teach people that proof of stake chains are extremely easy for government to co-opt? Large stakes in the present necessitate either early adoption or large amounts of capital. These large stakeholders have the greatest say in terms of the validation mechanism, meaning all any oppressive government need do is control a small number of powerful stakeholders. The same as authoritarian states have done with crony businessmen everywhere.
Bitcoin, the only one with a slight claim to decentralization owing to its proof of work model, is horribly inefficient in terms of power consumption. It’s unusable as a currency owing to long transaction times and fluctuating value. Today, big capital holders are the only ones with the ability to mine Bitcoin, as proof of work incurs heavy diminishing returns. Again, centralizing control in the hands of capital holders.
Blockchains are not decentralized. They are quite literally a worse version of our current centralized financial system. They duplicate the old system’s problems and put all power in the hands of people who can barely code, let alone create a financial system from scratch.
ETH was using proof of work when the fork with ETH classic happened
This is one of the core issues. The "advantages" of "bitcoin" come with a bunch of incredibly serious flaws/downsides. And to the extent you "patch them" you basically just end up with a worse version of what we already have.
"I don't trust banks", but I do trust random foreign conmen who have been involved in other fraudlent projects...
Anyone can buy a bitcoin mining ASIC for a couple thousand dollars and operate it profitably anywhere with cheap electricity.
Humans have been burning resources to play status/trust games since long before bitcoin existed. Witness the higher education industry, the real estate industry, the car industry, the fashion industry, the military-industrial-complex, etc etc etc. Bitcoin's resource waste pales in comparison. A majority of global GDP seems to be devoted to positional goods.
"Today, big capital holders are the only ones with the ability to mine Bitcoin, as proof of work incurs heavy diminishing returns."
Incorrect. Miners want cheap energy which is found distributed throughout the world. Rural hydropower dams in Africa are now being used to mine bitcoin, with proceeds being used to subsidize electricity for poor Africans.
"Miners want cheap energy which is found distributed throughout the world. Rural hydropower dams in Africa are now being used to mine bitcoin, with proceeds being used to subsidize electricity for poor Africans."
To what extent are statements like this actually true in any real sense? I sort of feel like this saying "VISA doesn't primarily help its shareholders and developed world customers because there is a VISA ATM in Kinshasa" (or whatever). Like sure that is true, but it is not actually a notable part of the ecosystem and is really just used a boutique non-representative example to deflect from what is a valid criticism.
When an absolute statement like "big capital holders are the only ones with the ability to mine Bitcoin" is made, one counterexample is enough to refute.
The general point is that mining will be globally distributed to places with cheap power as that's the variable cost that impacts mining profit. There's cheap energy in places with poor people, so those with little capital can benefit from bitcoin mining. People can buy one ASIC, join a mining pool, and start earning bitcoin now.
>so those with little capital can benefit from bitcoin mining. People can buy one ASIC, join a mining pool, and start earning bitcoin now.
Does this actually happen though? I get the sense most of the mining is done by very large entities, not small timers.
Most mining can be done by large entities while still having many small timers. Having big capital is not *necessary* to mine bitcoin.
https://bitcoinmagazine.com/business/how-small-solo-miners-solve-bitcoin-blocks
The economies of scale in bitcoin mining are much less than in eth staking, and way less than economies of scale in traditional banking. Everybody's running roughly the same commodity hardware and the manufacturers don't offer much in the way of volume discounts. In Washington State the power utility discriminates against big bitcoin miners, and makes them pay more per kwh than residential small-timers who could operate a few asics on the down low. It is actually pretty decentralized and very likely to stay that way.. Hydropower in sparsely populated areas is cheaper than almost all fossil fuel, and distributed widely around the world. Some of it would only be economical to develop with the help of bitcoin mining.
The link provided in footnote 7 is pretty disappointing from the perspective of being used a concrete prediction about crypto scams. The list has 7 entries:
1. The Merge (not clear how this is is even in the category of things that could "be a scam" since it's just a technical development on a particular chain which has already completed.)
2. DEX Screener (a free website showing a list of DEXes, I suppose it could be developed into a scam by having it mark DEXes as "screened" when they aren't, but I would say the base rate on this is low anyway, so it's not very telling to bet that it won't become a scam)
3. Sudoswap (an NFT marketplace, I can see how this could become a scam)
4. Soulbound tokens (this is an idea rather than a concrete project today. I could see many people running with this idea and producing projects. Do all of them have to be scams for this to "be a scam")
5. Arbitrum (a rollup, I could see how a rollup project could be parlayed into a scam, though rollups are supposed to be visible on the chain, so it wouldn't be easy)
6. Layer 2: zkEVM and zkSynch (zkEVM is another one which is a technology rather than a specific project. zkSynch is a specific rollup.)
7. Across Protocol (A bridge.)
So 1,4,5a are really technologies rather than projects, and 5b, 6, 7 are layer 2 projects, not really the type of thing that can easily become a scam while remaining very visible, because the code should all be public.
"Crypto" is about 10 different things living under the same tent of "a lot of people saying their technology does things that it doesn't, or will never, do".
Who remembers ICOs? Those were wild. Do those count as well regarded projects given they were taking people's money in exchange for misrepresentations?
One of the more concrete things that actually happens is avoiding financial regulation to transfer money. Avoiding regulation isn't a novel use case. It's just building a gray market. Gray markets are usually useful because they allow people who have trouble accessing markets access credit and other financial products. >99% of emigrants made their journey without crypto. And circumventing currency export controls isn't some sort of virtuous feat either.
I guess if the bar for useful is "1% of users of the product actually use it for money laundering so we can ignore all the other speculation, seediness, and charlatans" then sure. But maybe have a bar proportional to the amount of hype and capital involved?
I think it's sad that you had to guard yourself by saying "less than infinitely hostile". Crypto has legitimate use cases. Thanks for pointing that out.
My guess, based on living in African countries for the last 13 years, is that most of the crypto in Africa is owned by wealth types who wish to avoid capitol controls and taxes. I'm not a big fan of capitol controls, but I understand why they exist in poor counties where most of the wealth is in the hands of a few. Crypto further weakens governments and strengthens the wealthy who control assets. Solid use case yes, but not for the betterment of humanity.
> If Nancy Pelosi’s text messages are any guide, Democrats have joined libertarians in the “actually pretty worried about the government becoming an oppressive dictatorship” club.
While I don't dispute the truth of this sentence, we can be confident that Nancy Pelosi's text messages are in fact not a guide and Democrats are not worried about this.
"Democrats are not worried about this"
Or, to be snarky, at least they are not worried when it's *them* doing it.
(Note: I am not saying the Biden Administration is, in fact, an oppressive dictatorship, I am saying that party A is always going to scaremonger about party B in order to shake money out of potential donors - and likewise party B will return the favour when texting *its* potential donors - and Nancy herself may have had no idea what the wording going out under her signature was, because do any of us think that Nancy sits down to do mass emails when she could have some underling's underling do that kind of grunt work?)
I think Scott's article basically argues that *stablecoins* have plenty of great use cases but fails to make even a small case for crypto as an investment. Crypto is great money, but terrible for making money.
Stablecoins run on the decentralized networks that are secured and powered by native crypto tokens. Every time you make a stablecoin transaction you pay a network fee that accrues to holders of Ethereum or whatever other blockchain you're using.
IMO it's unfortunate that Bitcoin continues to dominate the mindshare of how most people view crypto. Ethereum is more like oil than gold. It doesn't necessarily have to replace money. Its value proposition is that people will find applications (like stablecoins) running on top of the Ethereum network valuable and useful.
I've been saying for a while "crypto as a transaction medium isn't a scam; crypto as an investment is almost entirely Ponzis some of which haven't failed yet".
https://www.youtube.com/watch?v=hi9Rf0oLdHk&ab_channel=LexFridman
Lex Fridman interviews Coffeezilla. I've just gotten to the bit where Coffeezilla says he doesn't do any deals in the crypto space because it's too hard to tell what isn't a fraud. I think he he's talking about advertising deals rather than any investments he might be making.
For context: Coffeezilla has spent a lot of time looking into, exposing and explaining all kinds of crypto scams. He's a legitimate expert on the topic. If he says identifying frauds is too hard for him, that should cast doubt on any position of "just use the established companies, you'll most likely be fine."
I've read all of the comments here and they are plenty of threads on various details, but almost no one (except for Sean McCarthy) is talking about the *fundamental* flaw of cryptocurrencies like bitcoin: they are a liability with no creditor. The claim that "bitcoin has value because people believe in it" is like saying "(literally) pull yourself up by your bootstraps". I've tried to make the point in a non-technical way here...
https://wp.josh.com/2018/03/25/a-man-walks-into-a-bank-a-bitcoin-parable/
I've only recently come up with a way that bitcoin can possibly escape from this circular argument by seeing it as an NFT...
https://wp.josh.com/2022/11/15/how-bitcoin-could-potentially-have-value/
Note that I think this is a weak claim, but at least it is a logically possible one.
We are currently in an transient where, yes, there are people who will give you money in exchange for adding a transaction to a bitcoin blockchain that miners currently append blocks on, but this is only because those people do not understand what they are paying for. Eventually this phase will be over - with hard time limit imposed by bitcoin's own halving rules.
All that aside, there also happen to be plenty of bitcoin technical problems that would eventually catch up to it even if the delusion were to linger on. If you believe in the myths that bitcoin is decentralized, inflation proof, non-confiscatable, etc then I'd be happy to go as deep as you are willing to go to rebut these claims. There are very few people who really understand bitcoin past the marketing materials, and most of them are highly invested in not talking about these problems publicly.
And finally, if you are one of those people predicting that bitcoin is going to $100K or $250K or $1M, then I'd love to publicly take your bet here! My only requirement is that the payout can not be in crypo if I win! :)
>And finally, if you are one of those people predicting that bitcoin is going to $100K or $250K or $1M, then I'd love to publicly take your bet here! My only requirement is that the payout can not be in crypo if I win! :)
The issue with that kind of bet is that "Bitcoin won't reach US$1M by 2030" is actually asserting that neither of the following events occurs, nor a combination of lesser versions of both:
#1: Bitcoin doesn't increase in value by 57x over today
#2: USD doesn't decrease in value by 98.3% from today
#1 can be solidly argued to be implausible, but there are plausible scenarios for #2 even in the short run (nuclear war or civil war, most obviously) and it's forecast to happen by 2100 even just from normal inflation. So this caps the odds at which you can profitably make that bet.
(Of course, if you live in the US and are likely to die in the case of short-run #2, well, that alters your incentives.)
I am happy to benchmark and/or settle in gold or any other reasonably stable non-crypto asset.
Yeah, that mostly patches the hole.
