I'm a huge fan of Noah. However, this newsletter contains unwarranted hope for cryptocurrency, especially for what can be built on the Blockchain. Noah has always maintained he's an optimist and is a huge fan of technology. Sometimes, optimists are right. This, in my considered opinion, is not one of those times.
My experiences with the quality of the content and discussion on this newsletter convinces me that I would be wasting my and others' time by making the case for why cryptocurrency ironically cannot function as currency.
However, there's something more insidious going on. People untethered to the crypto ideology can already see that they can't work as currencies. Instead, they hold that the Blockchain is the thing with real utility here. Or, in other words, the tokens are worthless but the game board is valuable.
Part of this is due to how many people dismissed the internet and had to eat their words. But the Blockchain and the dot-com boom of the nineties are as far away as Timbuktu and Tarawa.
The internet enabled anyone to send any kind of information at scale within seconds. People just failed to see how that would be useful. It was the same with the car. The mobile car was faster and more efficient than the horse with the advantage of no possibility of fatigue. People just failed to see how that would be useful. They were failures of conservatism for conservatism's sake.
On the other hand, we've had the Blockchain now for thirteen years. The crucial question is not what can it do( people get blindsided here). It is what can it do better than non-blockchain alter natives. The answer is nothing unless you are a criminal, a speculator, or someone in a financial system so broken that anything at all is an improvement.
This is because the Blockchain is a clever solution to a problem that introduces a hundred more. It's like burning the mansion to save the shed. The reason the electricity consumption is so wasteful is because the Blockchain is not secured by cryptography. Some of the only meaningful contributions of cryptography to the Blockchain are the public keys and private keys which we've had since 1976. Marlinspike grasped this in January.
It's so wasteful because the Blockchain is secured by electricity consumption. You can't take control of the system because you would bankrupt yourself doing so. They are mostly financial barriers, not technological.
The reason its transaction rate is so pathetic is because it can't scale. The mining process is not based on knowledge. Making things is based on knowledge and knowledge improves, so efficiency scales. A fancy name for this is Wright's law. But randomness can't scale. You can't get better at guessing lottery numbers. You can only buy more and more lottery tickets. So mining has predictably consolidated in a few hands. The centralization they sought to avoid re-entered through the backdoor.
Of course, miners can't waste expensive electricity and equipment for nothing unless they know someone is on the other side making these transactions. And so, you can't have these blockchains without the speculation. You can't slice the thorn away from the 'rose'.
And then we have smart contracts. My area of specialization is law and the level of meaningful adoption here is around zero.
A smart contract is based on the conceit that the most important things are what goes into the contract. But the most important things are what's outside the contract- the trust and identities of the parties, the regulatory framework, a legal system available for retribution.
No code is perfect. Unlike normal code in which you can just fix your bugs in peace, smart contracts must be perfect from scratch. If a bug is found and exploited, it's over. This happened to the Ethereum founders who then all forgot about their lovely ideals of decentralization. The point is if it can happen to them, why can't it happen to the average programmer.
And it doesn't remove trust. You still have to trust the programmers writing the code, the oracles feeding the data, the stability of the overall platform. Trust is inevitable so why not just start with building more trustworthy systems rather than creating long, dangerous, and unnecessary hoops that will still require trust anyway.
The Blockchain is also irreversible. People complain constantly that Twitter has no edit button so unless you delete the tweet, your mistake is permanent. Well, how about putting your medical records, financial transactions, on a permanently irreversible Blockchain. Your entire life is like one long twitter thread that you can never edit or delete.
Everything the Blockchain sought to eliminate - audits, central banks, centralization - has simply returned. Only this time, far more inefficiently.
If this is what now passes for innovation, we might as well begin an innovation award in the honour of Charles Ponzi. After all, he did start the whole damn thing
Sure. Might be true. Determining whether there are any useful applications of blockchain in general is just far beyond the scope of this post. I just wanted to make an argument for where I think Bitcoin sits within that ecosystem.
