I x20 my BTC holdings and I agree 100% Bitcoin is pure speculation. Noone uses it to buy things and yeah maybe it makes sense in Venezuela but no chance its going to displace USD.
Only way is to ride a hype train. I had BTC from 2012, found it in 2019 after the crash so just waited for the hype to build up again. Sold it at 56k and will probably never buy again
> Noone uses it to buy things and yeah maybe it makes sense in Venezuela but no chance its going to displace USD.
Just this week there was some news that Iran was going to use BTC to work around some US sanctions. I am sure many countries will follow suit in the future, as the only way to really stop Bitcoin is if all countries would ban it's use together and that ain't gonna happen.
Back in the day, I wanted to support bitcoin so I paid 1 Bitcoin, equivalent of $150 at the time, on a single night at a hotel. I learned my lesson, at today’s price, that one night stay cost me $60,000.
And this is why people don’t use it as a currency.
Whether it's a failure depends on what you were hoping it would achieve, and how long you're willing to keep watching it before making up your mind. The experiment is still going. Maybe humanity millenia from now will be snuffing out whole stars to mine Bitcoin. I'd consider that a failure, but surely some miner would consider it a success.
Whether it's a failure depends upon its real value, which is next to 0. Crypto-currencies instead have a high nominal value, which is to say that they are only valued as an exchange for other currencies but otherwise have no utility. As a comparison a warehouse stocked with purchased tangible goods have a real value that can be exchanged for other goods regardless of inflation or currency activity. Crypto does not have that.
Concretely, there are only two utilities to crypto-currency: as a speculative currency investment hoping the value of a given crypto-currency increases disproportionately to a seed currency and as a means of anonymizing currency transactions. Until crypto is used for something other than day trading or illicit purchases most people simply don't care and won't ever care as its effectively worthless in a real sense.
He does not really state any good points to support his claim.
Ponzi one is baseless (in this piece).
Volatility one is incomplete. Clearly people use volatile currencies. Usually people avoid ones that are in downward spiral. If he (or even majority) can not wrap their heads around the question of how to transact under current conditions, it does not mean nobody can.
Isn’t the ponzi designation entirely correct? Nobody gets rich holding USD - it’s a medium of exchange. People get rich holding Bitcoin iff they can generate more future demand. This sounds like stocks, except with equities you also can get rich by claiming your stake of cash flows (ie dividends or buybacks), but there’s nothing of the sort with Bitcoin. What am I missing?
No, because a Ponzi scheme is one in which early investors are fraudulently paid "returns" out of the contribution of later investors. This is just speculation or a bubble (which I guess you could call "open Ponzi scheme", but that's a self contradicting term.)
I see, but if we are responding to NTT’s accusation, is that addressing the substance of the argument? Seems like there is a small change in terminology and everything else holds.
Planting tulips isn't an instant thing. It takes a season to grow. Not that different from mining? And not really part of the tulip thing; that was all about the bubble.
You're describing a fork. Bitcoin has already been forked uncountable times. They don't carry over the users, so they don't carry over the network effects either.
In that sense they're not much different. Beanie babies formed a speculative bubble too.
One might quibble that the phrase "Ponzi scheme" suggests conscious intent to deceive. That's a hard thing to prove, and largely economically immaterial. Putting questions of intent aside, every speculative bubble is a Ponzi scheme: buyers plan to sell for more money, and eventually can't.
You're right, thanks. (For anyone else unaware of the difference, Ponzi schemes are financial fraud and always illegal; pyramid schemes form a more inclusive set.)
Sometimes -- it depends on the investor. Other investors want non-paying stocks today because they will presumably start paying dividends someday. And in a perfectly rational world, the only reason the first kind of investor would have for believing they could sell at a profit would be because they anticipate the second kind of investor's beliefs.
No. Beanie Babies can be mass produced at will. And so can Tulips for that matter. That's why those are bubbles that will burst.
The whole thing that makes Bitcoin special is that you can't just ramp up the supply of it. The supply of Bitcoin is even better known than that of gold. It's also easier to store and transport. So Bitcoin is a better store of value than gold.
But Bitcoin is one of many cryptocurrencies is it not? Therefore the "supply" of cryptocurrencies is not exactly finite, no?
If Bitcoin becomes too expensive, couldn't users of cryptocurrency just switch to Ethereum or some other cryptocurrency?
No, because of network effects. The alt coins don't have any usefulness because no one is using them. The value of a network is the connections within it.
They already did strongly limit the supply of beanie babies to increase hype, at least for many variants. The problem wasn't the supply, it was that the value was entirely based on speculation.