I'd like to propose a counter-bet: in 2030 Bitcoin will still be worth a nontrivial amount of money, and there will still be many people on the internet explaining why its correct value is actually zero :-)
...depends on how much you consider "non-trivial". :)
Could you elaborate on a falsification on your side? i.e if bitcoin/ethereum trades above x at this date y I concede that I am wrong and crypto is really valuable?
First stab:
If it is possible to sell $100M worth of bitcoin for more than $10K/bitcoin in 2022 dollars per bitcoin in 2030 then I concede that I am wrong and crypto is really valuable.
I'd probably be willing to be more aggressive on all parameters in the case of a real bet. FWIW, I am on record here with a far more aggressive bet placed when bitcoin was trading around $50K...
https://longbets.org/853/
thank you. I think 1000$ by 2025 is quite unrealistic without a catastrophic technical failure. Also, I am pretty confident (80%) that you will be able to sell 100m$ in bitcoin for 10K$/bitcoin in 2030.
80:20 odds that it is will be possible to sell $100M bitcoin for at least $10K/bitcoin in 2030? I accept!
I acknowledge the potential difficulty of evaluating the "sell 100m$ in bitcoin for 10K$/bitcoin" test, but I am confident that we can work out a suitable adjudication method. I would be open to something good-faith like "...in Scott's opinion" if you are.
LMK how to proceed. I am ready to go as big as you are on this bet. If the size justifies it, then I'll even pay whiteshoe legal fees to make sure everything is legal and reliable and then opensource those documents. Maybe we can kickstart a new norm where people on ACT are willing to put real skin behind their claimed opinions!
In which way they are liabilities?
They aren't part of balance sheet and they are not redeemable for anything. I think you might be using the wrong label.
Your joke/example is a red herring, because Bitcoin is not an IOU.
I think the main issue why crypto skeptics do not get why bitcoin has value is that they don't accept the scarcity argument. It might be that the scarcity argument is malposed.
My fix to the argument goes as follow: scarcity is a necessary conditions for a store of value without trust, but it is not sufficient. A good store of value needs to also be divisible, perishable and be fungible. Now, in the entire human history, it is very hard to come up with examples of things which are at the same time scarce, fungible, divisible, non-perishable. The only things which come to mind are precious metals. And by the way, once the other properties are there, scarcity is a very strong element for giving value: Egyptians valued silver higher than gold because it was more scarce at that time in their location.
Would you agree until this point?
By your post I assume you do not believe Bitcoin to be believable scarce? If no, why?
I have been in the space as a technical person for over 7 years I can ensure that's almost impossible to make any change to Bitcoin code, even the "good ones".
And no, it's not enough to convince the few hundreds miners operations around the globe. Miners only extend the chain, they can't change rules.
The big issue is that while *any specific* cryptocurrency is scarce, the *general category* of cryptocurrencies is not scarce; anyone can mint a new shitcoin. This is not analogous to precious metals; I can't invent "grold" and start out with all the grold in the world.
Gold does also have some uses, which contributes somewhat to its not-worthlessness, although this is a weaker argument than it could be since electronics are a minor use and its use in jewellery is to a reasonable extent downstream of its value rather than upstream (in the old days, it actually was prettier than the alternatives, but that's no longer really the case).
(NB: I'm not particularly keen on gold either, to be clear. I think it's probably overvalued, although its "true" value is definitely not zero.)
> anyone can mint a new shitcoin
No, you cannot make a cryptocurrency that's believable scarce. Because to be believable scarce you need many different people, companies, entities to run and contribute to the open source software. Beside Bitcoin, the only successful example that I think has reached that threshold is Ethereum.
That doesn't mean people won't try, at there are have been many unsuccessful examples, some even made in good will (ZCash, Grin).
A recent bad example is Solana, where you have a single company running core network validators, be the sole contributor to development and be financed by VC by selling a huge part of the network tokens.
I think the window to launch any other new L1 crypto has completely closed. In 2050, if crypto still exist, it is extremely likely that it will still Bitcoin and Ethereum that compete for being global stateless private money.
Re: gold value. Gold still trade a big monetary premium vs industrial use cases (like 4x-5x higher than it should be for the demand for industry and jewerly). Central banks are still buying a lot of gold as a reserve asset.
"By your post I assume you do not believe Bitcoin to be believable scarce? If no, why?"
The dictionary definition of scarce is "insufficient supply for the demand". At the current price level the supply of bitcoin meets the demand, or else the price would rise until it did. My guess is that you intended something more like "has a known, limited supply", referring to bitcoin's coinbase rules that limit miners to eventually minting, at most, a total of 21,000,000 coins. I am going to call this property "bounded" rather than "scarce".
For Bitcoin to be bounded, I think at least the Bitcoin blockchain rules must be strictly immutable. If it were possible to modify these rules, then the supply would be unbounded because at anytime in the future the rule encoding the 21M limit could be modified, or the rules that enforce not changing the the limit rule could be modified.
The Bitcoin blockchain rules are not immutable. They are subject to change by political processes. This has happened many times in Bitcoin's history. There is currently even an organized political process to make changes to these rules (BIP). I note that you specifically added the word "almost" in front of "impossible", which acknowledges this fact. :)
The party line retort goes something like "Ok, yes, the bitcoin rules can be changed, but the process to change them is hard and requires consensus, and that process would never result in changes to the minting limits due to incentives."
This statement implicitly admits that it is, in fact, *possible* to change the rules such that more than 21M coins could be minted, and also that the process that currently prevents that from happening is a political one rather than a technical one.
Unless I've gotten something factually wrong here, I think just showing that the rules are not immutable and that the process to change them is a political one is enough to undermine the claim that the supply of bitcoins is structurally bounded.
But just to anticipate the next retort, "The incentives to maintain the 21M limit are so strong that so we can depend on them to prevent any political process that might try to change them from succeeding". I will resist the urge to point out the futility of relying on incentives to prevent political processes from making ill-advised decisions. :)
Instead I would show that as the block reward continues to drop, the incentives to inflate the supply bitcoin (or do the functionally equivalent) will be irresistible. This gets complicated and technical and is not critical my claim so I will not peruse it further here, but I am happy to go deep on this topic elsewhere.
In conclusion, I claim that Bitcoin's supply is currently only limited by a political process rather than a technical constraint, and further that it is not only strictly possible that this limit could be modified in the future - it is almost inevitable that it will be due to the changing incentives created by this very limit.
DISCLAIMER: I do not believe that this is even the strongest of the many arguments against Bitcoin. I do not even believe this is even the strongest argument against Bitcoin's claim of limited supply, but it is the simplest and so I offer this one here.
I use scarce as in " not easy to find or get: not abundant, restricted in quantity".
In the context of monetary and store of value uses, I think "hard to get" is the right intuitive definition. There are other metals that have limited supply (all physical resources are finite on planet earth in the end), but if the above ground stock can be dwarfed by newly extracted flows, then it makes for a bad store of value.
In fact, I cannot think of anything that is 1) hard to get in the sense of stock to flow dynamics 2) non-perishable 3) divisible 4) fungible, and it doesn't have a lot of value. Can you help me find a counter example?
Maybe Bitcoin has value because it's simply hard to get.
>For Bitcoin to be bounded, I think at least the Bitcoin blockchain rules must be strictly >immutable. If it were possible to modify these rules, then the supply would be >unbounded because at anytime in the future the rule encoding the 21M limit could be >modified, or the rules that enforce not changing the the limit rule could be modified.
No, blockchains aren't immutable in a technical sense first. That's why the argument "you can have thousands of cryptocurrency, so there is no limited supply of crypto" is completely wrong: it is extremely hard to make a blockchain believably immutable.
Only after you believe that the social construct surrounding it prevents arbitrary changes to the rules, then you can look at the technology part and evaluated it.
Money is a social construct in meatspace, so it seems normal that it should be a social construct in the cyberspace.
It's extremely hard to ship any change/BIP at all in Bitcoin, and there are some part of the community that are already considering to stop accepting any BIP. In general, the aim is to reach a nearly unanimous consensus before something is considered for inclusion in the codebase.
But, if a change is not unanimous, the minority can opt out by not upgrading the software. I think this is an important difference vs the political process of meatspace society even in successful democracy.
>Instead I would show that as the block reward continues to drop, the incentives to inflate the supply bitcoin (or do the functionally equivalent) will be irresistible.
They are a few ways to counter this without changing the supply limit, which would require a hard fork. They could reduce the block size temporarily to increase fees or implement demurrage, both which could be introduced by a soft fork.
Let's even say that they do modify the limit and introduce a small tail emission for the sake of security. I don't think this counts as an arbitrary change to monetary rule, as it has a stated verifiable purpose. And a tail emission would be so small, that for all purposes the supply of Bitcoin would still be limited.
Ok, so at least we agree that the oft-touted 21M hard limit on the maximum number of bitcoins that can ever be minted is, in fact, a only a soft limit based on the rules currently in place, and that those rules are subject to change via a political process?
I also think we have made progress in that you agree that there will have to be some set of rule changes in the future to make up for the dwindling coinbase rewards, and the possible responses include inflation (although you think this inflation level would be small enough that the bitcoin supply would still be considered "limited"), a periodic asset tax levied by the bitcoin miners on bitcoin holders, or a measure where miners artificially reduce the bandwidth of the bitcoin system to force the transaction fees on users to be higher. Most bitcoin apologists do not understand the system well enough to even see why this is an issue, and those who do are usually not willing to mention such things in mixed company!
If there are any readers out there who thought that the bitcoin 21 million coin limit was absolute and that it was impossible for that to ever change due some inherent property of the system, I hope you will now update your beliefs on that marketing claim!
Yes we agree. But the fact that the limit can be in theory be changed, doesn't undermine the value proposition of Bitcoin at all.
For example, the US Constitution can be changed, it is not immutable. You could argue that's possible that a new Constitution change could undermine private property rights. But it is so hard to change the constitution, that the fact that's changeable doesn't undermine the value of securities (stocks/bonds) and real estate in the US.
On the other hands, in countries were institution are much weaker and it is possible to change the Constitution/property laws easily, it is a consideration that investor need make when they value real estate and securities in those countries.
What would undermine the value proposition of Bitcoin is if the limit would be easy to change, but there is extremely strong evidence of the contrary. Or do you disagree with this?
By the way, it's not just the rules of the supply limit that's socially imposed, it's all the rules of the ledger, including ownership.
I mean, isn't this just another point that the only use of crypto is inherently illegal? Like you say it nicely that is is solving "regulatory issues", but these are literally laws enacted by the sovereigns where your physical presence lies. Yes, it's a not a good situation for these people, and it's kind of great that they now have the ability to sidestep these sovereign controls technologically, however it is a TERRIBLE business.
