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Comment by pavlov | Hacker News Reader

A housekeeper who invested $12k in cryptocurrencies in the past few weeks is quoted as saying:

“And maybe I’m going to lose it,” she said. “Maybe I’m going to keep cleaning houses. But something is telling me I can trust this generation. My instinct is telling me this is the future.”

This time is different?

Personally I don't feel any regret in ignoring the whole thing, even though I've known about Bitcoin since pretty much day one (thanks to HN of course). I look at the people who are crypto enthusiasts and it's obvious that I would have to be a completely different kind of person to be in the game.

In that sense it's no different from Wall Street traders, YouTube personalities, real estate agents or multi-level marketers -- I don't envy their financial successes either because I wouldn't want their lives (and even if I wanted it, I would most likely fail hard at the job because of personality mismatch).

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I still haven't found a way to buy crypto, and at this point am unlikely to ever do so. I suspect the money is in the hands of people that were already lucky somewhere in the first world and fairly rich before starting out.

As the article says, someone apparently 'invested' the meager sum of $400000 and is now super rich.

But people can only stay this rich as long as none of the initial investors (e.g. the ones with a disproportional amounts of tokens) hold their stuff.

It still feels like a multilevel marketing scheme to me. It'll only stay great as long as people keep buying more and for higher prices.

People from literally every social circle I have—friends, coworkers, family—are talking about crypto currency. Not one of them has made a compelling case as to its value. I tend to like the Matt Levine take: maybe cryptocurrency really IS groundbreaking technology and will change the world, and yet in our lifetimes maybe most of the market will be bogus pyramid schemes. (He compares it to the early days of stock trading; the idea of stock and limited liability really did change the world, but most of the early days were centered around scams.) But yeah, when everybody and their brother is talking about it, I have a hard time believing there are a lot of good investment opportunities left. When the shoeshine boy is giving you stock tips...

I've often heard that the US Dollar gets its value in part because it is the only thing you can use to pay taxes. And even if only a small percentage of US Dollars is used to pay taxes, that is enough to drive the rest of the value.

When someone gets hit with a crypto virus, if they don't have backups then the only way of getting their data back is to pay the ransom using cryptocurrency. And participation in black markets is based on the same. So even if that is overall only a small percentage of the use of cryptocurrency, it should be enough to drive at least part of its ongoing value.

So my question is, does this idea (or either idea) have any merit?

It does. Another alternative is that nation states “impart” some of their fiat value because they will potentially subsidize some speculative activity if the whole thing implodes via consumer protections or whatever. The thing that is interesting about Bitcoin is that it holds up a mirror to the largely illusory nature of “value” and money, which are sort of a shared mass illusion anyway. But it’s certainly different than the dollar insofar as fiat currencies are backed up by all of the powers of a state: as you mentioned the power to compel tax payments, and also the power to allow transactions within their borders etc. Fiat money in some sense is an embodiment of the power of the entity that issues it. Bitcoin has no power backing it, so its value, if it has any, has to come from something else.

I think that people who suggest that are missing the point. Yes, the USD derives some of its usefulness from the fact that you have to pay US taxes in it, but there are other things, like that it's a currency backed by a major world power, and that so many sellers accept it as payment.

But that doesn't mean that there are other reasons a currency is useful. In the end it mainly boils down to network effects: if a lot of people accept a particular currency, then it's useful. There are also other properties that make it useful, like relative stability of value and easy/cost of use (Bitcoin falls down pretty hard on both metrics). Bitcoin perhaps has some other properties (that the USD does not have) that make it attractive, but at present it doesn't appear to be enough to make it a particularly relevant currency when it comes to actual economic activity.

Taxes are important, though: people need to feel like they can reliably, safely, affordably, and stably convert a particular currency into the currency they use to pay taxes. I'm not sure Bitcoin does a great job by that metric either.

Right now the #1 use of cryptocurrency seems to be speculation, and #2 is far, far, far behind on the list.

Not one of them has made a compelling case as to its value.

Say you want to buy something from a Chinese supplier and you are in the Americas. They get the money in minutes and the process of sending them the funds is as easy as sending an email. If crypto was used solely for this purpose it would be incredible value. I know this because when I wire money internationally we are all in suspense for days.

Is there a reason you couldn’t build that without resorting to a cryptocurrency? Couldn’t you build central clearing backed by reserves of fiat currencies? It could be built on a blockchain, but I’m not sure why a cryptocurrency needs to be involved.

The point is to illegally skirt regulations and obfuscate transactions. Many crypto believers are quite forthright about their anarchist bent.