And bitcoin won't be a better store of value until we can be sure the demand for it will last a very long time.
The supply of Beanie Babies isn't guaranteed to be limited. You are trusting the behavior of one company.
The demand of Bitcoin has only ever increased in the long term. It has already gone further up after three huge temporary bubbles. You really feel comfortable to bet against this long term trend?
The supply of "first run X" is guaranteed to be limited, though.
> The demand of Bitcoin has only ever increased in the long term. It has already gone further up after three huge temporary bubbles. You really feel comfortable to bet against this long term trend?
I'm talking about multiple lifetimes to truly be long term, not fives of years.
Bitcoin won't be a good store of value until it calms down. The demand can't go up forever, and even if it's guaranteed to stay very very very high, what if you buy in when it's very very very very high?
> The supply of "first run X" is guaranteed to be limited, though.
Yeah like art and first edition books, sure.
> Bitcoin won't be a good store of value until it calms down.
It is at a trillion dollar market cap already. Only one single 10x away from gold. The long term regression on the Bitcoin price says that it will flip gold in less than 5 years.
> what if you buy in when it's very very very very high?
You hold. Or hodl as the memers say. Bitcoin is a black hole and it will swallow everything else, because it is better than everything else on every metric. Yes it even uses less power than fiat or gold.
What does "store of value" mean when the only value you can extract from it, is value that other people put in? Otherwise it wouldn't be any different than holding onto a $20 bill (and having inflation destroy it's purchasing power)
How does gold store any value? It's not because you can extract any value from gold or because it is useful for some industrial purpose. That's only a minor part of it. That's not why people in general covet it. People value gold, because it is hard to get and other people don't have it. Same for Bitcoin.
Not how a panic works. Markets have too many positive feedback loops and they overshoot. And since bitcoin is actually backed by currency once it is all drained in a panic then it goes down the drain.
Are you trying to describe a panic such as a run on a bank? Because that only makes sense with fractional reserves. Bitcoin has a known and fixed supply with no fractional reserves.
There have already been three separate huge "panics" where the Bitcoin price has gone down 90%. But these don't even register any more if you look at the long term price chart. Zoom out. The Bitcoin price is going up and to the right like nothing else. It just keeps on going.
Bitcoin is fractional reserve. There isn't $982B in currency backing it. If everyone tries to sell at the same time it'll collapse after $10B or so leaves. Prior collapses have been from small enough heights that individual Billionnaires like Jack Ma have been able to rescue it. At some point its going to hit a crash where a billion here or there won't be enough to bail it out when it goes down.
My take is that it's all a speculative boom, similar to US equities right now but amped up since it's a novel type of asset that people can convince themselves has unique characteristics that lend themselves to a consistent 100% CAGR.
It certainly does have unique characteristics. The question for speculators is whether those characteristics imply a high future price, and on what time scale. There is ample data to make many principled inferences on these points. The question for adopters is whether those characteristics facilitate their intended application, and this will often be decided independently of market clearing prices, on technical and physical characteristics.
It is annoying how people use worlds like "bubble" and "ponzi scheme" interchangeably. Bitcoin may be a bubble but it is not a ponzi scheme. Taleb losses credibility for confusing the two.
He’s not necessarily conflating them. There’s a case to be made that profits from Bitcoin and other crypto are used to manipulate the system to boost it further (look at all the shadiness around Tether, for example).
And in particular the defining characteristic of a Ponzi scheme arguably holds for BTC: the "investments" of late investors allow the early investors to recoup their money (and then some).
> a ponzi scheme requires that $ from ealier investors is paid out to later ones.
(the other way around)
A BTC is worth nothing unless you can sell it for something (such as USD). It is the later "investors" who buy BTC for sky high prices that allow earlier "investors" and miners to cash out.
Interesting counterpoint! How would we allay the repartee that buy-in is mining hardware and the payout is coin? It's not exactly cash-to-cash, but cash-to-hardware-to-coin-to-cash where the endpoints are still the same. Or is it arguable worse and more risky than a Ponzi scheme in that regard?
Only if others want it. This is transferable to any medium. If we do a little thought experiment and say one person owns all the gold in the world, and another owns all the wheat in the world, which one is richer?
Well, it depends on which you’re interested in.
Adjacently though, if you’re starving you can’t eat the gold.
I'm asking about Bitcoin specifically. I believe crypto has real value for frictionless transactions, but I'm trying to understand my intuition that Bitcoin itself is a dead end.
Are you though? You are refusing to answer your own question directly in regards to US dollar. It is a simple yes or no question, and instead of yes or no answer you replied with an unrelated statement, and still did not give a yes or no answer. I question your true intentions here.
