Bitcoin as a Game
jpkoning.blogspot.com
jpkoning.blogspot.com
This is a truly tired analysis. It goes by various names, including "greater fool theory." Notice how it applies to almost every asset being traded today?
Stocks? Remember dividends? Not so much these days. Poster child is Amazon, but there's a slew of others that offer virtually nothing to investors other than price appreciation.
Government bonds? Do do negative interest rates sound? You buy one of these because either you have to or you think others will have to.
Real estate? Please. Take away price appreciation driven by easy money and few would bother "owning."
What this piece ignores is the world's ever-encroaching governments and the ongoing assault on privacy - with money as the fulcrum.
Government bonds are backed by the full force and trust of the government they represent, and repay the face value plus yield promised at the time they were bought. They represent the most reliable yield you can get.
Real estate? You mean that thing you live in?
This is all a bunch of a false equivocation with one goal: "please buy my Bitcoins and give me USD for them"
A company is an abstract concept around a group of people, framed inside a legal entity. But yes, if you own many stocks you can sit at the table with some big boys. Most companies come with less risk than Bitcoin. But I rather buy Bitcoin than WeWork shares (assuming they list).
> Government bonds are backed by the full force and trust of the government they represent, and repay the face value plus yield promised at the time they were bought. They represent the most reliable yield you can get.
Until a government defaults. This doesn't happy every week, but ruling out that it doesn't is not the best investment strategy.
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I'm not denying Bitcoin is speculation, but so is everything else. Sure Bitcoin might be more speculative under your frame of reference. But it's not black and white.
Depends on the price. Thanks to limited liability, WeWork share can never be worth less than zero. And just liquidating their existing office supplis is probably worth at least a few thousand dollars. But, of course, you'd have to pay off creditors first.
If WeWork lists and doesn't go under, and assuming even a weak version of the efficient market hypothesis, the price their shares trade on will be about 'right'.
> Until a government defaults. This doesn't happy every week, but ruling out that it doesn't is not the best investment strategy.
Agreed. Though in the developed world, inflation is usually the bigger worry. (Unless you buy inflation indexed bonds.)
The reason Bitcoin is valuable is because the work required to create one is significantly harder than Fiat currencies and it is one of the only truly scarce assets in human history (hard cap).
How much equipment do you need to counterfeit any fiat currency? Can you purchase the equipment for less than $10k?
Yes, easy.
How much equipment do you need to counterfeit Bitcoin? Can you purchase the equipment for less than $1 billion?
No, not easy.
You may think this is a trivial distinction but it has tremendous value knowing you have hard uncounterfeitable money with a hard cap.
The US treasury spends hundreds of millions of dollars a year fighting fake bills, that's only 1 of the dozen or so problems bitcoin solves. The second is that all the verification and security is done by the most powerful supercomputer in human history.
These things gives it its value.
Garbage company stocks, you can throw those in the trash if the central banks aren't busy helping pump them.
Hard money wins, soft money gets snuffed in the night.
Re stock: People are already working on blockchain voting mechanisms. Currently you need to own quite a sizeable chunk of a company's stock, and to go rather far out of your way, to actually influence the decision-making of a company you own stock in. Cryptos with on-chain governance, on the other hand, will remove most of that friction.
Re. government: Sure, right now this type of decision making only applies to either protocol design decisions or how to edit transaction history in the event of a problem, but once the proposal-vote-consensus-action pipeline is figured out and trusted, I see no reason it won't start getting applied to the same problems that we keep governments around to solve. So yeah, government bonds are safe nowadays because government's don't have anything to compete with besides other slow inefficient governments, but if people think that a collection of community maintained consensus algorithms are more effective than their government--well I wouldn't want to be holding fiat bonds when that happens, because why pay taxes when you get more bang for your services-for-society buck elsewhere?
As for real estate, just shooting from the hip I'd say that it's 10% real and 90% the game indicated in the article. In a world where large scale behavior of economies can be quickly altered by a vote and a parameter change, I certainly hope we can find a set of parameters that will eliminate the homeowners association and all of the waste associated with placing property resale value over utility. I'd much rather lose out on my "investment" in this house than continue to live in a world where my friends can't afford to live near me because of all the overpriced empty houses in the way--sucking up all the water for their perfectly manicured lawns that nobody touches while the poor kids down the road play on a field of gravel, broken glass, and thistle.
I don't hold much Bitcoin, but I promise that I don't value it because I think I can later dupe somebody into buying it at a higher price.