THIS is why people are infinitely hostile to crypto - as an anarchistic distributed middle finger to sovereign control of weath it's great. However, AS A BUSINESS, and any business purporting to be 'legitimate', you cannot get away from the fundamental issue that use cases are illegal.
There are cases where paying for X is legal but you still can't use the centralised payment system for it due to globalisation and oligopoly giving other people a de-facto veto. In Australia, for instance, prostitution is legal (exact law varies by state, but in the entire country selling sex and buying sex are legal), but AIUI you're still not going to have a lot of luck using Visa/MasterCard to pay for it because they're beholden to US pressure groups and US law. Or take Substack itself; Visa/MasterCard still work AIUI, but PayPal doesn't because Substack platforms people SJ doesn't like (this is also why Patreon was forced to purge itself of alt-rightists and fictional CP; it faced being refused service by PayPal otherwise).
So it's not quite "inherently illegal". "Inherently disreputable", yes, but that's not quite the same thing.
I guess you don’t like cash either?
Things went downhill when we abandoned the good old customs of exchange!
https://en.wikipedia.org/wiki/Lebor_na_Cert
"Now these are the local (internal) tributes of Munster to Cashel, and they are paid every year, i.e. fine and refection and provision and protection. First, three hundred beeves from Múscraige and three hundred boars and three hundred cows. Then three hundred boars and three hundred mantles and a hundred milch cows from the Uaithne. Then a hundred cows, thirty boars, thirty beeves, and thirty cloaks from the Ara. Then sixty oxen, sixty wethers, and sixty cows from the Seventh. Then fifty cows and fifty oxen and fifty beeves from the Orbraige. Three hundred oxen and a hundred and fifty milch cows from Dáirfhine also. Thirty cows and thirty oxen and thirty cloaks from Corco Duibne. A thousand cows, a thousand oxen, and a thousand sows from Ciarraige. Seven hundred cloaks, seven hundred wethers, seven hundred cows, and seven hundred sows from Corco Baiscind. A hundred sheep, a hundred sows, a thousand oxen, and a thousand cloaks from Corcamruad. A thousand oxen, a thousand sheep, a thousand cloaks, and a thousand milch cows from the Déisi. A hundred cows from Orbraige, a hundred white cloaks and a hundred sows.
The stipends given by the king of Cashel to the kings of his tribes: First, a place at his side, and ten horses, ten suits, two bracelets, and two sets of chess to the king of Dál Cais; and to lead with him an expedition into another territory and to return at the rear.
Then ten horses, ten horns, ten swords, ten shields, ten hides, two bracelets, and two sets of chess to the king of Gabrán. Ten horses, ten slaves, ten women, and ten horns to the king of the Eóganachta when he is not king of Cashel. Eight slaves, eight women, eight swords, eight horses, eight shields, and ten ships to the king of the Déisi. Five horses, five cloaks, five horns, and five swords to the king of Uí Liatháin. Ten horses, ten horns, ten shields, ten swords, and ten coats of mail to the king of Raithlenn. Seven horses, seven tunics, seven hounds, and seven coats of mail to the king of Múscraige. Seven swords, seven horns, seven coats of mail, seven ships, and seven horses to the king of Dáirfhine. Seven hounds, seven horses, and seven horns to the king of Dairbre of the mountain. Seven horses, seven horns, seven swords, seven shields, and seven hounds to the king of Loch Léin. Seven women, seven cloaks trimmed with gold, seven cups, and seven horses to the king of Ciarraige Luachra. Seven horses, seven shields, seven swords, seven ships, and seven coats of mail to the king of Léim in Chon. Ten horses to the king of Uí Chonaill Gabra, and ten shields, ten swords, and ten horns; and no hostages from him, but an oath under the hand of the king of Cashel. Seven horses to the king of Uí Chairpri, and seven horns, seven swords, seven lads, and seven slaves. Eight horns to the hero of Cliu, and eight swords, eight horses, two bracelets, and two sets of chess. Seven horses, seven horns, seven shields, and seven swords to the king of Glennamain. Eight horses, eight swords, and eight horns, with the grades of prince and high king to the king of the Uaithne. Eight horses to the king of Éile, eight shields, eight swords, eight horns, and eight coats of mail."
A cow is a cow, a cloak is a cloak, but what is a "bitcoin"? 😁
What, for that matter, is a dollar?
Big piece of fancy-engraved silver mined here:
https://en.wikipedia.org/wiki/J%C3%A1chymov
Not since 1964.
The word "scam" needs to be re-understood within the context of crypto. There are huge "vulnerabilities" with tokens. The main one I see is that you can create your own token, hype it TF, and then partially cash out whilst liquidity is high. You can claim that your holdings of your own token, whilst it's riding high on the exchanges (or your own exchange), represents real capital and attract real money in, or reinvest in looking super cool and rich, getting a hype feedback loop established.
None of this is strictly a scam. But you can't really do it with traditional money. It's a vulnerability. And one that most people don't understand because we engage a defensive mode of attitude when our money is threatened. Thus people hurl words like "ponzi" around, yet don't understand the differences between crypto and trad money. And so nothing really changes.
If more people in the scene, for example, understood just how Bitconnect worked, back in 2017, and why it was not a Ponzi, it's unlikely that FTX would have gotten as far as it did.
Whether or not it is a "scam", It *is* securities fraud. It's a lot harder to do in the real world, but people sometimes try anyway (Your Hometown Deli is a notable recent case). The SEC prosecutes people for securities fraud, crypto or non-crypto, but the process takes years and bad actors in the crypto space are often not amenable to prosecution.
My point is that, with crypto, we are dealing with way more of a new phenomenon than most people actually realise. What needs to happen is a lot more education about the vulnerabilities specific to crypto.
The very fact that SBF was in so deep with people who are entrusted with protecting and regulating US financial markets, and that these very people could not see SBF for who he was, is indicative of just how little understanding there is of crypto.
Calling him a scammer and putting him in prison is okay. It's a defensive reaction and it works to a some small degree. But it still does nothing to advance understanding of the specific issues that the very existence of crypto presents to the public.
We are dealing with a radically new phenomenon here and our traditional way of thinking about money and scamming significantly underserves us.
> NYT describes its banks as “so sclerotic that sending or receiving even small amounts of money from another country requires an exasperating obstacle course of paperwork”, and this guy says that if you deposit more than $100,000 in a Ukrainian bank, “the chance that you get it back is very slim”.NYT describes its banks as “so sclerotic that sending or receiving even small amounts of money from another country requires an exasperating obstacle course of paperwork”
That's not my experience and the article is extremely biased against trad banking. Among me and my friends, we've compared availability of services and convenience of online banking between Ukraine, Poland, Estonia, Germany, Hungary - everybody agrees that Ukrainians banks win. There were no major disruptions caused by the war in any bank, evren.
From the Verge article
> the way the people of Ukraine do savings is not that they carry money to the bank and deposit it. It does not work like that. We do not trust the banks. I told you. If we have a lot of money — by a lot of money for Ukraine, I mean probably $100,000 and above — the last thing you will think about is actually bringing it to the bank.
This is what the attitude was in the 90s. Its a different country now. Some people do store money in USD, because of the multiple crises making the dollar go up (2008, 2014), but its not a minority.
This guy - the guy interviewed by both NYT and the Verge - is lying for his own benefit, to prop crypto up as they tend to do.
"It's sometimes useful to be able to launder money" isn't as bad a take as it initially appears but it did catch me off guard.
To get an approximation of the utility of crypto you need only look into a general history book. There you will see that one of the main achievements during antiquity was the invention of coinage. Crypto is precisely that, coinage for the digital realm. Its utility should be obvious.
One could argue that we do not use much classic coinage either these days. Technology has given us credit cards and instant bank transfers. There is truth in that, of course. But most of these technologies are centralized on some level. And one of the defining features of coins is that they are decentralized, usable by anyone at any scale.
In fact, coinage is a surprisingly late invention considering how simple the technology is. In Europe/Mediterranean coins were not introduced until a good way into the iron age. There is logic to that. The Bronze Age was characterized by empires and other large entities. These empires were perfectly able to trade in kind anything they needed. For that they only needed good book-keeping (which is a Bronze Age invention). The Iron Age is characterized by smaller entities, more or less independent villages populated by farmers and artisans with their own agency. These people could not trade in kind since they traded so very little. They needed a stable medium of exchange and for this coins were introduced.
Crypto, likewise, has its greatest utility in the interactions between individuals. No matter how fancy your credit card you cannot use it to transfer funds to the person next to you. For that you need some sort of system that allows the two of you to interact with each other directly. Centralized systems like Paypal or instant bank transfers can do the job, but something decentralized will do it better, cheaper and more securely.
As long as people are interacting digitally it is obvious that there is a use case for a digital medium of exchange. The real question is if crypto is up to the job. I am not really following this arena any more. But the fact that I still do not see options for paying with crypto at webshops or people asking to be paid in crypto in Facebook Marketplace ads tells me that crypto still has some way to go before it lives up to its potential.
Paypal also doesn't have to prove you are a sex-worker, they can just accuse you and steal your money. You would then have to prove a negative to get the money back. I believe there already were cases where someone sent the lunch money with the note "for sexual favors" as a goof and then the accounts got frozen. If this happens to a business it might be bankrupt before you even get a court date.
I'm a long-time Scott reader from Russia, with mental disease (so it's extremely unlikely i get drafted) and I want to ask for help in some form...
thought I suspect most people here would like me to stay as is to be a drain, albeit small, for Russian state.
First off, I'm sorry if anything I've written in your comments has contributed to you writing this. I've tried to express some nuance, but I am out of practice. I actually find it fascinating how much I agree with Mark P Xu Neyer on this, but it's the places where we disagree that seem to matter most.
I would like to push back slightly on two parts here:
> I don’t think it would have been possible without crypto.
A number of years ago, I did something vaguely comparable using Western Union, a 170-year-old company based on a 190-year-old technology. I admit that, if we had used cryptocurrency, this probably would have been faster and cheaper and would have involved less walking on both our parts. Also, this was to someone in China, which at the time was vastly more stable than Russia is this year, so possibly WU wouldn't even have worked for you. Still, the point is that this is a known financial niche that was filled almost as soon as human technology allowed for it (and that's not even getting into bank notes), and what you're talking about is a technological improvement. It is definitely useful to be able to do the thing in cases where access to banks and WU is blocked but access to the internet isn't. Perhaps I simply lack perspective on how revolutionary that is.
> The saying goes: a book is a mirror; if a monkey looks in, no apostle looks out. Cryptocurrency is like this too. If people are looking in and only seeing the monkey gifs, that’s not crypto’s fault.
