Systemic Risks From The Rise of Crypto

[rkbabang]

58 minutes ago, TwoCitiesCapital said:

what is the point of wealth if you never spend any of it.

 

Exactly.  Even if someone is massively wealthy due to bitcoin they will buy houses, cars, yachts, private jets, etc.  And if they have no investments or companies earning money they will have wealth going out, but none coming in.  And even in the case where someone does not spend their wealth, their kids and grandkids will.  This is a problem, if it is a problem, that will eventually take care of itself.

 

[jondoug]

Thanks @Vish_ram , @TwoCitiesCapital . Makes more sense to me now. BTC is more of an asset class like gold and will behave more like gold once it reaches its saturation level. As to what is that saturation level -- it is up to each individual to speculate .

[rkbabang]

1 hour ago, jondoug said:

Agree on an individual level. But, wouldn't the governments and the think tanks not think this through and figure out alternatives to it. Worlcoin was one attempt in that direction: https://worldcoin.org/. I am just trying to understand the odds of Bitcoin not becoming the default cryptocurrency. 

 

People can certainly try to create something else, last I checked there were thousands of cryptocurrencies.  You don't just have to create something, you have to get everyone else to value it and use it.   There will be a market for defi and this might have other blockchains besides Bitcoin which retain a lot of value (although there are Bitcoin maximalists who think Bitcoin wins here too eventually), but the store of value function is definitely a winner take all type of thing and Bitcoin is that winner. Read "The Bitcoin Standard" by Dr. Saifedean Ammous, he makes an excellent case for Bitcoin maximalism. 

 

[jondoug]

3 minutes ago, rkbabang said:

 

People can certainly try to create something else, last I checked there were thousands of cryptocurrencies.  You don't just have to create something, you have to get everyone else to value it and use it.   There will be a market for defi and this might have other blockchains besides Bitcoin which retain a lot of value (although there are Bitcoin maximalists who think Bitcoin wins here too eventually), but the store of value function is definitely a winner take all type of thing and Bitcoin is that winner. Read "The Bitcoin Standard" by Dr. Saifedean Ammous, he makes an excellent case for Bitcoin maximalism. 

 

Thanks @rkbabang. Will check out The Bitcoin Standard. 

[TwoCitiesCapital]

30 minutes ago, rkbabang said:

 

People can certainly try to create something else, last I checked there were thousands of cryptocurrencies.  You don't just have to create something, you have to get everyone else to value it and use it.   There will be a market for defi and this might have other blockchains besides Bitcoin which retain a lot of value (although there are Bitcoin maximalists who think Bitcoin wins here too eventually), but the store of value function is definitely a winner take all type of thing and Bitcoin is that winner. Read "The Bitcoin Standard" by Dr. Saifedean Ammous, he makes an excellent case for Bitcoin maximalism. 

 

Now that smart contracts and L2 solutions are here for Bitcoin, trending that way myself. 

 

Ethereum is cool. DAOs are cool. But it will never get mainstream attraction if you're paying $50-$100 to do a transaction. 

[Spekulatius]

1 hour ago, TwoCitiesCapital said:

 

I don't believe Bitcoin is an asset that increases in perpetuity until it eats the value of everything, no. And that's the only way you could sit on your hands into perpetuity and retain your proportion of global wealth. 

 

At some point it will reach the saturation point of its adoption and will be as volatile as any currency is, but on average might appreciate by a similar rate as the global population (new demand) which might become your new risk free rate. 

 

And there will be other sectors and technological developments and companies that will be doing much better than. So if they sit on their hands, they'll be slowly diluted in proportion to global wealth. 

 

Not to mention this also assumes none of their holdings are sold ever...but what is the point of wealth if you never spend any of it. 

 

Also, there will likely continue to be booms and busts and you'll likely continue to see whales speculate on those outcomes. Some will be right. Some will be wrong. And the net decentralization of BTC holdings will continue with smaller wallets making up a larger and larger portion of the network. 

 

 

What about all the other cryptocurrency that get created. ETH is the most significant but there are several others that are used as workhorses or for speculation.

 

I think all these cryptic currencies are basically like printing money and creating inflation. Think about this, creating a cryptocurrency  does not create new wealth. If anything it reduces wealth by consuming resources (electricity) with little tangible benefit. Same as mining for gold actually.

[TwoCitiesCapital]

25 minutes ago, Spekulatius said:

What about all the other cryptocurrency that get created. ETH is the most significant but there are several others that are used as workhorses or for speculation.

 

I think all these cryptic currencies are basically like printing money and creating inflation. Think about this, creating a cryptocurrency  does not create new wealth. If anything it reduces wealth by consuming resources (electricity) with little tangible benefit. Same as mining for gold actually.