I didn't ask about the US Dollar. I asked about Bitcoin. It's seems odd to me that you are concerned that I didn't answer your question about the US dollar when you haven't answered mine about Bitcoin. I question your intentions as well. I only asked a simple, speculative question. My intentions are pure, while you present yourself to me in a manner that reminds me of trolling.
Your question and follow up comments imply, that answer to the question discredits Bitcoin somehow.
I am telling you whatever answer to your own question you will come up with in regards to Bitcoin, the same reasoning will be applicable to US dollar, therefore it should discredit US dollar in the same way, which basically makes the whole point (whatever that is) absurd.
I hear what you are saying now. I had trouble because I don't agree that hoarding Bitcoin and hoarding dollars ate the same. What if two people own all the Bitcoin? How does Bitcoin obtain it's value? I'm trying to understand it, not advocate an opinion.
I agree with Taleb but what will convince potential buyers that Bitcoin doesn't have some sort of property that makes it a valuable asset: it's abstract nature and mystique seems to me to be tailor made for the hype to continue for a long time.
Money is abstract and mystique. You see value in it because of your expectations that build on past experiences. With bitcoins, people have yet to make experiences.
Indeed. I wonder if buying Bitcoin is the purest form of technological optimism too: faith that the human species is clever enough to find a use for it.
> I wonder if buying Bitcoin is the purest form of technological optimism too: faith that the human species is clever enough to find a use for it.
It can be.
Can also be the purest form of cynicism, too: the enduring faith that there is a sufficient perennial reserve of tech optimism that the absence of broad practical application won’t prevent their from being a market of activists willing to purchase at higher and higher prices.
I suspect a lot is between those extremes, though.
I'd compare it more though to original gold and silver as currency in the middle ages and earlier....
It's a new technology just like original currency was centuries ago.
I think it has the potential to end poverty if tied to a single identity and account with built in taxes and a cap (prevent billionaires) and ads/rewards for internet content producers (built in patreon and crowd funding)...
But bitcoin and even ethereum aren't this...
Eth has more potential and possibilities, Cardano is even better, but I think anything that might help poverty and equality and post scarcity is 20 years off... Might not even technically use blockchain but some other mechanism for decentralization of currency.
Am I correct if I say: the amount of money in circulation should match the amount of wealth produced by a given society, and therefore anything that doesn't follow the same principle can't be called currency?
Oh what a splendid question. Currency is simply the means of transfer for wealth but not all wealth needs to nor can be represented by currency. We sometimes talk about the value of clean water or clean air in dollars, but this is not something readily convertible. Likewise, the wealth we inherit via bodies (stomach, intestines, lungs) is not something sell-able or representable by currency [unless we're talking illicit organ sales, but then the benefactor is hardly the person who started with the wealth].
Currency must represent enough wealth to be able to flow (current -> currency) but it's more akin to red blood cells in a body of organs, it serves the organs via its transit. We call this "liquid" when we have wealth represented by cash. I believe the correct answer here is that currency is a (fixed) ratio of actual wealth being generated by a nation-state or planet and therefore the amount of hay grown, the amount of rice harvested, the amount of chips manufactured, the amount of creative output that is captured is measurable, and there is a fixed ratio of that amount that results in "currency."
This might be easier to understand with a medieval analogy to a castle, we cannot sell our only castle, but we can use the agricultural surplus to trade. The castle might appear to have some sort of convertible wealth, but not all currency must represent that, because we are not frequently trading castles, but we are frequently trading currency for bread and for sustenance and commodity-goods.
I think one would benefit from reading Foucault's "The Order of Things" which explains that trade can only happen when there is a surplus beyond what is locally necessary, and this surplus is what gives rise to currency.
> Currency is simply the means of transfer for wealth but not all wealth needs to nor can be represented by currency.
My definition was very naive, I realize it now. So cryptocurrency can not call itself currency, correct?
People can trade crypto and NFT all they want, or they can exchange crypto or NFT's for pizza or the other way around. However, calling it a currency and making it convertible to fiat money creates an illusion that crypto is another currency just a bit too volatile (and a lot of people believe that it will pass as cryptos will eventually stabilize, which is likely wrong).
I think we should just stop calling it currency and thus put an end to a lot of confusion and unhealthy speculation.
A helpful concept might be "the velocity of money". The crucial insight is that all the money spent in an economy in one year can be expressed in two ways:
Take the available quantity of money M, and assume that each dollar is used in to buy something V times per year. Then M x V is the total amount spent in a year. That must equal the gross national income, in nominal terms (ie in $ terms), namely P x Q (price level times quantity of goods produced).