Sometimes, when you're standing in a blasted post-apocalyptic wasteland dying of radiation poisoning, you look in the mirror and see a blasted post-apocalyptic wasteland inhabited by some disgusting mutant that might once have been human. It's not particularly your fault, though.
In what way are you not a true believer? Reading this post and the comments, it seems like you truly believe in the core argument of crypto as a replacement for currency. Your opening says that you aren't a true believer but also aren't infinitely hostile. Was there some sarcasm that I'm missing?
True believer is usually reserved for the "Unreasonable believer" category, someone who wants to believe something regardless of anything and will - additionally - die on a hill to defend the strongest most possible formulation of their ideas.
Lots of crypto believers are not "true", I count myself as a mild believer, I never invested a single cent and I dismiss all sources that focus on the investment side or other such status-quo uses with extreme prejudice. Crypto for me is a revolutionary technology, no less than the printing press or the personal computer. It's a fundamentally blue-sky moon-shot whatever-term-you-want-to-use tech, very long tail and long term. I'm entirely okay with "*Current Crypto* sucks", I'm very okay and welcoming to "Here's *Why* crypto sucks". Crypto is an immature tech, I'm sure 1930s airplanes and 1950s rockets and 1970s personal computers sucked big time too.
But the vast majority of typical anti-crypto argument I see on the internet goes something like "Crypto begins with the assumption that you can't trust centralized instituions, this is extremly dumb and all people who do this are extremly dumb as well, why would anyone not trust centralized instituions ? All problems with centralized instituions can be fixed with more trust and investment in centralized instituions". No matter what is going to be said after this, it's not interesting to me.
I think every article like this should have information if the author has any active investment in crypto. I bet 99% would have.
Interesting. just one thing: the NYT is silly. I sent my son in Ukraine money for years; in days sometimes in minutes. Yes, to his account at the ukrainian "privatbank" (even though that bank itself turned out kinda scam), yes, using wise/transferwise - but other services work just fine, too. When I put several k of my own money in Ukrainian banks, I always got it back just fine. (OTOH: when I finally tried to sell my shares in an energy-company, there was only one bank (ie. one building) in the whole country who could do that - and it took 3 (three!) flights to Ukraine in person to get it done. A few k. And my worst investment. Share-issues are historically often scam-schemes, at least as much as crypto. So: "NYT describes its banks as “so sclerotic that sending or receiving even small amounts of money from another country requires an exasperating obstacle course of paperwork” is just another fail of NYT. - Kudos for helping out the Russians. Upgrading to paid shall be the most EA-thing I'll do in 2023.
"So why do people think everything in crypto is a scam?
[...]
Crypto is a few hundred interesting projects, plus a long tail of thousands of scams.
This isn’t so different from other fields like education. There are 8 Ivy League schools in the US, 400 high-quality research universities, and about 1,000 fraudulent diploma mills."
Except in education, it's fairly clear which is which, and in crypto a regular user has no way of telling the difference.
What's the last time an Ivy Leagy university turned out to be, in actual fact, a fraudulent diploma mill before they shut down and ceased operations overnight?
In contrast, what's the last time a major crypto company turned out to be fraudulent and declared bankruptcy? ...oh, three weeks ago. And before that? Four months ago. And before that? Five months ago.
To quote the famous "Line goes up" video on the author's experience with NFT projects: "The market is just absolutely lousy with fraud and deception. [...] If you just look at the pitch package and the sample product, there's very little material difference between a project that's going to sell out 10000 tokens in six hours and one that's going to become a trash fire as the project leader has a nervous breakdown and burns the mint three days post-launch after only selling 800 tokens."
I have some difficulties with this.
1. Nobody's *infinitely* hostile to crypto. What would that even mean? Yes, this is obvious hyperbole, but it has the usual problem with hyperbole that it leaves the readers to work out what the non-hyperbolic claim being responded to actually is. This seems a bit of an un-SSC move. The obvious reading would be that you're less than *maximally* hostile to crypto, but that's still a straw man, because most crypto opponents would agree that it could be worse. It's clearly wrong to say it's a "pretty rare position" to be non-maximally hostile.
Later you say "people think everything in crypto is a scam". But if people believe that, I don't think they mean what you call "outright rug-pull-style scams". They don't mean that the people buying tokens won't get the tokens, but that the tokens aren't worth having. It's the difference between selling shares in a company which doesn't exist and selling shares in a company which has no prospect of ever making money. Selling shares in the South Sea Company wasn't strictly a scam, because the sellers probably genuinely believed the hype, but the purchasers were still deceived.
As a side note, people label all sorts of things as Ponzi schemes, but the label ought to require a Ponzi figure who is engaged in deliberate fraud. It seems possible that FTX will turn out to have been a Ponzi scheme in that sense, but unlikely to be true of crypto as a whole. But it can still be a bubble, and in my view it probably is. I mean the coins of course: I think it quite possible that in 20 years' time (if the singularity has not occurred) we will regularly make blockchain-type transactions, but most currently circulating coins will be valued close to nil.
All of this is to say that this would have been a compelling post if it had responded to the best criticisms of crypto instead of some nebulous sense of what everybody thinks.
2. I think crypto probably does have use cases, but I don't find your post very helpful in understanding them. The Chainalysis data is "based on three metrics", and I don't have any sense of what it's measuring. As others have pointed out, it's normed to Vietnam being 1, so it's impossible to say whether it's a lot or a little. Maybe everyone in Vietnam is using BTC to buy hot-dogs, maybe it's an artifact of some particular high volume activity being based in Vietnam: I have no way of knowing.
3. It's pretty unconvincing to quote the president of the Blockchain Association of Ukraine on the problems of conventional banking Ukraine. I doubt that this is a fair characterisation, not least because the Ukrainian government would be unable to function if the banking system were that bad, and it clearly is able to function.
Your source for crypto as a means for Westerners to send money to Ukraine states, "The funds raised in cryptocurrency are a just small part of the overall donations that Ukraine has received... cryptocurrency donations have tapered off..." Clearly there are no problems sending ordinary money to Ukraine. On the other hand, there are problems sending ordinary money to Russia, and this is genuine use case for crypto, but not necessarily one we would encourage.
I'm not sure if it's correct to say that Ukraine "legalised" crypto, because I don't see that it was *illegal* before. What seems to have happened is that Ukraine passed a law regulating crypto and requiring crypto dealers to register in order to operate legally. While that might be consistent with a crypto-enthusiast country faciliating use by ordinary people, it would also be consistent with a concern that crypto was being used in malign ways and required a higher degree of oversight. Whether the Ukrainian government actually is able to exercise effective regulatory control of course remains to be seen.
4. People in countries with poor financial norms absolutely are unusually susceptible to Ponzi schemes. Consider the case of Albania.
5. The fact that people are using crypto to meet real needs makes it worse not better if the whole thing is a house of cards. If Venezuelans hold a significant portion of their wealth in crypto because they rightly don't trust the bolivar, then a general crypto crash is going to cause the country real harm.
There's literally someone else in this same comment section who self-described as infinitely hostile to crypto.
> The environmental impacts alone warrant infinite hostility.
It's completely astonishing to me that supposed rationalists are so willing to fly the flag for cryptocurrency, one of the more obviously terrible ideas that humanity has dabbled with in recent decades.
Thanks to FTX (and, I guess, the entire history of crypto) this article aged poorly before it was even posted, but in a few years will look even sillier.
I'm surprised that there's no mention of the rise and collapse of NFTs, but then the main defences of crypto are that "they use it a lot in Vietnam, no we won't look into whether or not that was a localised Ponzi game that took off" and "I googled some projects and didn't find articles calling them scams, no we won't look into whether or not those projects succeeded at anything materially useful", so outright ignoring one of the few crypto concepts to make it into mainstream consciousness seems about right.
It's interesting that this article was apparently motivated by Silicon Valley turning against crypto - does the entire tech community learning from experience not count as evidence against crypto? Or are they all simply mindless sheep who can be dismissed without deeper thought? (A fun thought experiment might be to wonder if "Silicon Valley thinks crypto is great" would have been used as evidence in crypto's favour in an alternate universe version of this article, or if the Valley would have been consistently dismissed by the author whether or not they happened to agree.)
I'm less than infinitely hostile to murder. Sometimes it arguably makes sense e.g. assisted dying
Serious question: if the claim is that a significant number of people in poor countries are "using crypto" - what blockchain are they using, and what are they using it for? Ethereum processes less than 20 transactions per second, Blockchain less than 10. 20 Transactions per second corresponds to some 52 million transactions per month. That's enough for the inhabitants of one medium-size country to pay their monthly utility bills... and that's it.
(I know that Ethereum plans major scalability upgrades - that's not the issue. I just have doubts that claims of "lots of poor folks need and use crypto, why do you priviledged people want to take it away from them?" pass sanity checks.)
I'm not sure footnote 3 is right - most people who invest in Ponzi schemes do make money, its only the last cohort of investors who get stung. This applies to bubbles as well, which is the better comparison for proper, BTC-like decentralised crypto. The "buy my token from me" cryptos look a bit more like Ponzi schemes, but are really more analogous to pyramid schemes. You don't buy the token to sell it back to the creator; you buy it in the belief that there will then be a market of new/other investors that you can sell it on to.
"Crypto" should really be three things:
1. Large-scale decentralised Schelling-point blockchains (I'd say really just BTC, but you could make a case for ETH); this could become a proper currency, but only if more people use it as a medium of exchange than for speculation to bring down its volatility.
2. Large-scale backed/"pegged" tokens (Tether and a handful of others); these should really just be thought of as an alternative to Paypal (aka a medium to transfer/store dollars). Given someone has to back them/defend the peg, and that person needs an address and a bank account, they will eventually be subject to Paypal-like regulation and become to Paypal what Paypal is to Western Union in the great cycle of birth and decay. My guess will be this happens in the course of the post-Tether-collapse litigation.
3. Everything else; worthless scams. You can make money out of them in exactly the same way you can make money out of penny stocks, but they're pure-speculation instruments. The difference with BTC is that BTC derives underlying value from the extent it is/should become a genuine medium of exchange for goods and services. Tron and Landcoin are not, and will never be, genuine media of exchange for goods and services.
You refer to the twitter user 6529 as 6259. This is a minor typo, but you might want to correct it.
I want to briefly add a perspective that I don't often see - how much better stablecoins are than banks for running a business.
I've been running a Swiss-based crypto-related business, and while some of our business can be handled in stablecoins like USDC, plenty of it has to go through the traditional banking system.
While banks work OK for smaller personal accounts, they're really not great for running an international business. International transfers are opaque, take days, cost an unknown amount of money and sometimes get returned because someone along the way didn't like something. They will blatantly overcharge you for currency conversion unless you work out a deal with them not to. Want to interact with them programmatically through an API? Each bank has their own mess of a design if any at all.