I value it because it's clumsily paving the way for a world with fewer parisitic middle-man institutions, and the further it gets before it falls over the sooner I'll get to live in that world. I guess that's called investing.
You might call it bitcoin all you want, but no actualy bitcoin software would be fooled. (You might trick some people, but fraud has existed long before computers).
It's a lot less expensive to reliably distinguish a fraudulent bitcoin from a fraudulent goal bar.
So even if you hold the position that there is no perfect scarcity because fraud is possible-- the cost, difficulty, and success rate of that fraud matters greatly.
If you want a string of bits that acts like bitcoin, you can replace it with Xcoin, for many values of X. You can even create your own coin which does whatever you need. You may not be able to replicate the network, which may provide some amount of scarcity, but it’s not the same as gold.
So-- silver? Sure silver oxidizes a bit, but the oxide is conductive too and silver itself is more conductive than gold! :)
I too was doubtful about bitcoin at first. It's just plain obvious now: first mover advantage, leading to the development of highly specific ASICs, with a side advantage of allowing the cross border trade of electricity when turned it into mining power. So if you live in some isolated place but with cheap energy, money!!
BTC is too big to fail. A success that can't be replicated or taken down as it was ignored for too long. Even more unimaginable now that it benefits some people who wouldn't let them happen without a fight, and who have the power and the money to give this fight.
As an aside, I agree with the other poster that there is no intrinsic scarcity to bitcoin, because anyone can create bitcoinN which are nearly identical to bitcoin. I say nearly because you can’t necessarily replicate the network, so the scarcity really depends on complicated emergent human behavior.
Take any of the past 2 years' forks of Bitcoin (e.g. Bitcoin Cash, Bitcoin Gold, Super Bitcoin, etc.) and try to submit a transaction to the actual legitimate Bitcoin network. It will fail.
One of Bitcoin's main technological achievements is solving this type of digital duplication problem. If anyone can just copy-and-paste new bitcoins into the system, it will fail.
That said, blockchain may not work at all, as applied to digital currencies. The abilities to revoke and expropriate are tools, like prisons are. Their use, on occasion, is just. Society might not want to see those tools discarded.
Bitcoin's initial distribution was as preferable as it can really get. It was announced to a mailing list of people most likely to pay attention to it. Anyone with a computer could join the network and be rewarded with bitcoins. You didn't even need to have a fast computer. The software was free and open source. There isn't much you can improve upon without introducing trust or maligned identification schemes.
I placed 20 $1 bills on the ground scattered right outside my house. They are out on the street, free and open air. Anyone can take them.
In actuality, there will be a small, small minority of the world that gets all the value.
Of course, you can create an identical coin on paper. Many have tried and their attempts have failed because like you said, the human behavior (aka the social aspect, network effects, psychology, etc) also have a big effect.
In my opinion and feel free to disagree, I think Bitcoin has the true potential of being the internet's native currency, especially with many lightning network wallets coming online on the mainnet. It's far from being perfect and unfortunately has attracted many scammers and want-to-get-rich-quick-people over the last few years, but I believe it has a really great potential.
*If you read the article, it explains the demand was from the person behind Bitfinex printing a seemingly unlimited amount of Tether to steal BTC from other exchanges, so the demand is in effect a huge heist across all exchanges that supported Tether / USDT.
In Bitcoin's ideal use case, internet transactions - nearly all businesses have rejected BTC as a form of payment.
Stripe, the famous silicon valley payment processor discontinued Bitcoin support:
https://stripe.com/blog/ending-bitcoin-support
"At Stripe, we’ve long been excited about the possibilities of cryptocurrencies and the experimentation and innovation that’s come with them. In 2014, we became the first major payments company to support Bitcoin payments.
Our hope was that Bitcoin could become a universal, decentralized substrate for online transactions and help our customers enable buyers in places that had less credit card penetration or use cases where credit card fees were prohibitive.
Over the past year or two, as block size limits have been reached, Bitcoin has evolved to become better-suited to being an asset than being a means of exchange. Given the overall success that the Bitcoin community has achieved, it’s hard to quibble with the decisions that have been made along the way. (And we’re certainly happy to see any novel, ambitious project do so well.)
This has led to Bitcoin becoming less useful for payments, however. Transaction confirmation times have risen substantially; this, in turn, has led to an increase in the failure rate of transactions denominated in fiat currencies. (By the time the transaction is confirmed, fluctuations in Bitcoin price mean that it’s for the “wrong” amount.) Furthermore, fees have risen a great deal. For a regular Bitcoin transaction, a fee of tens of U.S. dollars is common, making Bitcoin transactions about as expensive as bank wires.
