Bitcoin and Digital Currencies

Eh, bit coin is eminently replaceable as a medium of exchange for illicit trade. Hell, it was always shit for that purpose (It includes a transaction history. By default. That is the last thing a crook wants) so expecting it to have a floor from that is foolish. Also, I am not certain of this, but I think the entire voted-on ledger system becomes trivially buy-able if there is a whole lot of now-useless bitcoin mining gear around and much less money spent on maintaining the ledgers.

Actually. Want to get rich of bitcoin? Find an actually useful computational activity to do with bit-coin hardware. Massive amounts of it has been built and set up in server farms with solid internet connections. An algorithm that would let you use a bitcoin server cluster to produce sfx for the movie market or something should let you earn a *heck* of a lot of money, once people start wanting to sell time on them for whatever they can get.

edited 13th Dec '17 8:37:41 AM by Izeinsummer

It's worth noting that Bitcoin hasn't exactly remained stable in price for more than a few hours lately.

And, of course, blockchain exchanges are starting to encounter problems with keeping up with the sheer amount of transactions going on.

Bitcoin's price has been unsteady due to Bitcoin Futures. Before that, it was due to Segwit 2X. Before that, Bitcoin Gold. Before that, China forcing Bitcoin exchanges to close. Before that, Bitcoin Cash. Before that, the currency just started its rapid rise (or if you prefer, bubble) due to the mainstream starting to take serious notice of it. Before that, the massive Mt. Gox bankruptcy. Bitcoin is cursed to live in interesting times :)

edited 13th Dec '17 12:48:45 PM by betaalpha

Bitcoin is making those interesting times for itself. It's been said before but bears repeating that "libertarian money" is absolutely guaranteed, absent any other factors, to attract every single person in the world who wants to scam the hell out of you, and since it expressly denies the possibility of regulation, it's open season for them.

That factor alone would make it non-viable, never mind all the other things.

Need I remind you that stock markets were treated the same way back in the early 19th century? That it was just a bubble that would eventually burst?

Crypto isn't going anywhere. There's no putting the genie back in the bottle.

... huh?

I’m not even sure where to begin there. Why do you think stock markets are a concept that only began in the nineteenth century? Why do you think that the survivability of the concept of selling equity has anything to do with the survivability of any particular good being sold? Why do you think that bitcoin has inherent value that would let it sustain itself as a good, or any way to expand its supply to meet demand? Why anything?

I’m sorry, but that’s an incredibly strange thing to say with any sort of confidence.

A comic from The Nib on Bitcoin

This is either going to be prophetic or very ironic in the future.

Crypto ain't new. Currency ain't new. Bubbles ain't new. Some of the code and tech Bitcoin has driven? New applications of existing ideas plus some new ones — those will get adapted and used.

But, as in all thing tech-edge: Bitcoin will burst and die. Dunno what will come from its ashes, but its unlikely to be exactly what any of us could predict in the long term.

Whatever comes from this first major flailing of crytocurrency, it'll take interesting forms. But, ultimately: same old patterns. Because people.

Hilariously, the comic actually pointed that out too.

"Wow, sounds like a bubble. Like every tech thing, since forever."

Ivan On Tech - in this video he also considers that Bitcoin is probably going into a bubble, but compares it to the two previous times it crashed, and expects much the same result if a third one happens - a 90% loss of profits, followed by a recovery and further rise.

(Skip to 5 minutes in to get to the relevant bit)

edited 17th Dec '17 12:08:32 PM by betaalpha

Crypto has a fundamental problem - it’s an inherently deflationary currency. The number of coins is limited by the escalating complexity of the cryptographic systems that secure the economy - the more economic activity there is, the more elaborate and resource-expensive the system becomes. There can only be so many cryptocoins in existence, and there can only be so many transactions involving them within a certain space of time. Demand cannot match supply, so the price of cryptocoins inevitably goes up. That’s bad news for a currency because it means that the incentive is to hold onto it and wait for your hoard to increase in value rather than go through the frustration of trying to spend it. Economies are based on economic activity (buying and selling stuff) increasing overall prosperity by incentivising people to work, not sit at home staring at their coins.

This makes cryptocoins fundamentally an investment rather than a currency - somewhere to put your actual money and watch its value appreciate. The basic problem, though, is the same as any Ponzi scheme - as currency that doesn’t work as currency, cryptocoins are basically useless, generating no significant value on their own (that is to say, the existence of cryptocoins doesn't improve the world in and of itself, like, say, a useful mineral or a nourishing food might). In fact, given the massive energy costs of bitcoin mining, you could argue that cryptocoins have negative utility - they make the world worse, not better.