Just the other day they told us that transfers of USD to non-US based recipients can no longer be guaranteed and will only be processed on an exceptional basis. Why? Who knows, they can do whatever they want.
Meanwhile transfering USDC takes a couple of minutes and costs a dollar - a lot for a 3rd world remittance, basically free for a business transaction. You can instantly send proof from Etherscan that the transfer is complete. Want to integrate these systems into your business backend software? Go right ahead, the whole system was built from the ground up for programmatic access. With the more advanced business facing custodians you can set up an advanced system of rules and checks for who can transfer what, where and who needs to approve. If you want to get more advanced with financial engineering, in DeFi you can get a loan, buy options, earn yield without having to ask anyone's permission.
It's not all free lunch, you're taking on a different set of risks and responsibilities, but as a software engineer it's painfully clear which system is the future and which is the past.
While these advantages don't strictly require the underlying system to be decentralized, I would ask - why wasn't any of this built before crypto? I believe it's because for anyone to commit the kind of resources it took to build this all out, there has to be a neutral base layer where many parties can work together. As a bank, you're not going to be building your products on your competitor's walled garden platform.
If you think all of this could be better done as a centralized system, go right ahead and build one - from the perspective of running my business, I don't have a strong ideological commitment to decentralization, I will happily use the best tool for the job.
Do you strictly-speaking need a decentralized system to achieve this? No, but then the question is why hadn't anyone built something equivalent before Ethereum.
I think that you need a credibly neutral base layer to build on so that many individuals and companies can work together, to justify the kind of investment it took us to get here. A bank is not going to build their products on their competitor's walled garden, they'd be crazy to. At a minimum, you would need a VISA-style consortium, but it seems they had no incentive to go that route - maybe they will now but I'm not holding my breath.
I mean it is allowing you to break the rules. Yes many many things are easier if people just break society's rules.
What rules do you think I'm breaking here? It's a fully legal business, we're regulated by the Swiss financial authorities, we're fully KYC/AML compliant as are all our counterparties, and we move regularly between stablecoins and the banking world without any issues.
What I'm highlighting is that stablecoins are a much better technological solution for transfer of value in the digital age compared to the legacy banking system with hundreds of years of cruft. There are layers and layers of arcane processes that happen whenever you transfer money between banks, that have been built up over time, for good reasons that made sense at the time, but it's not how you would design the system now if you had any choice.
In many ways from a compliance point of view it's even better than the traditional banking system, our counterparties can take 1 look at the chain and fully trace our source of funds.
People keep saying that crypto is 10x worse than the traditional financial system, I claim that it is already better, at least for a certain kind of usage.
>What rules do you think I'm breaking here?
Ones the banks follow, but haven't been legilated into the crypto world yet.
>with hundreds of years of cruft.
The "hundreds of years of cruft" you are tlkaing about is eacvtly those regulations. The things that make international money transfers more difficult aren't cause like the bank takes a sextant out of a drawer and looks up what quadrant Sirius is apexing in. It is boring processes to say keep in compliance with global money luandering rules.
I think that the framework of "infinite hostility towards crypto" or "less than infinite hostility towards crypto" is unfruitful. Essentially, it's about being outraged. And while it's understandable why Scott frames the question this way, considering how much outrage is currently happening very close to him, this is not an interesting question. An actually interesting and important question is whether crypto is net positive or net negative in utility. Recently I've finally updated that it's net negative. FTX crash contributed here, but less as a new evidence and more as a reason to reevaluate the current evidence that I have.
Basically nearly for every positive use case that crypto has, there are mirroring it negative use cases which create more problems for the same issue, that the positive use case contributed to solving. For example, I live in Russia. And I can't say that crypto here is a big thing. Noone of my friends is actively using it as a means of exchange. It's also pretty hard to turn crypto into fiat currency in Russia. This brings up the suspicion that the reason the numbers in the graph are normalised is because the absolute values of numbers of transactions are embaracingly low. There are good uses of crypto in Russia - donate to Navalny team or Medusa, or send money from abroad to help individual Russians who are now in a terrible situation for nearly no fault of their own. I think this are a very good uses of crypto! That said there is a very very bad use of crypto, so bad that it completely annihilate the utility of financing Russian opposition and helping individual Russians survive. Crypto can be used to overcome the economic sanctions that were imposed on Russia and help Russian goverment keep financing the war in Ukraine.
For all the insurance against authoritarianism crypto can be just as well used to benefit authoritarianism. A group of noble rebels can theoretically use crypto to finance their efforts to overthrough the despotic goverment and bring the light of democracy to the people. However just as well a group of domestic terrorists can use crypto to finance their efforts to overthrough the democracy and install the fashist dictatorship. Crypto is a tool to overcome conventional coordination mechanisms and replace them with its own. As long as traditional coordinations mechanisms are net positive in utility, crypto is net negative. As long as the coordinational mechanism of crypto is worse than the conventional one, it's net negative in utility.
The idea of decentralisation and zero trust are interesting and inspiring. But in practise there nearly no use cases that actually need it in practise. People keep doing crypto projects not because this new technology is the best tool for the job but because it's hyped. So again and again it's an attempt to find a problem to the solution. A worse house but in space is worth the effort and the inconvinience. A worse financial system but decentralised is not.
If you are trying to do something with "zero trust" the thing you want to do 99.9% of the time is find someone to get involved in the transaction you both can trust, not plow ahead.
As the kind of commentator who often strives to approach infinite hostility towards many things (including crypto), I can say that this was exceptionally well-written and persuasive. If it's a defense of crypto broadly, it's the best I've ever read anywhere.
It also doesn't change one aspect of the social construction of value that drives much of the overall hostility to crypto, which is social proof. Given that I'm an American, the people I encounter who like crypto trend heavily towards the "most detestable and obnoxious people you'll ever meet" end of the spectrum, to the extent that when crypto was at the top, if someone annoying-seeming started excitedly talking to me and a few sentences in I discovered he was a Mormon, a conspiracy theorist, or genuinely schizophrenic, I would have felt actively relieved. I've met zero Vietnamese-speaking crypto users, and even if I did we'd probably have many other things to talk about than methods of sending remittances. I know plenty of Ukrainians, but none of them have ever brought up crypto.
Yes, I'm aware that this is bias, but it's also how products work.
> and this guy says that if you deposit more than $100,000 in a Ukrainian bank, “the chance that you get it back is very slim”.
This is something of a minor misquote. The original says "get it all back":
> The likelihood that you are going to get it all back is very slim.
Which is a small difference in phrasing but could be a big difference in practice.
But crypto only exists because of regulation. The advantages it offers are basically numbered accounts without chargebacks or know your customer laws.
If world governments didn't make it illegal (and effectively illegal to just do it offshore) all your favorite tech and investment bank companies could offer much better products with the same advantages but without slow transactions, technical complexity/impossibility of retrieving lost keys (but you'd have to identify yourself for that) and no massive waste of energy.
I believe the benefits to the third world of these kind of products are quite real. One can also make a case for the kind of KYC laws that prevent numbered accounts without clawback. But it's absurd to have both.
Moreover, crypto isn't really regulation resistant. If the western world just made it illegal it would disappear. Sure, maybe the Blockchain itself survives amoung a few hackers but if you can't xfer money in and out legally or setup a crypto mining company the whole thing falls apart. And if you don't make it illegal useability will increase so it's just crazy to leave the version of the product with massive negative externalities legal but not the one without.
I think this post ignores a salient point: "crypto" writ large isn't just about reinventing wildcat banking, it's supposedly going to disrupt the world (TM) in various unspecified but heavily touted ways.
Wildcat banking is a known thing. It's the original and design use case for blockchain, it's basically the subject of the original white paper, and it's been around long enough to have gotten a cool animal name. Basically every current benefit and problem of cryptocurrency as a theoretical currency has a very close parallel in wildcat banking and wildcat currencies. (in my Ted talk I will examine...) This is all well upstream of any technological issues.
However, all the other applications being proposed for blockchain are just, well, shit. Let's call a spade a spade! Legal applications like a registry of deeds or some public facing government database? Logistics and transit applications? The "programmable blockchain" and some fairy tale of "automatically executing contracts without oracles"? All of it is broken in fundamental ways, be it from needing Oracles in the first place, to the ability to correct / edit and force / reverse transactions, to total data throughput (sharding has a VERY long way to go to approach what a single IMS instance can handle), and etc. These are huge, 10,000' problems and the way the greater Crypto-not-currency community has handled them is quite telling.
Blockchain / crypto has become like snake oil everywhere outside of wildcat banking, and it's really just better to assume ill intent there until proven otherwise.
I love smart contracts...
Bob: Hate having to use high priced lawyers to draft contracts you can barely understand? You need a smartcontract, the contract that gets resolved automatically without the need for specialist labor!
Tim: Great how is a smart contract going to help me?
Bob: Well instead of needing a lawyer, the blockchain will execute your contract automatically.
Tim: My lawyer charges $350/hr, sounds great! How does the blockchain to do that?
Bob: Well you need to code the contract into the blockchain.
Tim: I don't know how to do that, so this isn't for me.
Bob: No you see you can hire a tech expert for $100/hr to get the smart contract into the blockhain.
Tim: Great that will be a huge savings. This tech expert knows how to write contracts?
Bob: No you see the tech expert knows how to get the contracts on the chain, not how to write them.
Tim: But um who is writing the contract, me? Writing the contract is the thing I was previously hiring a lawyer to avoid.
Bob: Well you can still hire a lawyer to write the contract if you don't want to write it.
Tim: But then where are the cost savings?
Bob: Its not about cost savings, with a smart contract it can all happen automatically!
Tim: All you have done is add MORE intermediaries to my transaction? In what sense it is "automatic"?
Bob: In the sense that if something goes wrong instead of everyone being reasonable and coming to an agreement, or if not using the legal system, instead the errors are just unfixable.
Tim: That is supposed ot be a selling point?
👏👏
> Remember the story of that special astronaut pen that cost $1 million? We already have pens on earth, for like $0.10, and they work better!
This is mostly an urban myth; in particular, the money was spent by a private company, not by NASA or something. And it turns out pencils are not great in a high-oxygen zero-gravity atmosphere (e.g. due to flammability). Or put differently, we already have pens on earth and maybe they do work better... on earth.
See here: https://www.snopes.com/fact-check/the-write-stuff/
A better way to state my position is that crypto is only more resistant to regulation because the public doesn't see it as real banking done by big corps but as a kind of toy .
To avoid this regulation you'd have to convince ppl of this argument and if you could do that then couldn't you convince ppl to support companies just offering numbered, no id accounts that don't allow clawback of transfers.