 

I think at the end of the day only a small percentage are worthwhile. And the longer I spend in the space, the more I trend towards Bitcoin remaining absolutely dominant and the space thinning. 

 

But most of them aren't PoW like Bitcoin, so the concept of them wasting electricity is no more valid than us talking on this forum wastes electricity. 

Edited November 13, 2021 by TwoCitiesCapital

[ICUMD]

So let's fast forward to a hypothetical world where bitcoin is worth 100 M each...

 

A handful of people will be extremely wealthy and powerful.   Who are these people?  Do they deserve that wealth? What will they do with that power to improve my life?  Are they corrupt? Is this really a fair system where these people hold the power over governments?  Is this a system that fosters job creation, innovation and progress?  

 

Why should I support such a system by buying bitcoin?  As a public servant, what's in it for me?  If I want to protect against currency risk and devaluation, why should I buy Bitcoin over say Berkshire or Google shares which are active assets and actually affect my life in a tangible way?

[Fly]

4 hours ago, Vish_ram said:

Bitcoin will end up being digital gold, an asset rather than a currency. It doesn't have ability to handle high vol transactions. 

 

 

Transaction throughput on bitcoin Layer 1 is on par with FedWire. Layer 2 solutions like the Lightning Network are akin to Visa/Mastercard with capability for millions of TPS. The infrastructure is there for currency-like transactions. 

 

Developed nations won't be adopting bitcoin as a currency since we already have access to banking and financial infrastructure. It will start in places lacking those benefits like S.America, Africa, parts of Asia. 

 

The other reason we won't see it as a currency in developed nations is due to the tax regulations. It is a pain to calculate cap gains/losses for buying a cup of coffee. 

[Fly]

3 hours ago, TwoCitiesCapital said:

Now that smart contracts and L2 solutions are here for Bitcoin, trending that way myself. 

 

Ethereum is cool. DAOs are cool. But it will never get mainstream attraction if you're paying $50-$100 to do a transaction. 

 

Nailed it. ETH price increases makes transacting on chain more expensive which is a problem considering the main use case is interactions with smart contracts. It is a utility token that is also trying to be a store of value. At least with BTC the "killer app" is buy and hold forever which doesn't incur frequent transaction costs.

[matthew2129]

23 minutes ago, Fly said:

 

Nailed it. ETH price increases makes transacting on chain more expensive which is a problem considering the main use case is interactions with smart contracts. It is a utility token that is also trying to be a store of value. At least with BTC the "killer app" is buy and hold forever which doesn't incur frequent transaction costs.

Not a believer in the pending scaling solutions? Rollups offer a ~100x increase in throughput. Sharding offers a ~64x increase. Rollups on top of sharding will offer a ~6400x increase. Transactions that currently costs $64 will soon cost 1 cent

Edited November 13, 2021 by matthew2129

[TwoCitiesCapital]

3 hours ago, matthew2129 said:

Not a believer in the pending scaling solutions? Rollups offer a ~100x increase in throughput. Sharding offers a ~64x increase. Rollups on top of sharding will offer a ~6400x increase. Transactions that currently costs $64 will soon cost 1 cent

 

You're assuming demand doesn't grow and that these solutions are successful. Demand WILL grow IF thee solutions are successful. And when you're talking about billions of people transacting daily, 6400x means nothing. 

 

They might've beaten BTC to punch in smart contracts but operating on that network is painful for anyone with less than 10-20k minimum today - even with recent advancements in L2 scaling. And with the price of Ethereum rising? The costs of transactions is too and the minimums to be worthwhile climb. 

 

Ethereum = oil. Too high a price is counterproductive to economic well being and throughput...and yet they just made ETH deflationary for no reason whatsoever which is driving a shortage in ETH and the price is going through roof... killing any and all network activity. 

 

 

 

Edited November 13, 2021 by TwoCitiesCapital

[wachtwoord]

10 hours ago, matthew2129 said:

Not a believer in the pending scaling solutions? Rollups offer a ~100x increase in throughput. Sharding offers a ~64x increase. Rollups on top of sharding will offer a ~6400x increase. Transactions that currently costs $64 will soon cost 1 cent

 

Ethereum's proposed scaling solutions will make it even more centralized (and it's already too centralized). Without decentralization none of the "blockchain" technologies make any sense as that's the thing that makes it that you don't need government permission (at the cost of extreme inefficiency). In cases you will get goverment permission regardless just make a much more efficient traditional solution without a blockchain.