Thus: MV = PQ.
(As a side note, I personally would definitely not look to Foucault for economic insight.)
MV=PQ suggests that money-supply and price-level could increase in tandem, and V and Quantity-of-goods-produced could be unchanging. However, it seems that there is more subtlety to this equation, a threshold on how much Q can deviate before P must deviate. It's an interesting equation in that it seems to be the "homeostasis" for monetary supply, but the balancing act itself is quite unclear. Do you have any suggestions on where to learn more about how this equation self-rectifies?
Also, if not Foucault, who would you recommend for "economic insight?" Foucault's chapters on "Exchange" in "The Order of Things" are quite insightful, and if you read them and have any particular criticisms or disagreements I would much enjoy reading them.
> MV=PQ suggests that money-supply and price-level could increase in tandem, and V and Quantity-of-goods-produced could be unchanging.
That’s mostly true, especially near full[0] employment.
[0] not 100%, and how much less that is depends on other structural factors. If, say, uncontrolled social violence has people cowering in their homes instead of working the government printing money and offering to spend it on goods isn’t going to draw people out of their bunkers, its just going to drive up prices in the part of the monet economy still working.
> the amount of money in circulation should match the amount of wealth produced
Economists tend to believe a little inflation is helpful[1], and to disagree on how much. If the money supply increased by exactly as much as total wealth (which is different than the total output in a given year), the average price level would be constant. Such a scenario has never lasted very long anywhere. (Inflation and deflation both happen, but precisely "zero flation" is extremely hard to achieve, even if you wanted it for some reason.)
There's also a giant rabbit whole around how to define the average price level. It's an extremely hard problem -- what people produce, and what they need, varies from year to year, and durable goods depreciate by variable amounts, and much of our wealth is in intangible things like the recipes for vaccines with real but uncertain future payouts, and we can only hope to survey a subsample of the data. There's no obvious best approach.
Maybe this is completely off base but my line of thinking was based around fractional reserve banking: let's say I have 10 dollars and I put them in the bank. Then let's say the bank lends out 9 out of 10 of the dollars to someone else for a mortgage. The net wealth is the same ($10), but there are now $19 in circulation.
Failed currency? Yes, that was the envisioned utility and it failed to deliver that for many reasons.
Ponzi scheme? it is obvious, current holders make money when someone else buy it at a higher price.
Anyone says otherwise, need to counter those two facts or else we could assume he/she hyping it for profit or following blinded ideology/hype.
It also fintech porn, that many on forums like HN masturbate on mentally while day-dreaming about the prospect of anarchist decentralized self-governing societies..
Bitcoin is the opposite of a Ponzi scheme. A Ponzi scheme relies on fraudulent accounting to work. The earlier investor is paid a 'return' from funds that come from the principal of later investors. The distinction between a Ponzi scheme and an honest investment pool is that the latter maintains clear and honest accounting of investor funds and ensures that each investor's principal and gains are accurately accounted for.
With Bitcoin, the transaction ledger is public and immutable, making it impossible to conduct a Ponzi scheme on the Bitcoin network itself. If everything is verifiable it becomes much harder to run scams.
I get your point. Perhaps not a Ponzi scheme in the traditional sense. In the Ponzi scheme you described, the value of the currency is stable but the account is hidden. In Bitcoin, we have the opposite.
The "Ponzi scheme" is enabled on bitcoin not by hiding the bank account, but manipulation of the value of the currency itself. In both cases, the n holder is benefiting from the n+1 holder by convincing them to pay more for what the sell as a profitable investment, and each transaction value should be greater than the one before it for it to work. So it is a form of a Ponzi scheme, not the traditional one you described. Sure, I have a transparent ledger, but what exactly do those numbers account for? I tell you, it is a great, wonderful investment, easy way to make money, it is the future, just pay me x amount more than what I paid.
The issue here is that bitcoin is not appreciating due to advancements, growth or the extra value it providers to society, in fact as it stands it has negative impact. No, it is appreciating only due to social hype in the intersubjective social reality. It is a scam.
Your comment may have been accurate 10 years ago when Silk Road existed, but nowadays people have moved on from bitcoin. The easily traceable ledger is a liability.
You could replace Bitcoin with USD and say the same thing. Any currency has value because those in power insist on taxes being paid in that currency, otherwise it is just what people believe it to be. Read "When Money Dies", excellent book about how a government can ruin the trust that is the basis of fiat.