I support that but it should replace crypto.
Murtaza Hussain had a nice article a month ago that echos Scott's first point:
"A few years ago, though, I had a little experience that briefly gave me a taste of what the world could be like if things were simply fair. In the early months of the pandemic, I needed to send some money across borders to a family member in a country that is subject to financial controls and has an underdeveloped banking sector. Usually, this is an exhausting and costly chore of figuring out who is soon going to be traveling there or to a nearby country and is willing to take cash with them, or seeing whether the recipient themselves can travel outside and receive a wire transfer. It’s expensive, cumbersome, and insulting to the dignity of innocent people who have done nothing to deserve this level of suspicion.
This time though it went differently. I’m a wordcel and am usually aloof from tech, but this person (smarter than me) walked me through how to send them Bitcoin, which, they assured me, would mean something to them and could be converted to a local currency upon receipt. After messing around with it for about half an hour, I figured out how to buy Bitcoin and clicked send to transfer it to their wallet. And it worked, the money moved. They got it and were happy. No big deal. This may sound like nothing to you, but after an entire lifetime of watching good people treated as presumptive criminals by the global financial system it was practically revolutionary."
https://mazmhussain.substack.com/p/what-bitcoin-and-crypto-are-for
If the government becomes fascist, being able to use crypto to buy... something (possibly/presumably illegally)... is the least of my concerns.
That is all cute. The problem with this "minimalist" defense of crypto is that it is not the position of almost any of its advocates. And if you do take it to be the position, the whole thing will collapse to a tiny fraction of where it is now because all the interest is from much more grandiose visions when it isn't just rampant speculation on an asset bubble.
Another day, another crypto exchange goes bust. https://twitter.com/whalechart/status/1600967259161497600
“Yeah, it’s mostly scams and memes when you get down to it,” she wrote.
Caroline Ellison, math whiz and Newton native, was bound for success. Then she got into crypto.
By Anissa Gardizy, The Boston Globe | updated on December 7, 2022
https://www.boston.com/news/the-boston-globe/2022/12/07/caroline-ellison-ftx-alameda-research/
I'm willing to write off SBF as a garden-variety sociopath with decent math chops, if only because of his apparent grandiose fantasy that he can *still* tap dance his way out of this one, but Ellison puzzles me. She seems to have had rare ability in math, thus very smart, and to not be unaware of what she was doing, thus not lacking any theory of mind (or sense of shame). How did she come to be so bemused? Mere youth?
The unabomber was a math whiz too.
Was it the media or crypto companies that bought Super Bowl ads with celebrities with the message that this is something normie American consumers should get on?
It was crypto companies. And if, people perceive that crypto is a get-rich-quick Ponzi scheme rather than helping poor Vietnamese farmers.
Also, most normie Americans have interactions with the higher education system other than diploma mills. They don't with crypto. So, for most normie Americans "Crypto = scam" is probably not a terrible heuristic.
Also, losing all your money to crypto is still a bad experience, even if it wasn't technically a scam under strict definitions.
Scott is deliberately misinterpreting and strawmanning the positions he's arguing against and then taking the narrowest possible definition of "scam" in order to justify himself. But the end result is that his argument just boils down to "if you stick with the best, most-vetted projects, then sure you'll still lose all your money, but it probably won't be an *intentional* scam."
Scott you have identifies the one use case for crypto that has some good to it. Allowing the subjects of tyrannical regimes to store some assets out of the reach of their oppressors.
Of course that use will only last as long as the regimes don't catch up to it. Such regimes can blunt the use of crypto by cutting their people off from the global internet. The low tech method open to thos regimes is to throw people into the gulag and torture them until they give up the goods.
The good should be weighed against the evil. Financing hackers, drug smugglers, and terrorists is a negative. Channeling savings into unproductive uses is a negative. Turning energy into pure entropy is a negative. Disrupting the financial system that governments depend upon to provide welfare for billions of people is a negative.
In my judgment, the evils far out weigh the benefits and crypto should be banned.
Yes, also see: articles about ability to brute force crypto projects by sovereigns with sufficient resources.
Hey good on you for helping people out of a bind and being a little bit clandestine. That’s awesome. I know you don’t need to hear this but it’s a good thing to say and a good thing for a culture to see being said.
> If Nancy Pelosi’s text messages are any guide, Democrats have joined libertarians in the “actually pretty worried about the government becoming an oppressive dictatorship” club.
Off-topic, but this is pure propaganda. I don't think Nancy Pelosi cares one whit about your ability to support unpopular (American) political causes with crypto and will zealously attempt to regulate it out of existence the moment you try to support something she deems "dangerous."
You're wrong about bank account freezes having been an effective tactic against the Ottawa trucker protests (which were in 2022). Nothing changed about the protests until police moved in and started arresting people. This happened only a few days after federal government invoked emergency powers, including the banking stuff, so it's hard to tell what the counterfactual is if the bank account freezes had the chance to play out, but it was very obviously the direct police actions not any financial issues that ended the protest.
He's also wrong about crypto being immune to account freezes, as Etherium vividly demonstrated in 2016.
Scott, are you retracting your statement from Meditations on Moloch, implying that that time has not yet come, or still hostile to cryptocurrency for this reason (just "less than infinitely")?
>In the links post before last, I wrote:
>>The latest development in the brave new post-Bitcoin world is crypto-equity. At this point I’ve gone from wanting to praise these inventors as bold libertarian heroes to wanting to drag them in front of a blackboard and making them write a hundred times “I WILL NOT CALL UP THAT WHICH I CANNOT PUT DOWN”
>A couple people asked me what I meant, and I didn’t have the background then to explain. Well, this post is the background. People are using the *contingent* stupidity of our current government to replace lots of human interaction with mechanisms that cannot be coordinated even in principle. I totally understand why all these things are good right now when most of what our government does is stupid and unnecessary. But there is going to come a time when – after one too many bioweapon or nanotech or nuclear incidents – we, as a civilization, are going to wish we hadn’t established untraceable and unstoppable ways of selling products.
There's so much blind rage against crypto. Much of it is uninformed, unjustified, or misguided.
Thanks for posting a solid take on why it's not all bad.
I find the hostility to crypto these days quite reminiscent of the hostility to the internet following the dot-com bubble. Like crypto today, the internet in 2000 was quite limited in many important ways, but it had a very high ceiling and was getting consistently more powerful. The same goes for crypto today.
I would love it if you would add some concrete predictions to test your intuitions about how viable / fraud-ridden the crypto landscape will be in the next 5 years. From reading the comments I feel quite confident that most of your readers are way too pessimistic about the space, and will be very surprised when the space (1) doesn't go away completely (2) keeps testing interesting ideas and (3) produces real-world use cases beyond the narrow ones contemplated in this essay.
Now I'll lay out my own views, even though I know from reading others' comments that people will dismiss them out of hand:
Crypto is both a fully general computing platform and a novel way to align incentives. The design space is simply too rich to be limited to sending cash in countries with bad financial systems. The financial system today is basically sclerotic, riddled with expensive middlemen, and building new products on it requires wading through miles of red tape. Contrary to popular belief the regulatory burden ultimately falls largely on users, because it makes it impossible to compete with incumbents.
Any product that exists in our financial system can be replicated in crypto (in a slower and more expensive way — for now). Crucially, once these primitives exist others can build on top of them, and like in other software systems the layers of abstraction will build up. As an interesting aside, crypto projects are subject to natural selection because they satisfy the requirements: they reproduce with heredity through forking, and the child projects have variable fitness levels.
What people perceive as crypto's biggest issue – that bad projects are failing – is in some sense its biggest strength, because it creates a more robust system in the long run. Security flaws are exploited ruthlessly, but the next generation of engineers learn to avoid them.
Not sure about the expense point, all of the major US brokers going to free trading was unthinkable just a decade ago- the competition in the existing system is driving marginal costs to 0 as the intermediaries face fierce competition to price compete over pennies. Same thing can be seen all over the system such as bank loans, margins keep getting squeezed lower and lower.
Crypto might get there but a lot of the security of the system is based on intentionally wasting processing power, so if you have a more efficient algorithm you have weaker security; and the higher the FLOPS technology produces (i.e. quantum computing) then you also lower security... doesn’t seem like transition costs will be decreasing?
OK, so reading the article -
1. The headline says 'not infinitely hostile' whereas the content is a restricted endorsement.
2. Header 1 - "Crypto Is Full Of Extremely Clear Use Cases, Which It Already Succeeds At Very Well" - This graph has information, but the assumptions included don't seem to align with the claims being made - for instance, only P2P trades? That's not a representative sample in any way? And the 10k 'retail transaction' assumption would seems to go against 'alternative banking' and place extra weight on small transactions like crypto games. Also, variance such as "China fell from 53rd in this component to 155th, while the U.S. fell from 16th to 109th." over the course of a year should indicate any assumptions about the results are best taken lightly. (Also, Vietnam appears to have over 60% adoption of GameFi according to Statista, which seems to indicate it has little to do with banks or anything)
3. Header 2 - "Big Crypto Projects Are Very Rarely Scams" - What about a similar but different claim? 'Big Crypto projects are very often narrowly held and profits are narrowly gained'. What exposed FTX was a major player making a negative call. There is a negative incentive for users to sell large quantities of coins as the value shrinks to 0. Even if it isn't explicitly a 'scam' it is something where the utility is the ability for a small group of owners to slowly divest of an asset for large personal profit. That doesn't really align with either the 'it's an alternative to currency' or the 'line goes up' reasons to use crypto. It's more scam adjacent than directly a scam though.
4. Header 3 "Crypto Is Valuable Insurance Against Authoritarianism" - Isn't this more 'crypto is valuable against laws? [Even if, yes, authoritarian governments love a bad law] And if the premise of a currency is that it can circumvent governments - there is a strong incentive for 1. Hostile regulatory structures - which will ensure that it will always be worse than normal financial instruments and 2. A haven for bad actors - which makes costs of trust, risks of purchases, etc. higher than other venues.
What is my incentive to ever use this in a non-crime scenario? If there isn't one, then the assumption will also be that having crypocurrency is tantamount to 'will to commit crime'.
5. Header 4 - "Yes, The Crypto Financial System Is Just Reinventing The Regular Financial System Except Worse In Every Way, And That’s Fine"
Yeah, that's fine. I'm not saying crypto should be illegal. But I don't see your article saying 'I'm less than infinitely hostile to unicycles'. You're promoting unicycles in a world where bikes and cars exist.
6. Header 5 - "You, Too, Can Be Less Than Infinitely Hostile To Crypto" - And here is the sales pitch. Cool. Maybe just title it "I like crypto and would feel better if you did to".
