Comment by Giroflex | Hacker News Reader

Comment by Giroflex | Hacker News Reader

This articule just seems to revolve around some pretty skewed data.

> Recently the founder of something called Ripple briefly became richer than Mark Zuckerberg.

Became paper richer, which is really quite different. The "market cap" calculations just don't represent reality; he couldn't realistically dump all of his Ripple and expect price to not crash (not even taking into account the huge natural correction in price after the peak of the bull run)

> The cryptocurrency community is centered around a tightknit group of friends

This statement implies that there are few people in the community at all, which is just not true.

> some estimate that 95 percent of the wealth is held by 4 percent of the owners.

This links to an article that says that 95% of the wealth is held by 4% of the wallets, which makes an absolutely huge difference. This is because:

- Some of these wallets are held by exchanges, who hold all of their users' crypto

- Some of these wallets are lost early adopter wallets, from when a large number wasn't something impressive (e.g. Satoshi's lost Bitcoin, accounting for 4 million (!) Bitcoin)

- Many of the wallets created are never used or have already been used just for moving funds and thus have 0 balance (in fact, the article's graph states that 41.93% of wallets hold just 0.01% of bitcoin)

> he couldn't realistically dump all of his Ripple and expect price to not crash

Likewise Zuckerberg for Facebook

Zuckerberg's stock a bit different: the stock represents future income flows - they have real value - whereas cryptocurrency value is a function of confidence.

Yes, the stock would go down on Zuckerberg selling, but that's because people would infer from it an estimate of a decline in future income flows. But the future income flows won't go away just because Zuckerberg sells; it's not just confidence putting a floor on the stock.

Whereas Mark Zuckerberg could exchange his shares for dollars ... which supposedly represent future tax income of the united states government ... paid in dollars.

Fiat currencies, including somewhat non-intuitively shares, dollars and every currency (including most forms of gold I might add) ultimately depend on confidence.

It's a lot easier to have confidence that the US Government will exist in 50 years than one of one thousand fake currencies on the internet.

> Became paper richer, which is really quite different

I hear this all the time but I don't understand it.

The Ripple guy's wealth isn't made of paper, it's an electronic ledger.

And if he trades his Ripples for dollars or euros, that wealth just moves to a bank's electronic ledger.

If he uses his dollars or euros to buy shares in Google or government bonds, the wealth moves to a broker's electronic ledger.

Then he sells his securities to buy real estate, and now his wealth is in an electronic ledger of property titles.

So in what way is cryptocurrency wealth "only paper wealth" but other wealth is somehow more substantial than "paper"?

Dollars, Euros, and stocks are all forms of highly liquid wealth which are generally trusted and can easily be exchanged for goods and services. They've all been around for many years and are backed by trusted entities. In comparison to Ripple they're much less volatile.

Ripple isn't any of that yet and the "wealth" can evaporate much more quickly if Ripple fails to gain those qualities.

> They've all been around for many years and are backed by trusted entities

That's so obvious it probably doesn't need to be stated.

The GP's argument is that cryptocurrency wealth is somehow lesser because it's "paper" wealth.

You didn't really answer how cryptocurrency is any more or less "paper-like" than other intangible assets.

Everything I mentioned in my comment is why it's less than other intangible assets. Not all intangible assets should be valued equally at their same level of converted fiat. The riskiness of an asset in particular is an important factor.

$100 of XRP is worth less to me than $100 of Google stock because it's 1) less liquid, particularly in times of crisis. 2) More likely to be worth $0.

What you're saying is so obviously true that it's virtually meaningless.

Of course XRP is less liquid than Google common stock and more likely to go to zero. XRP is also more likely than Google stock to increase 10x.

It's so obvious it should go without saying that some assets are more risky than others. Nobody would disagree.

If the price of your Google common stock doubles, is that not a "paper gain"? And if the price of your XRP is cut in half, is that not a "paper loss"?

All gains and losses in typical assets are "paper", so this seems to be a distinction without a difference.

It sounds like you're talking about a more binary approach to categorizing wealth. It either "is paper" or "is realized". To me, not all paper is created equal.

I see assets representing wealth as a spectrum. There are shades of paper wealth that make it closer to realized wealth than others. Google stock doubling is a paper gain that is more substantial than a paper gain in XRP because Google stock has larger current utility than XRP.

Everyone has different ways of calculating utility which impact how substantial they feel a gain in a certain asset is when compared to another.

That's my theory, how do you see things?

> The Ripple guy's wealth isn't made of paper, it's an electronic ledger.

It's a colloquialism. A lot of Zuckerberg's wealth is "paper" wealth as well.

I think there are two things here that make people dismiss crypto wealth so easily.

1) The first is perhaps a little unfair, but in some ways justified: crypto wealth isn't actually founded on anything. Say what you want about Facebook, but even the most cynical of folks have to admit that it's built on a ton of economic activity, and we can predict at least some amount of stability in Facebook's share price going forward for some amount of time. With Ripple, it's anybody's guess. Ripple guy's net worth in terms of dollars could double, or halve, or sink to near-nothing in a matter of days or weeks, and none of those outcomes would be particularly surprising.

2) The other thing is liquidity. Zuck certainly can't dump all his shares of FB and expect the price not to tank. But a decent chunk of his net worth isn't tied up in FB anymore, and he can likely liquidate a lot of that fairly quickly. The Ripple guy presumably is an otherwise "normal" person who has 99.999999% of his net worth tied up in Ripple. Liquidating even a relatively small fraction of that would crash the price of Ripple, so in real terms, the Ripple guy doesn't have access to that money. Also, all (or nearly all) of Zuck's wealth exists in mature financial markets with clear rules and regulations and predictable expectations. The Ripple guy's net worth exists in something that is basically the opposite of that.

As an aside, I'm not the parent poster, but I think dismissing it as "paper wealth" isn't really getting across what he probably actually means. Even if Zuck's wealth was all "paper wealth" as well (in that hypothetically let's say nearly all his net worth was tied up in shares of FB, and that liquidity there was difficult), I'd still give more credence to Zuck's wealth due to #1.

Reply on news.ycombinator.com