Because of this, we’ve seen the desire from our customers to accept Bitcoin decrease. And of the businesses that are accepting Bitcoin on Stripe, we’ve seen their revenues from Bitcoin decline substantially. Empirically, there are fewer and fewer use cases for which accepting or paying with Bitcoin makes sense.
Therefore, starting today, we are winding down support for Bitcoin payments. Over the next three months we will work with affected Stripe users to ensure a smooth transition before we stop processing Bitcoin transactions on April 23, 2018.
Despite this, we remain very optimistic about cryptocurrencies overall. There are a lot of efforts that we view as promising and that we can certainly imagine enabling support for in the future. We’re interested in what’s happening with Lightning and other proposals to enable faster payments. OmiseGO is an ambitious and clever proposal; more broadly, Ethereum continues to spawn many high-potential projects. We may add support for Stellar (to which we provided seed funding) if substantive use continues to grow. It’s possible that Bitcoin Cash, Litecoin, or another Bitcoin variant, will find a way to achieve significant popularity while keeping settlement times and transaction fees very low. Bitcoin itself may become viable for payments again in the future. And, of course, there’ll be more ideas and technologies in the years ahead.
So, we will continue to pay close attention to the ecosystem and to look for opportunities to help our customers by adding support for cryptocurrencies and new distributed protocols in the future."
Case study in Bitcoin as a payment system where even highly technically proficient users were unable to reliably use BTC to buy digital goods (Steam games):
https://arstechnica.com/gaming/2017/12/steam-drops-bitcoin-p...
Bitcoin’s genesis block contains a reference to the 2008 financial crisis; Bitcoin is pretty clearly a response to what was happening October 2008, when the Bitcoin white paper was released.
Ironically, the global economy is contracting even as we’re still dealing with the quantitative easing that was used to keep things afloat the last time. Say what you will, but there’s a good chance bitcoin will be the safe haven, which it currently is for Argentina and Venezuela.
Where do you take that from? A Google search says that global real GDP is forecast to grow about 3% in 2019. Not great, but also not contracting.
For comparison, global population is forecast to grow by about 1% this year. So we even get a bit of growth per capita.
Slower growth is still not a contraction. And the US is not the globe.
There are negative interest rates all over the place; there’s the inverted yield curve, etc.
The US debt just went to a new record of $23 trillion; this won’t end well.
This one I have real issue with, ignores the much scorned buyback or any facet of capital investment. Your issue trades at a certain eps multiple, you take earned cash, buy shares with it. Sort of in a vacuum, it's the same business, why should the earnings change? But now you have less shares outstanding, so now your shares are in a more empirical sense worth more. If you want to consider it, the capital return can come from the company buying your shares. It can be harder with a company like amazon when they had a X00 eps, but it's still all about valuation. Amazon circa 2019 /= Amazon 1997.
>Government bonds? Do do negative interest rates sound? You buy one of these because either you have to or you think others will have to.
Yeah, some truth here. Alternatively, you do it because you think rates might go lower still, and their returns aren't highly correlated to equities. There's also a theory I'm partial to where in the pockets of the world that have a crazy high amount of savings, even past encouraging entities to find better returns, negative interest rates make no bones about making the the cost of savings clear.
>Real estate? Please. Take away price appreciation driven by easy money and few would bother "owning."
In a personal sense, real estate you own is rent you don't have to pay. In an external sense, real estate you own/operate is cash flows you can bring in. The elevated markets admittedly tend not to look so great in cash flow metrics.
We have plenty of stock buybacks. They are economically equivalent to dividends.
Yes, Amazon hasn't returned much capital. Granted.
> Real estate? Please. Take away price appreciation driven by easy money and few would bother "owning."
Prices are pretty flat in eg most of Germany. People mostly buy to consume housing services, ie save on rent.
I see Bitcoin as much the same. Sure, it could be used as a real currency, in the same way that I could use options or bonds as real currency. I could ask you if you'd be willing to sell your car to me for x number of options I currently hold. But I haven't created a new currency, and the value behind that "currency" is just the investor opinion of it at any given time.
Gold is similar. It's got more history. But it's more difficult to transact with. Bitcoin appears to be this generation's (late-boomer to early-millennial) gold or trading cards or what-have-you.