Even a cursory attempt at second-order thinking might be enough to disabuse a reasonably intelligent person of such delusions. There’s also a funny tautology to be had here: when you design something to achieve anarchy... you get anarchy.

But really who gives a shit when you’re swimming in piles of cash? I certainly wouldn’t. And then again, once they reset to equilibrium and emerge from the stupor, they might feel more bad about what they wrought than the money feels good.

It is a different kind of bubble because there is a lot of idealism behind it.

Idealistic bubbles can last many generations. For example, communism in Russia lasted about 70 years and it flipped the social hierarchy upside down.

Also, bubbles have the potential to shape reality and become self-fulfilling prophecies.

To me, cryptocurrencies are the next NASDAQ/NYSE/LSE... In a few decades, nobody will do IPO, everyone will do ICO. It will be much more fair and transparent.

It's all about network effects; will the next generation of talented young people invest in NASDAQ companies or will they invest in blockchain companies?

When I read stories about wealthy cryptocurrency people partying I feel OK with that... Many of them had humble backgrounds and they took a huge risk. They earned it.

In fact, I accept the wealth of the cryptocurrency community as more legitimate than the wealth of the traditional elite.

To me, traditional wealth is almost entirely inherited wealth so it has little merit behind it.

Please. The bitcoin chart going up and to the right is what is driving most of the discourse and demand, not ideology. The "investment thesis" for most people is "it doubled in the last x weeks I need to buy asap." This is not sustainable and demand will shrink once the chart reflects that, resulting in a crash followed by a bear market of investment thesis doubt. Hence, bubble.

Speculation is driving up the price, but it's idealism that prevents it from dropping too much.

For example; I bought about USD $1000 of cryptocurrencies a few months ago, then it grew to $15K so then I sold $1000 worth to get my principal back. Now I feel like I have nothing to lose. My portfolio says that I have $14K of cryptocurrencies; that represents a lot of money for me and yet when it drops by $2K in one day, I don't feel anything and I have no plans to sell.

I don't care much about what happens to it in fact. I wouldn't mind if it dropped by 90%; then I would buy more. Cryptocurrencies will always exist from this point forwards so they will always have value and it'll always be proportional to user attention. User attention is fickle/volatile but when you have it, it's valuable.

It's like religion; religious organizations offer no intrinsic economic value and yet they make a lot of money and their assets are worth billions.

> I don't envy their financial successes either because I wouldn't want their lives

This seems like sour grapes. Investing does not necessarily mean adopting a lifestyle. You can make small, manageable investments without it taking over your life. You don't have to invest every single dollar of your savings.

It's easy to project sour grapes on folks, but I can attest that getting rich off speculative investments just plainly doesn't interest me. I just plainly don't want "money for nothing" which I consider the lottery and crypto to be.

But that said I don't judge anyone for making money off crypto. If that floats your boat then more power to you.

Is it the getting rich off of speculative investments part that doesn't interest you, or is it spending time thinking/talking about and actively investing in crypto on a recurring basis the part that doesn't interest you? To me, marking money off speculative investments is a good thing, and spending a little bit of time thinking about it is fine too. Lots of people act in that manner without it becoming a part of their life. This isn't a binary choice.

Not the parent poster, but the way I look at it is this:

Making money off speculation is a net negative for society as a whole. Very little has changed about Bitcoin except that people will pay more to buy some of it now than they would 5 years ago. There's not any fundamental reason for this; Bitcoin itself isn't even loosely related with any kind of commodity or anything "real" that could drive its growth. It's just people hoping that there will be a "greater fool" in the future that will pay more of it, and that there will continue to be greater fools for as long as they decide to stay in the game. More charitably put: it's people who really believe Bitcoin will change the world[0] of finance someday, and want to make sure they have a stake.

I'm not entirely opposed to making money via those means, but if I were to do so, it would be at someone else's expense. At least if I invest in, say, an index fund, that money goes toward actual economic activity: building things, selling things, etc. (no, that money doesn't go directly toward that, but after several convolutions, that's what it's supporting).

When I think of cryptocurrency specifically, I also think of several countries' worth of electricity being burned in support of the various currency networks, and I get a very sour taste in my mouth.

So I think it's hard to say that I'm for or against making money from speculative activity; it depends on the particular speculative play and how much I can stomach whatever external harm or negatives that speculation causes[1].

[0] I do believe blockchain tech (in general; not Bitcoin specifically) does have a lot of potential, but I don't think any of the current cryptocurrencies are going to be around for the long term. If the blockchain does change the world in some way, it'll be a new application of it that we probably haven't seen yet.