7. You have several claims for what it can be used for - everyday purchases, remittances, illegal activity, stores of value, etc. - however, deflationary currencies are bad for everyday use and low trust/high risk currencies are bad as a store of value. Rather than making a diffuse argument about every cryptocurrency and every possibility - it would be more useful to examine a specific one. What is it good at? Why is it good at it? And where is it effectively doing that? The breadth of your example strains critical analysis.
Hope Scott addresses this one in a subsequent post
👏👏
This is interesting but a bit verbose, no? To crystallize the concept: crypto is extremely useful for black markets, and you're coming out in favor of black markets.
I'm sure that some people who are inside Russia have used crypto to get out of Russia. But I can assure you that there are many other people inside Russia who are using crypto for...different purposes. It is not very hard to find information about what organized crime in Russia looks like, at least not to get a general sense of the vibe. I'd encourage you, when you do your utilitarian calculus, to consider both sides of the scale. On one plate you have Russian émigrées, on the other plate you have Russian drug and sex traffickers who partake of violence of a degree that I don't think it's possible for a comfortable American to exactly fathom. I don't have a good sense of how big the two plates are, do you?
Well said. My short version of this is, “I like Ethereum mainly for tilts smart contract potential, rather than its currency.” It sounds a bit like getting Playboy for the articles, but I’ve never spent a penny on crypto currency, while I have spent many hours reading about smart contracts. I also suspect that, if I lived some place other than the US, the cryptocurrency aspect might interest me in a practical sense.
Bye.
Yep. Crypto is worse at everything except decentralization. But, in the long run, this may be the one thing that matters most.
It feels like the range of years for biggest crypto projects starts after Mt Gox (super popular exchange, turned out to be a huge scam) and ends before sufficient popularity of FTX (super popular exchange, turned out to be a huge scam). With this slightly expanded reference class, choosing an exchange seems super hard because neither of these were expected to be scams up front. This seems greater than the risk of investing more conventionally in stocks or bonds, as it’s highly unlikely your broker will secretly steal or your shares or be robbed of customer assets in a way that can’t be investigated or reversed.
Yes, because your broker is regulated. Trust is a human / societal trait and not a bug, so the full premise of “everyone do you own due diligence, we are a trustless ecosystem “ will ultimately cap the growth of crypto on a world scale, unless trusted intermediaries (incl regulation) is implemented. But, once you add that back in you lose OPs feature of bringing banking to the developing world, and the censorship resistance aspects. What you are left with is a highly energy inefficient and slow proxy for the system we already have in the west...
Thanks for this Scott. I had taken functioning banking for granted and completely missed the developing world use case, which left me mistakenly treating crypto as a way for bitlockers to collect ransom whose 'legitimacy' came from being attached to a pyramid scheme - exactly as you describe.
I think there's a mistake I keep making here, where I think of the developing world as being like the West in the past, when in fact they have 21st century electonics combined with an infrastruture from about 1800.
If everybody hates crypto because it has no utility, why is still trading at 500B$ evaluation? Shouldn't we expect to go to zero very quickly?
It seem to me that the persistently high market evaluation is a strong evidence that crypto has some utility after all.
Market cap is tricky because it can be heavily impacted by public float. I.e. FTX’s $5.4bn worth of Serum, where they had 97% of the coins in their accounts and only 3% traded, so even though the “market cap” was $5.56bn there’s no way you could actually buy $5.56bn worth of things with it. This is pretty common in crypto and most projects are closed ecosystems i.e. the current price is determined by exchanges with other crypto and not hard currency like dollars. This is to say that you could not actually buy the $500bn of goods with that crypto market cap you cited, which is highly manipulated by this lack of liquidity, lack of bids for traditional currencies, and these shady dealings. On the other hand, there are trillions of dollars that trade hands every day, so you absolutely could buy $500bn of corn, apple shares, rockets, copper etc. Using the market cap of crypto as evidence of its importance is not that great of an argument.
I actually removed most illiquid coins: 500B$ is the marketcap of only ETH + BTC, which I am pretty confident they are enough liquid for that marketcap to count as you would count large stocks marketcap.
Good to know; hard to find good data but theblock.co has some charts on monthly fiat exchanges across all coins of around $181bn. Most Net Orderly Liquidation Analyses I’ve seen use something around 10% of average liquidity as an estimate of not disturbing the market, but in this case Cryoto’s transparency could be problematic. I.e. if Musk wanted to sell $44bn if bitcoin / eth to fund the twitter acquisition it would take maybe 3-4 months to exchange it for USD in an effort to avoid crashing the price. However since anyone can see the transactions ppl would quickly see that a whale was trying to move volumes and could front run them... naturally he was able to put together the $44bn needed to acquire twitter in a few days and without impacting the USD market. My point being that the valuation is still a paper valuation, especially since they can’t be used to close any transaction of material size
Also only 19% of bitcoin is actively traded according to bitcoin.com, and of that the %being traded with USD is even smaller (coinbase says 15%? I’ve read 5% elsewhere) = a very small pipe to get money out from, so even with an established coin like Bitcoin there is no way you could get even close to $330bn of USD for the coins given the small volume of fiat currency holders to buy it from you
The liquidity is also not a constant. If the price were to go down because there is a large seller, you will have more money wired to exchanges to bid.
It's as material as the evaluation of Apple: try finding 2.5T$ worth of buyers in a short amount of time. In fact, Bitcoin trades in most days roughly a similar $ value as Apple (1-5b$ range).
You can also make my argument in the extreme: the evaluation of all world assets is much larger (500T$) than all available currency (cash + bank deposits) in the world (100T$).
Nobody owns that many coins, so the impact of large sellers is not as strong as you think it is. As a comparison, Elon owned 30% of Tesla (roughly 200B$) and when he sold 10b$ the price tanked pretty aggressively.
”Crypto: it’s really bad, but not Government of Venezuela bad” seems like a fair position.
Here's a question for crypto advocates.
There's this saying, "Your keys, your bitcoin. Not your keys, not your bitcoin."
So in the glorious crypto future where we all live by that rule, if someone steals a bunch of bitcoin, and then disappears out of physical reach, we just have to let him keep and spend them?
If so, then it's likely that a large fraction of bitcoins end up being held by very unsavory criminals.
You'd have your hackers and scammers of course. But also, gangs of kidnapping torturers would roam the land, attacking holders one after the other. They would have an incentive to keep a reputation for never letting their victims go without getting paid. So if you get caught by them, you either give up the amount of coins they guess you have, or, if you have an iron will or don't have that many coins, you and your whole family die.
Having an iron will wouldn't fully deter the gangs from attacking you, because killing you would still be an opportunity to demonstrate that they never let their victims go. The only thing that would deter them is if almost *all* holders had an iron will.
And all along their ownership over their ill-gotten coins would be considered as legitimate as any other. It's their keys after all.
Are we supposed to be OK with that?
Where has your cash been? If someone steals it and disappears, we just have let them spend it?
Quantitative difference. There's relatively little cash in circulation to steal, compared to how crypto there would be to steal if it was widely adopted. Stolen crypto is also easier to spend in large amounts.
How is that relevant to the original point? What could you do about it in either case? Intrusive surveillance or an outright ban just pushes it underground. Are you calling on people to boycott both?
I am mildly bullish on https://dfinity.org/ which is basically using crypto to do distributed hosting.
Aren't you just saying that you're in favour of financial transactions that are outside of national laws? In which case the question is just whether 'good' law breaking such as escaping authoritarian regimes outweighs bad law breaking such as organised crime. Whether that's true is really a contingent question and needs evidence to solve.
The article takes a premise that crypto is decentrlaised, but nothing in crypto beyond bitcoin is decentralised.
I think some of us would be a lot more open to things like crypto if they didn't seem to always come with a such a load of quasi-objectivist rhetoric. ("Someday soon, there will be only two types of people: the awesome, kick-ass crypto users who will raven across the land, and the pathetic mud-golems.")
Just to make clear: I've long been leery of crypto for just this reason. SA's arguments here, especially in the first section about places like Vietnam and Ukraine, were kind of a revelation. Wow, this can actually make some lives better! But I think the kind of triumphalist rhetoric I mentioned really does weigh on at least some of the wider public's perception of this sort of innovation.
NASA did NOT spend $1M on a space pen. A private company invested $1M to develop them and then sold them to NASA for a few dollars a piece.
This is way better than using pencils, for a whole host of reasons.
The story of the space pen is of American ingenuity and a triumph of capitalism, much more so than a failure from administrative bloat.
https://astralcodexten.substack.com/p/why-im-less-than-infinitely-hostile
https://astralcodexten.substack.com/p/why-im-less-than-infinitely-hostile
And prior to the development of the space pen, NASA had used custom-made mechanical pencils on the Gemini missions, designed to be easy to handle while wearing fat-fingered spacesuit gloves and costing about $300 apiece. I think they just used regular pencils for the Mercury missions. The Soviets used a mix of regular pencils and grease pencils until they, too, started buying space pens.
Pencils weren't ideal because sharpener shavings and graphite dust (the latter of which is electrically conductive) were potentially problematic in zero G and because pencil writing tend to fade and smear with repeated handling. Mechanical pencils eliminate shavings and reduce but don't entirely eliminate dust. And grease pencils don't have graphite, but they smear if you look at them funny.
NASA also bought a bunch of regular, off the shelf felt-tipped markers in 1969 for the later Apollo missions. These have most of the advantages of ballpoints, but since they use capillary action to feed the ink instead of gravity (like a regular ballpoint) or a spring-loaded plunger (like a Fisher space pen), they can write fine in zero G.
Crypto's only advantage over a developed countries banks is that developed countries don't ban or discourage its usage by people without addresses within a certain geographic region. That same property has allowed it to be used for ransomware and other crimes.
Can you name crypto projects that are actually useful, aside from ones that facility the usage or trading of crypto? Everyone I have heard of, including helium, has been debunked.
If you want to count Stablecoins--those are really just very lightly regulated banks that allow people to evade US banking laws. What is the reason we should require the usage of inefficient blockchains (ethereum is still inefficient even with proof of stake) rather than let entities with centralized and efficient databases fill that need?
The way I think about this is by asking "what is the cost of creating an institution that I trust enough to transfer billions of dollars of value through it regularly?" For traditional institutions like banks it's something like a century of tenure, billions in capital requirements, and existing within a very complicated bureaucracy of checks and balances where I know I’ll only be fleeced in arduous, obfuscated ways. For currencies it’s a military and a revolutionary war at least, and centuries of slavery and colonialism if you want a good one. All very expensive and out of reach for an upstart country. Bitcoin, on the other hand, derives it’s trustworthiness from the perfect reliability of math. This is what people are on about when they say Bitcoin eliminates “counter party risk”; your counter-party is an immutable algorithm. This is not to say that things can’t go arwy, it’s just much less likely than a human counter-party screwing you over since other humans like money too. This greatly decreases the cost of bootstrapping a nation. You can afford passable beuracracy-driven counterparties in the first world so we aren’t forced to pay the upfront costs of integrating crypto such that it’s useful, but it would be way cheaper if we did.