>Bitcoin: A Peer-to-Peer Electronic Cash System
the whole point of bitcoin — whether or not you believe it has a future —is that it allows for (and has) scarcity in a digital environment in which double-spending/scarcity were previously hard to enforce without an intermediary.
there are only ever going to be 21 million bitcoin. there is a limit :)
- Blockchain typically means a tamper-proof, distributed database.
- Smart contracts are like stored database procedures.
- Blockchains allow you to transact valuable assets - even billions! - without needing to trust your counter-party.
- However, you must trust the underlying software! This is a fundamentally different risk from usual financial transactions where you trust the institutions servicing the exchange, but not necessarily the counter-party. This turns finance upside-down!
- People can create financial products and services - even extremely complex ones - without any governmental permission, or if they need a real-world presence, permission from a regulatory body that is very amenable. And once granted, it's very easily to transact globally!
- If your curiosity is piqued, check out my blog post I wrote a while ago on MakerDAO and their decentalized stablecoin. It's fascinating! https://medium.com/@james_3093/the-dai-stablecoin-is-a-game-...
- Cryptocurrency and blockchain are some of the most debated, and IMO misunderstood technologies of 2019. They are interesting from not just a pure computer science perspective but also economics, philosophy, and psychology.
No, this is just normal finance: most of the financial service industry is providing exactly what blockchain provides—a way to have a trusted set of institutions and processes in places of trusting counterparties.
It's different that the crypto world likes to pretend it's just the automated processes embedded in software that need to be trusted—until those processes produce unacceptable results which requires social intervention, revealing that, yes, ultimately it's still trusting people—whereas traditional finance is overt about social constraints backstopping blind process.
But hippocracy aside, I still think it's a better system than the one you find in fiat currencies. At least in the crypto case the people in the trusted position have something to lose--if they behave badly, people will lose faith in the currency and go elsewhere. It doesn't take much to move your assets between cryptos. If you control enough hashpower (assuming POW) or coin (assuming POS) you could easily lose it all overnight if you support a malicious fork.
In a fiat currency there's way more friction keeping people entrenched. This means that the banks can behave badly and still bet on a majority of their users sticking with their platform.
Besides, Bitcoin just proved the concept. If you don't accept that its fork mechanism has merit as is then I hope you can at least admit that there could be a system that is more effective than our current bureaucratic mess. And whatever that system is, it seems likely that one of the fledgling next-gen cryptos will find a way to make it happen.
I was reading about decred the other day, for instance. Voting on potential forks and then healing the partial schism caused by the vote is baked into their protocol. Apart from the necessary bit about trusting other stakeholders to vote reasonably, I think that in a scenario like that the trust placed directly in the protocol is not insignificant.
BTW something I've read here and I adopted as my tagline: it quite fun to come on ycombinator and read every single time the rambling of all the people predicting the doom of bitcoin -- you know, the thing that has managed without venture backing to become more valuable that ALL the ycombinator companies PUT TOGETHER.
TLDR2 : Sour grapes :)
I remember reading about a swedish guy that said he had seen the light and converted all of his savings in BTC. He was torn to shred by so many posters.
Funny thing: I haven't heard about him since, but I sure have read the moaning of the same people who had predicted he'd end up destitute. I think he's doing ok while they aren't.
I sure wish I had seen the light like he did, but I don't blame him for his hindsight. And after I saw most of the negative posts as sour grapes who just regretted they didn't act on the information that was available to them, I decided to act. Like you did.
Maybe more people should follow your example and stop misunderstanding the problem. Yes it needs economics + philosophy + psychology, but it can be learned. For those who don't want to learn, please don't blame those who do. Even more important: don't try to strop those who want. We need fewer sour grapes. Not more.
EDIT: Came from another thread to apologize when I saw my karma going to new lows. Sorry for rubbing it in. Downvote if it makes you feel any better about yourself and your past action.
You're describing futures.
Outside of that world it's not speculation.
I also don't think psychologically people want to own a decimal place of something but that's a different issue. If people could still buy 100 bitcoins, they'd probably do so.
Coinbase: https://blog.coinbase.com/charting-the-course-of-bitcoin-11-...
The reason why capitalism kind of works is not because it rewards productive people but because most people believe that it rewards productive people.
The economic incentive to work or invest is rooted in deception. Not so different from Bitcoin or anything else.
Bitcoin is no game; over $7 trillion has been transferred since 2009: https://blog.coinbase.com/charting-the-course-of-bitcoin-11-....
We’re seeing the beginning of a new economic good being created right in front of our eyes and many of us won’t realize this until many years later.