Completely agree with this. As I've said in comments several times before, there's nothing you can do with a distributed blockchain that can't also be done using a ledger operated by a trusted intermediary (perhaps controlled by some kind of non-profit whose board is elected by participants in the system), which will be able to operate using 2-3 orders of magnitude less energy and time, and thus undercut the distributed blockchain competitor on price. "Hardcore privacy nuts who want to truly own their keys and operate the algorithms of the platforms they participate in" are a tiny market that is never going to be viable as a business.
And I say this as somebody who _does_ have the technical chops to understand a fair bit of what's going on in a blockchain system. I'm about 80% sure I know who Satoshi Nakamoto was (and that the reason he stopped posting is that he was a friend of mine who tragically committed suicide).
Totally agree. Great post. And I think your privacy point is proven by, no matter how much people worry about the government having the information (which has a lot of legally protection), the fact that so many give huge amounts of their information away in exchange for using social media or making purchase (and maybe getting points or prime or miles)—and they give this information to people that tell them they are going to use it for profit.
I am not sure this proves anything. Most people aren't into, say, same-sex sex - does it mean that Grindr is a failed exercise? Likewise, most people aren't into privacy and security (don't have the security mindset), but the paranoid minority can be a target audience of its own.
Yes. A permanent public database with no one responsible for it only functions in worse ways, including being more expensive, than a well backed up database run by a party that can be held accountable.
I agree with everything Refined Insights said, with one exception. Blockchain transactions are not inherently irreversible; it's simply that blockchain can't forget its past. "Irreversible" is a legal concept; the persistence of blockchain entries is a technological detail. If you steal my cow and brand it, it doesn't mean you own my cow, even if your brand is permanent.
There is one thing that’s important to the blockchain. It can restore the ownership chain of information and knowledge broken by the internet. When the internet arrived, it made information acquisition an externality; information was so slippery and infinitely cheap to distribute that it could no longer be priced effectively. This was first felt in fields where ideas and knowledge where directly priced: recorded music and newspapers. But it has spread everywhere and we still haven’t recovered. The restoration of some form of digitally verifiable ownership of ideas and digital content could partially restore the balance broken by infinitely cheap information.
The blockchain doesn't provide a form of digitally-verifiable ownership of ideas and digital content. For it to do that you'd first need to set up the legal and contractual foundations necessary for entries on the blockchain to mean something about ownership in the real world. That hasn't been done, and there's no reason to do it because we already have a legal framework for ownership of ideas and digital content. It's not "digitally-verifiable", but (a) it's not clear that's necessary and (b) if it is necessary, a set of centralized, government-operated databases are a simpler and cheaper way to do it.
The US government already has such a database and has for decades, managed by the Library of Congress. Throw up an API for registration and querying (may already exist) and you're done. If you want to go one step further, the LoC could digitally sign titles and title transfers. Then you wouldn't even need an Internet connection to verify authenticity and ownership.
It seems really weird to claim that we need blockchain in order to re-assert ownership over content, when we already see huge adoption of (purchased) e-books, digital music downloads, games (I've bought almost all my games as downloads for like a decade, through Steam and the PS and Nintendo console stores), and even a pretty successful crackdowns by the ISPs on stuff like torrenting video, after a brief period of a few years where that was really easy. Streaming video seems to be raking in a lot of money now.
The issue isn't that ownership is unclear, it's that for a ton of content, it's almost impossible to monetize your work, even when ownership is obvious.
There has been a ton of disruption in the business of content production and distribution, and it's not clear what the right business model is for that anymore. Part of the issue is that if you roll back a hundred years, the fact that content _had_ to be delivered locally made it possible to have a dominant local paper, and their advertising power let them subsidize having local reporting.
Between the infinite reach of modern outlets, the dominance of Facebook and Google over ad budgets, and the trend towards polarization around national issues, that model is totally wrecked. Most people unfortunately don't even _want_ local news anymore -- and maybe they never did, they just received it because everyone thought they wanted it, and the business model prevented any alternative from getting tested. In my own neck of the woods, we still have a couple decent local papers, but they're hanging on by a thread. Their reporters go through a fair amount of churn, and I expect they're paid a pittance.