Bitcoin isn’t a cash competitor, it’s a gold competitor - and it’s a pretty good one.
Part of something like gold is the shared social belief in it as a store of value. Bitcoin has this and there’s enough time and infrastructure behind it at this point that I’d bet it’s likely to keep it.
That plus its scarcity guarantee and disconnect from the federal monetary policy of any one country or bank makes me bullish on its future in the long term.
I’m also bullish on ethereum, but for different reasons.
I do like the idea of stablecoins collaterised by cryptocurrency like the Dai as a currency. But without the private-but-auditable properties that something like Zcash has, it's a pretty dystopic future where everything from your morning bagel purchase to a visit to your preferred pharmacy are public knowledge.
I like ethereum a lot as well[0], but the complexity of the system which has led to hacks in the past[1] has me a bit wary.
[0] I've a very tiny bit of skin in the game, and the tech is very cool
Yeah - I think holding value in BTC and then converting to other stuff to do different things is likely a common use case.
You can move BTC to Zcash and then have shielded transactions.
The worst kind of outcome is what the CCP is building - a digital on chain currency to completely surveil their population's every financial transaction. There are some interesting things a government run digital currency can do though - expiring money stimulus (money that must be spent in a short time or somehow otherwise constrained). The ability to very quickly give money to people securely. Though obviously even with some of these interesting things, the CCP's currency is very bad for the privacy and freedom of their people - China is basically already in that dystopia.
The differentiation is about monetary policy, BTC's policy is in code via incentives and PoW. It's decentralized and not controlled by a government. The currency is scarce and the maximum amount is predetermined. It's deflationary.
I'm not an 'inflation is bad' person. I'm not a hardcore anti-government crypto-anarchist. I think government monetary policy has a place and the QE policy after 2008 clearly worked based on the rapid recovery and loan repayment. I think when you have growth you need more currency to support that growth and newly created wealth. Some inflation in monetary policy is desirable and creates incentives you want (investment) vs. hoarding cash.
I am not an economics expert and people are often way too confident in this kind of stuff when they shouldn't be.
The reason BTC is more like gold than like fiat currency is because of the things in that article, but a quick summary:
- It's hard to actually trade with for goods (nobody is bringing little gold flakes into the 7/11 for a chocolate bar).
- It's scarce and takes a lot of energy to 'mine'. The supply of gold on earth is limited by nature. The supply of BTC is limited by code and math.
- People use it as a place to store value beyond its inherent value. Gold is shiny and has some utility as a metal, but its market value is mostly entirely unrelated to that.
- In some ways BTC is better than gold as a value store. It's easier to store and easier to transport.
> How does Bitcoin scarcity compare with the availability of other crypto products ?
I think this question doesn't totally make sense, but I get what you're getting at.
BTC because of PoW and mostly first mover advantage (more mining network capacity, therefore more secure) has more shared value. A lot of the other crypto products are relatively insecure proof of stake with problematic on chain governance. The scarcity is not that there are lots of crypto products, but that there will only be a maximum number of BTC mined ever. The existence of Venezuela dollars doesn't really impact the value of USD - they're different currencies with different reasons for their value. Many others 'coins' are ERC-20 tokens on ETH and while they support their applications/create shared incentives they don't have nearly the same network size as BTC (or shared sense of value) so they're less robust. Those tokens are less like a currency and more like company stock (where the 'company' is the on chain application). There are some others on their own block chains that have interesting properties (ZCash), but the risk there is adoption.
Lots of commodities are traded, but gold has a shared store of value property above its inherent value for social reasons. I'd argue BTC has that for similar social reasons.
Ethereum is different because of its programmable smart contracts, it has a lot more potential as a protocol that applications can be built on top of (and we're seeing a lot of cool stuff here, DeFi - Uniswap, Compound, see: https://medium.com/dragonfly-research/what-explains-the-rise...). As a result I think its token has value and its more exciting than BTC, but it's a different kind of thing - BTC is simpler.
Doge is a joke - just straight speculative gambling, you might luckily make money (and it's fun to gamble), but there's no scarcity built in. It definitely has the meme aspect going for it though.
There is. Unlike fiat, Doge is disinflationary, with the yearly supply inflation rate steadily going down towards 0.
It's folly to equate scarcity with fixed supply [1].
My understanding is that cryptographic token systems are properly taken to be lindy on priors, just like central bank currencies, universes, or any finite span process absent model and evidence. It is only on model and evidence that the lindy prior is rationally updated. To make the case that it is not lindy, it suffices to advance a model and calibrate it empirically. The likelihood of the proposal will hinge primarily on the evidence for the model.