[JRM]

I follow some Bitcoin maxi's and crypto enthusiasts on Twitter to try to balance myself.  Every week they're like: "best podcast interview EVER!  MUST LISTEN!".  Michael Saylor says shit like mortgage your house, sell everything, and buy Bitcoin.  Dude is certifiably insane.  

 

Really feels like a speculative mania where the blockchain "technology" and a few cryptos will survive.  The rest are zeros.  Are NFTs cool?  Ya.  Are 8-bit jpegs going to hold up?  Not likely.  Although a few beanie babies still have value, I'm told.  

[CafeB]

For those interested in the set of concerns that are focused on Tether, I would recommend the work of [ Cas “Mildly Interesting” Piancey (@CasPiancey) / Twitter ] and [ Bennett Tomlin (@BennettTomlin) / Twitter ] at [ Crypto Critics' Corner (@CryptoCriticPod) / Twitter ].

 

Protos Media, which appears to be one of the few outlets not beholden to the crypto industry and its promoters, has recently released a report, "The Tether Papers", which is discussed further in a recent CCC podcast: Episode 34 – The Tether Papers (featuring David Canellis of Protos Media) – Crypto Critics' Corner (cryptocriticscorner.com) .

 

In all, control of crypto initiatives--including DeFi--appears to be far more centralized than advertised. Per [ Goddamn Forking Stablecoins – Bennett's Blog (bennettftomlin.com) ]: "The more economic activity that depends directly or indirectly on stablecoins[, such as Tether,] the more influence that stablecoins have over the governance, and right now there is significant economic activity that depends on stablecoins."

 

 

 

[CafeB]

I should also have included [ Bitfinex'ed (@Bitfinexed) / Twitter ], who has been at the forefront of calls for transparency from Tether--and whose allegations have now been confirmed as serious and substantive by a series of regulatory actions.

 

[matthew2129]

1 hour ago, wachtwoord said:

 

Ethereum's proposed scaling solutions will make it even more centralized (and it's already too centralized). Without decentralization none of the "blockchain" technologies make any sense as that's the thing that makes it that you don't need government permission (at the cost of extreme inefficiency). In cases you will get goverment permission regardless just make a much more efficient traditional solution without a blockchain.

Optimistic rollups arguably increase, not decrease, decentralization. Any node can dispute a fraudulent transaction, slash an attacker and get rewarded for doing so. As for shading, Nodes get assigned and reassigned to shards randomly, so it really shouldn't impact centralization (at least not in a systematic way, which is all people care should about). 

[wachtwoord]

3 minutes ago, matthew2129 said:

Optimistic rollups arguably increase, not decrease, decentralization. Any node can dispute a fraudulent transaction, slash an attacker and get rewarded for doing so. As for shading, Nodes get assigned and reassigned to shards randomly, so it really shouldn't impact centralization (at least not in a systematic way, which is all people care should about). 

 

Sharding hurts decentralization.

 

[SharperDingaan]

Ultimately, the hyperledger/IoT, will displace much of the functionality of ETH. The hyperledger infrastructure progressively cascading down to lower and lower level applications as scaling increases and unit costs drop. Payment processes, smart contracts, blockchain delivery - all as fully integrated components of the hyperledger infrastructure backbone. Not that dissimilar to todays ubiquitous suite of Microsoft product.

 

The hyperleger is still very esoteric today, and very expensive - but it is rapidly changing. Blockchain and smart-contracts are fully integral components, payment is a work in progess. roll-outs progessively release via the cloud. While ETH is todays low cost solution, its eventual commercial obsolecence is enevitable. A good 10 years to run - how much longer depends on ETH's ongoing development between now and then.

 

So what?

 

We are looking at tech solutions with a very limited life; at best they eat the smaller fish, and sell out to a bigger one. Resulting in the most cost effective horse & buggy manufacturer the world has ever seen - but just before the advent of the motor car.

 

Then there is BTC ..... everyone insistimg they must be able to pay for things with BTC (medium of exchange) ... and totally missing that its real value is unit of account, and store of value. 

 

SD 

 

 

 

 

Edited November 14, 2021 by SharperDingaan

[Dave86ch]

On 11/13/2021 at 6:04 PM, SharperDingaan said:

Ultimately, the hyperledger/IoT, will displace much of the functionality of ETH. The hyperledger infrastructure progressively cascading down to lower and lower level applications as scaling increases and unit costs drop. Payment processes, smart contracts, blockchain delivery - all as fully integrated components of the hyperledger infrastructure backbone. Not that dissimilar to todays ubiquitous suite of Microsoft product.