As far as the electricity requirements of Bitcoin go, they tend to be renewables since those, when strategically placed, are the cheapest option. Otherwise, a lot of the electricity used is so-called ‘stranded energy’. A power plant needs to over-produce electricity to be able to reliably deal with demand-spikes and the otherwise wasted energy powers much of Bitcoin’s mining. I personally think that Elon Musk is actively trying to make crypto seem useless/frivolous with his strategic tweets and backing of doge because a big part of his battery development efforts at Tesla are for storing this stranded energy. He has already deployed mega batteries in Australia and every electron of stranded energy that ends up there is priced against the opportunity cost of using it to mine Bitcoin.
I decided to do a follow-up on this blog post with a different slice of the blockchain story. For people that are unconvinced by the economic, regulatory, and libertarian arguments on the topic, the research curiosities might give you a new perspective.
https://paperclip.substack.com/p/blockchain-history-the-trilemma
I am highly sceptical of the headline numbers reported here. "69% of Vietnamese have no bank access"? That number really surprised me so I tried to find the source. The company https://merchantmachine.co.uk/ provides no information on where these data come from. I live in Vietnam: there are banks everywhere, including in the very rural parts. I work with a lot of non-elite Vietnamese who have very advanced access to mobile phone banking! The numbers for Thailand (20% with no bank access) also look very dodgy. I would guess it's around 5%
You always have an interesting and informative take on your subject. Thanks.
It's obvious both why they hate it and why we need it - it's a tool against the (cultural) establishment, which's game they are deeply indoctrinated into; otherwise, they would not be able to exist in woke valley. But it's fine, they can kvetch the whole day about it, we're here to stay.
Each programmer they cancel for refusing the ritual scarification of their own rational faculties is a new worker on our side. There is only one way this is going to go.
But what if I think prostitution is wrong? What if I think it is immoral to buy sexual consent? Is it okay for me to criticise crypto's ability to allow people to bypass a government's ability to crack down on that behaviour?
(And before you bemoan that the prostitutes are losing their livelihoods, I would recommend that the state put them in a shelter rather than turn a blind eye as they allow themselves to be raped just to get by.)
Crypto's high cost per transaction makes it a very poor substitute for traditional electronic payments and inherent high price volatility in the short term also makes it an awful substitute for fiat currency as a way to hold value.
Show me another way to send arbitrary amounts of money anywhere in the world (even through financial berlin walls) for less than ten cents.
Neither Bitcoin nor Ether transaction cost are so low.
Bitcoin transaction costs are as low as you set them. If it's not a replace-by-fee transaction, and the size is under $100k, you can be 99.9% confident it won't be double spent after a minute of getting propagated to nodes and miners, before it actually becomes part of a block. Nodes and mining pools aren't set up to help you double-spend those sorts of transactions. If you require actual confirmation ASAP that would be more like $0.45 in the current climate.
You have successfully changed my mind! Thanks!
This is an example of a topic where Scott, who is a good blogger, would benefit immensely from a blogosphere existing. This post, and his arguments on the topic, would benefit a lot from a critical dialogue with an informed and compensated skeptic. Speaking as someone who respects the effort but is not convinced.
I got interested in crypto several years ago listening to Nick Szabo on the Tim Ferriss podcast. After playing around with DEFI in the $ATOM and $AVAX ecosystems ($ETH fees are too expensive to use $ETH as a play-around-to-learn platform) my biggest disappointment is that there aren't enough "real-world" projects which is what Szabo predicted would eventually disintermediate much of the make-work and bureaucracy built into conventional finance, insurance, real estate, etc. With only a handful of exceptions, all I see is a lot of DEFI derivative projects vying for (and passing around) the same ecosystem liquidity.
I wrote this email in reply to my girlfriend, who said crypto was only good for vice and speculation, and that it couldn't be a bulwark against authoritarianism because guys with wrenches can always beat the password out of you:
I like that XKCD comic about the $5 wrench cryptanalysis!
Vice and speculation is a big part of it but I think bitcoin is a lot more than that. Right now in some poor countries it's an important safe harbor. $5 wrench attacks work, but it's impractical to go around doing that to millions of people. A bank is so much easier for a dictator to steal from because the money is so much more concentrated and visible. Meanwhile a safe announces the presence of wealth and gives burglars with wrenches ideas of something specific to ask for. But a bitcoin wallet can be held as 12 memorized words which leaves no physical evidence anywhere (I have one of those). Someone could even memorize a decoy wallet with a small portion of the funds to give to the wrench guy. So I think bitcoin can be more secure than keeping your money in a bank or a safe, especially in countries that don't have good banks or good law enforcement right now.
I also think that in very long term expected-value terms, bitcoin is a 4-6%/year better store of value than dollars in a safe. If we suppose a constant fraction of the global economy will be transacted in bitcoin at a constant velocity, and the supply of bitcoin is constant, then in the limit the value of bitcoin will grow at the same rate as global GDP, which will be positive 2-3% instead of negative 2-3% from USD inflation.
International payments can be a pain in some countries, and I think bitcoin has a role there. A lot of poor countries, and even middling countries like China, have capital controls that function as a sort of financial Berlin Wall to keep people locked in. Richard Munchkin has a story about how he won tons of money at casinos in Poland in the 90s, but then he couldn't get the money out of the country so he just kept it there in a safe for a year while he tried to figure out a way to move it. Eventually he just smuggled it out. My other friend who imports a lot of stuff from China says the factory owners there create burner accounts in Hong Kong and get paid in fiat there, and then they can use that money anywhere outside china. But crypto could also be a good option if China starts cracking down on Hong Kong banks.
Crypto is being used in Ukraine mostly because it's how Ukrainian scammers launder money. I suspect the rest of the third world uses crypto for that exact reason as well.
You sent cryptomoney to Ukraine? Congratulations! You got scammed!
lol this guy basically just assumed this and confidently stated it as a fact
great article, tho i disagree w/ "Yes, The Crypto Financial System Is Just Reinventing The Regular Financial System Except Worse In Every Way ..."
smart contract chains offer big decentralized computing systems, with a built in (tho slow and expensive) mechanism for compensating those who offer up cpu resources to the system. As of today, these are not very good computing systems, but they have benefits beyond just avoiding govt and megacorp censorship:
1) shifts financial burden from creator onto users, allowing for lower startup costs. If i want to create an online game or something, that stores peoples' game state serverside, I dont have to buy up a bunch of expensive server space without even testing the market to see if anyone wants to play my game. Users pay a-la-carte for each game action, and if they actually like your game they won't mind doing so because they're paying like a hundredth of a cent for each action
2) scaling "for free". Of course, if eth gets too busy, then prices go up and there's congestion and it's a huge mess. But at least you don't have to pay amazon or google a monthly fee to run your service, and either have to make excessive payments or outage in the case that there is a usage spike, and you don't have to worry about getting DDOSd (trolls can't afford the txn costs to DDOS a major chain)
3) One versatile tech system means that if you can get it right once, you don't have to have every online retailier do their own code and screw things up. Ticketmaster has a number of bugs, but ethereum probably has very few. If you had an NFT smart contract for concert tickets, teh contract might have bugs, but it probably won't because it will probably a small modification of the basic NFT smart contract which has been rigorously tested a gillion times. On the topic of ticketmaster, they charge exorbitant fees (like 5-20% i think) for everything. OpenSea (the biggest and oldest NFT exchange) takes a 2.5% cut of every transaction, and I think there's a good chance that will decrease in the future if they get any major competition
4) publicly verified transactions increase transparency
5) financial contracts settled with code execution are more objective, predictable, cheap, simple and straightforward than legal contracts. They aren't perfect, and there are plenty of cases where a legal contract is preferable or inevitable. But there are also plenty of cases where you'd much rather have a well verified, publicly published computer program execute your financial agreement than have some legal agreement written in english-variety-legalese whose adjudication will be achieved two years after a dispute by twelve randos who are being corralled by the better paid attorney (and both attorneys are very expensive).
tl;dr: crypto is not a strictly inferior financial system whose one merit is that it can exist at all in one extreme niche environment, it is as of today delivering options in a broad array of niche or not-all-that-niche subareas of the finance, computing, and contracts worlds in ways that have different pros and cons compared to the conventional options. and it's definitely improving a lot, as new smart contract chains come up with major tech innovations over the existing ones
Wow, well said, ser!
Absurd how many commenters don't read the article.
I love your article, it is one of the best on crypto I've read, it gets close to realizing a fundamental point about what crypto solves. This fundamental feature is the reduction of economic transaction costs of trust for a common set of economic transaction types. I wrote my own here: https://7174.substack.com/p/the-fundamental-economic-value-of
Calling the people blocking roads and making noise with their horns loud enough to cause hearing damage in Ottawa "protesters" is disingenuous/inaccurate the same way calling J6ers and people who robbed businesses under cover of BLM protests "protesters" is. I think a better approach would have been arresting and charging those people, but what they were doing was not part of liberal political debate but more akin to rioting.
Is there evidence of what people in Vietnam are using cryptocurrency for?
My understanding is that hard cash has a lot of value as a means of transaction, and usually carries no fees.
Is it possible that less developed countries have more cryptocurrency volume because, unlike many other industries, the rewards of running a cryptocurrency scam aren't scaled down compared to the developed world, but are on an even footing with running a cryptocurrency scam from a developed country?
This article makes the startling claim that, "An estimated 25% of Filipinos and 23% of Vietnamese have played a play-to-earn game". Makes sense that it would be in a place where labor is cheapest.
Not sure about any of the explanations for why cryptocurrency is popular there, but there are a lot of good explanations and we should probable see what they're using cryptocurrency for before assuming it is for normal banking.
https://e.vnexpress.net/news/economy/vietnam-crypto-trading-second-highest-in-asean-4514602.html
Somehow the article offends me while my priors actually already agree with it. Cryptocurrency is an interesting way to *trade*. The use cases mentioned in this article already focuses on that. I'm hostile for it as store of wealth and will only use it if I ever need it to exchange money and will cash it out immediately. This view isn't changed by this article. This also dodges the Ponzi schemes that are out there.
But again you have mentioned that the topic is always drowned by the fact that Bitcoin has raised by 10000x so on this topic the trading part is treated as insignificant. As long as it's true, my prior is negative anytime it's mentioned.