This means two things. First, cryptocoin price rises aren’t self-sustaining. The only value the currency has is what people pour into it, so once investors run out of money to invest, the price crashes. Second, because cryptocoins are useless (or worse than useless), the market has an extremely low floor - once the price starts dropping, it’ll keep dropping a very long way because there’s no inherent value to cryptocoins to prop them up.

To understand what I mean, consider iron ore - it’s useful for a wide variety of things, and will probably be useful for decades or even centuries to come. As such, you can be sure that people will always be willing to buy it, keeping the price afloat even if there’s a speculative bubble. Cryptocoins, meanwhile, are just rare and expensive to make, meaning their only value is as a curiosity for a collector - and not a particularly beautiful or interesting curiosity at that. Therefore, they are extremely dangerous as an investment, because there’s always the chance that buying them will result in you losing a fuckload of money when the price tanks again (which tends to get the government’s attention, because they don’t like their citizens throwing all their money in a hole in the ground, and they especially don’t like the hucksters telling their citizens what a great idea it is)... and, of course, that extreme price volatility makes them even more useless as currency, because you have very little idea of how much they will be worth relative to anything you might want to exchange them for.

TL;DR: buttcoin is stoooooopid.

edited 17th Dec '17 4:12:36 PM by Iaculus

To put it real simple, you can at least always burn your Zimbabwe dollars for heat, you can’t even do that with your bitcoin.

Well, you could use your computer for that.

No, really, people have used distributed servers as heaters.

Except that’s the value of your computer, not the bitcoin, you can own bitcoin and no longer own a computer.

I think Icalus mostly summed up the problem pretty well, but there is one point I disagree with.

Bitcoin is NOT deflationary. It is theoretically deflationary in the long run, but in the short time, new coins are still being minted every day. Currently, the block reward is 12.5, meaning around 650k new bitcoins per year. Divided by the total bitcoins mined to date, that means that the supply of bitcoins is currently increasing at roughly 3.7% per year. Of course, many bitcoins have been lost forever, so the effective rate of increase of the money supply is higher.

I expect that Bitcoin will die before it ever becomes noticeably deflationary.

The real reason people hoard bitcoin instead of spending them is because transaction fees and confirmation times make it infeasible for any sort of real commerce, so all that's left is the speculation.

edited 21st Dec '17 7:45:51 PM by storyyeller

A "currency" that is too expensive to actually use as currency.

Yeah, and the folks involved have been seeing this coming for years. Attempts to resolve it have involved forking the currency into branches that can be used for casual transactions, and improving the core tech to make it easier and cheaper to transact.

edited 22nd Dec '17 3:59:19 AM by betaalpha

The problem isn’t that the supply isn’t increasing at all. The problem is that the supply isn’t increasing and can’t increase fast enough to match demand, which is patently obvious from the current hyperdeflation. Fiat currency... well, fiat currency generally doesn’t get into this kind of speculative bubble in the first place, but if it does, it can mint coins at a far faster rate to keep up, secure in the knowledge that since they’re a useful currency in a functional economy, they’ll retain their value.

It’s one of the reasons why Tether, the Bitfinex exchange’s IOU of choice, is such a big driver of the current bubble - they’re basically printing billions of ‘dollars’ (note: not actually redeemable for dollars, but redeemable for bitcoins on other sites because everyone involved in cryptocurrency infrastructure is an idiot, a criminal, or both) to keep the whole ropy system functional and keep the bubble expanding.

edited 22nd Dec '17 8:27:50 AM by Iaculus

Right now crypto currencies are in free fall across the board

(Is it just me, or is it strange that they're charging transaction fees in dollars instead of as a % of a bitcoin? Almost like they want profits to be in a currency different from the one they created. Wonder why that might be?)

To be fair, if you're treating it as an investment just like a stock, that makes this a time to think of buying... but it runs into the same problem talked about before where nobody is actually looking to use it as a currency, just a fad investment.

Transaction fees are made in fractions of a bitcoin, but exchanges and digital wallets usually also show what that's currently worth in dollars so people have a better idea about how much they're spending.

Bitfinex’s Tether scam has hit the pages of Fortune magazine. This might accelerate the crash a little.

Dogecoin is still going strong.

Juggalocoin and Coinye West, not so much.

I presume such currencies are not affected by the actions of the Juggalos and Kanye.

A pretty good Medium article on the ways in which blockchain technologies decided to reinvent the wheel but make it square this time.

Good, and healthy to have such critical articles. There's a -lot- of altcoin creations bouncing about which have no justification for using blockchain (or even for being altcoins). Some are cash and attention grabs, others are just poorly conceived. If it turns out blockchain is impractical for everything then so be it, let some other technologies prevail. But imo, Substratum and Waltonchain sound like good uses for blockchain and decentralised systems, while Iota experiments with a non-blockchain system.

edited 26th Dec '17 9:43:51 AM by betaalpha