 

The hyperleger is still very esoteric today, and very expensive - but it is rapidly changing. Blockchain and smart-contracts are fully integral components, payment is a work in progess. roll-outs progessively release via the cloud. While ETH is todays low cost solution, its eventual commercial obsolecence is enevitable. A good 10 years to run - how much longer depends on ETH's ongoing development between now and then.

 

So what?

 

We are looking at tech solutions with a very limited life; at best they eat the smaller fish, and sell out to a bigger one. Resulting in the most cost effective horse & buggy manufacturer the world has ever seen - but just before the advent of the motor car.

 

Then there is BTC ..... everyone insistimg they must be able to pay for things with BTC (medium of exchange) ... and totally missing that its real value is unit of account, and store of value. 

 

SD 

 

 

 

 

“In this sense, it’s more typical of a precious metal. Instead of the supply changing to keep the value the same, the supply is predetermined and the value changes. As the number of users grows, the value per coin increases. It has the potential for a positive feedback loop; as users increase, the value goes up, which could attract more users to take advantage of the increasing value”
Satoshi Nakamoto 2009-02-18

[SharperDingaan]

The quote is specific to BTC, and the fixed 21M supply of BTC. Nothing to do with the hyper-ledger.

 

Crypto is a network business. The  hyperledger is a monopoly single network, spanning the entire world, collectively built and maintained (regulated?) by the worlds major nations. And .... if you have the biggest, and the most effective network, you set the market minimum price and conditions of use.

 

Of course, nobody is forced to use the hyperledger. If one goes elsewhere, one just pays a higher transaction price for the same or similar utility - hence a entity using ETH has a commercial incentive to move to the hyperledger.    

 

However everything on the hyperledger is trackable; if one wishes to transact without a track, one needs alternatives - but they cost.  Each with its own pro's/con's depending on the requirement The Hawala & Chiti systems aren't going away anytime soon.

 

SD

Edited November 14, 2021 by SharperDingaan

[meiroy]

4 hours ago, SharperDingaan said:

The quote is specific to BTC, and the fixed 21M supply of BTC. Nothing to do with the hyper-ledger.

 

Crypto is a network business. The  hyperledger is a monopoly single network, spanning the entire world, collectively built and maintained (regulated?) by the worlds major nations. And .... if you have the biggest, and the most effective network, you set the market minimum price and conditions of use.

 

Of course, nobody is forced to use the hyperledger. If one goes elsewhere, one just pays a higher transaction price for the same or similar utility - hence a entity using ETH has a commercial incentive to move to the hyperledger.    

 

However everything on the hyperledger is trackable; if one wishes to transact without a track, one needs alternatives - but they cost.  Each with its own pro's/con's depending on the requirement The Hawala & Chiti systems aren't going away anytime soon.

 

SD

 

Are you seeing any DAOs that are already starting to replace well established corporations? In the coming 5 years, who is the most at risk?

[IceCreamMan]

5 hours ago, Dave86ch said:

It has the potential for a positive feedback loop; as users increase, the value goes up, which could attract more users to take advantage of the increasing value”
Satoshi Nakamoto 2009-02-18

 

Interesting. It sounds like the speculative contagion was part of the original vision.

 

"users"

[Dave86ch]

20 hours ago, SharperDingaan said:

The quote is specific to BTC, and the fixed 21M supply of BTC. Nothing to do with the hyper-ledger.

 

Crypto is a network business. The  hyperledger is a monopoly single network, spanning the entire world, collectively built and maintained (regulated?) by the worlds major nations. And .... if you have the biggest, and the most effective network, you set the market minimum price and conditions of use.

 

Of course, nobody is forced to use the hyperledger. If one goes elsewhere, one just pays a higher transaction price for the same or similar utility - hence a entity using ETH has a commercial incentive to move to the hyperledger.    

 

However everything on the hyperledger is trackable; if one wishes to transact without a track, one needs alternatives - but they cost.  Each with its own pro's/con's depending on the requirement The Hawala & Chiti systems aren't going away anytime soon.

 

SD

I shared that to highlight the notion of "store of value" expressed in your post, notion clearly defined from the beginning by Satoshi. I was not referring to the hyperledger.

[Dave86ch]

16 hours ago, IceCreamMan said:

 

Interesting. It sounds like the speculative contagion was part of the original vision.

 

"users"

 

In my opinion the "contagion" was the only way to bring the idea of a decentralized currency to the light.

An elegant code exploits the opportunistic nature of humans in order to emerge (incentives), it's simple brilliant. If whoever will become rich corresponds to whoever will be able to build an optimized network around this technology, the capital transfer makes sense, otherwise probabily it is a Ponzi Scheme.

 

Edited November 15, 2021 by Dave86ch