[1] I just want to be clear that I'm not trying to take a holier-than-thou attitude here... I'm likely comfortable with some negative externalities, just not all, I guess.

I think the reason that you believe that is because of the "loud" ones who have made their crypto money are almost omnipresent. I missed the boat, but I know of quite a few people who are crypto-rich yet do not bring it up all the time and live the same life they did before.

> I missed the boat

Why do you think you missed the boat? Yes, the 1st boat maybe, but I think there is still time and room for the rest of us who haven't invested. Only we can't expect the 10000% gains in 1 months like the early adopters and risk takers did.

I say that because mainstream brokerages are slowly getting into this space. Goldman Sachs said it will open a Crypto Trading desk this summer. Bloomberg has already added Bitcoin, Etherium and Ripple to its Quotes Terminal.

That's more of a reflection of the opportunities for Goldman and co to make money, rather than a reflection of the opportunity for you, me and GP to make money.

Look at the trading volumes and who is doing the trading; these prices are not the same as stockmarket prices.

> it's obvious that I would have to be a completely different kind of person to be in the game.

Many people, including, uhh, some guy I know, made a pretty penny just because their leftover $100 for buying weed off the dark market is worth so much now.

> Personally I don't feel any regret in ignoring the whole thing

Too bad, because thanks to crypto I learned a lot about Dollars and Euros, what those numbers on the bank really mean, etc.

Bitcoin made it clear to me that you are always in some kind of game. Before bitcoin I thought I own those numbers on the bank. I also thought those numbers are backed by real value. How very wrong was I.

At this point, you can still ignore it I guess, but assume the following (possibly crazy) scenario: you go to a regular shop down your street, and that shop keeper says "If you pay in Bitcoin, you will get 5% off". At that point, will you still ignore it? And if so, how safe are those numbers on your bank account?

Getting involved with cryptocurrency is by no means a prerequisite for learning those things. A fairly basic understanding of world financial markets will get you that.

> you go to a regular shop down your street, and that shop keeper says "If you pay in Bitcoin, you will get 5% off". At that point, will you still ignore it?

I'm not the parent poster, but nowhere did he say he's going to ignore it forever, just that, for now, his lack of interest hasn't been a problem for him. There's nothing wrong with ignoring something until it becomes relevant and useful to you, and things often become relevant to different people at different times.

In your hypothetical scenario, I, too, would probably start taking an interest in Bitcoin if a decent number of shops I frequent started offering discounts for paying in BTC. I just don't see that happening, and even if I did, I wouldn't expect it for quite a long time. BTC is way too unstable a currency for most vendors to accept it, let alone really try to encourage people to use it by offering deals.

> And if so, how safe are those numbers on your bank account?

Probably pretty safe, barring some sort of financial collapse. I think you underestimate the stability of the world financial system, and vastly overestimate cryptocurrency's chances at supplanting fiat currency. Maybe in 50 years the situation will change a bit (doubt it, but maybe), but still... there's no rush to get into it now for the sake of anyone's financial stability. On the contrary, significant "investment" in Bitcoin today is a guaranteed ticket to personal financial instability.

> Getting involved with cryptocurrency is by no means a prerequisite for learning those things. A fairly basic understanding of world financial markets will get you that.

You can't believe how many people I came across that still thought money was backed by gold (including myself I must admit). This topic is under the discussion thanks to Bitcoin.

> I think you underestimate the stability of the world financial system, and vastly overestimate cryptocurrency's chances at supplanting fiat currency.

I agree that the financial system is stable, and that cryptocurrency has only a tiny chance of succeeding in that. But when it does, this would mean a huge overhaul of our current system. The federal reserve would be pretty powerless in such an event (even now with the low interest rates, it has a problem keeping control). Which means things would go really fast. That in combination with fraction reserve banking, doesn't look pretty.

So I agree with you that the chance of that is really tiny. But when it occurs, the impact is enormous and fast.

> You can't believe how many people I came across that still thought money was backed by gold (including myself I must admit). This topic is under the discussion thanks to Bitcoin.

Crediting Bitcoin for an even remotely significant number of people learning that money isn't backed by gold is a bit silly. There are other, more effective ways of learning about that. If you're right in that a lot of Bitcoin fans previously didn't know money wasn't backed by gold, that just tells me that a lot of Bitcoin fans in particular are very ignorant of basic finance, and their developing Bitcoin fandom is likely in part driven by that ignorance.

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