But that is my point. Prior to the internet, ownership of ideas and information were directly tied to price. The information they had was scarce, and cost money to distribute. You couldn’t get it anywhere, you had to go to a specific place to get it. And even if you could copy it, it was hard to distribute your copy. Those constraints meant you could price the ability to acquire that information, and that then gave value to ownership. This is the history of copyright, which policed capital so that owners could maintain that scarcity. The internet destroyed the scarcity of knowledge and information simultaneously with price of the distribution. This has made ideas and information exceeding difficult to price and in some case, fund. You point this out. We can never go back to that world. But BlockChain technology does hold the possibilty of connecting ownership and ideas to some form of scarcity. It may not work, but it’s too early to know for sure.
No, it is really not too early to know. Blockchain does _absolutely nothing_ to alter the dynamic of information as bits being easy to copy. Again, see the whole discourse around "right-clicker mentality". Your "ownership" of a piece of digital content via a blockchain has no more effect on somebody who wants to rip it off than an online newspaper's assertion of copyright has on somebody who wants to copy-paste their article.
I dunno. Some math professor could release a new theorem as an NFT. That will not change whether the theorem is accessible, but the ability of the original to maintain some kind of track able ownership of that content could allow that professor to in some way monetize that idea in a way that was literally impossible in the early internet before the blockchain. It’s not the same as before; it’s based on aesthetic and originality.
Nobody was stopping a professor from selling a framed copy of a theorem. Or from selling an eBook of the proof. Or from accepting a digital payment to use public key cryptography to send a digitally-signed copy of the LaTeX publication of the theorem, encrypted with the buyer's public key so they can demonstrate through their ability to decrypt it that they are the true owner.
And nothing about blockchain "ownership" of the theorem will alter the ability of anyone else to look at a copy, or forward that copy, with or without modifications.
Blockchain does not add anything here. It's a solution in search of a problem. To the extent that it does _anything_ useful, you can get all of its actual benefits with a version that relies on a trusted intermediary (which might be a non-profit that is maintaining several sync'd copies of the ledger around the world, so the system doesn't go down if a single node does).
Unless you actually store all your keys on your own local drive, and run the algorithm on your own hardware, you've already conceded that you're fine with a trusted intermediary. But virtually nobody does that. (I certainly _could_ if I wanted to, and I wish I had back before the bubble blew up. I have a friend who set up a bunch of mining servers in the _very_ early days of BTC, and made quite a bit of money off it. I'm not sure if he sold all of what he'd mined, before doing mining on generic linux servers became impractical, but if he does still have them, they'd be a worth 6-7 figures.)
Bitcoin is actually one of the oldest financial assets we have ever had: a die. It's an instrument of speculation. A digital casino chip backed up by a pointless technology backed up by hype and unsuspecting capital.
Barnum was right. That's precisely why regulation is so important. First, to protect the naturally gullible, and then to protect the temporarily gullible which is the rest of us from time to time.
Thank you. This is the contextual level of commentary I needed as the introduction to crypto. First time I’ve not felt intimidated against looking into it.
Personally, I'm a Bitcoin minimalist. I follow Warren Buffet's rule of not investing in things I don't understand. I'm also put off by the creepy libertarian conspiracism of many Bitcoin evangelists.
Cryptocurrency has one thing going for it. Anyone who owns it is biologically committed to advocating for it, because its value is nothing more than the collective confidence that others have in it. So, unless you are self-immolating, if you own crypto, you're a huge fan of crypto.
Thank you for writing this! I suspected most of this except for the last point about Bitcoin as the gateway drug. I've been wanting to get involved for three years now but I'm really afraid of making a mistake. Thank you for being the people's economist! Now, I just need to figure out a way to get involved without the pesky regulators in Hong Kong or China finding out, ha.
Do you know what kind of role transaction fees play in El Salvador citizens unwillingness to use bitcoin to make payments? How much is the transaction fee on, say, a $30 transaction using the Chivo app?
I'm sure blockchains i.e. distributed databases have a future. But I'm skeptical that crypto currencies have any future, and I'm certain that Bitcoin and similar asset-less pseudo-assets will go to zero, sooner or later.
The idea that Bitcoin should try to function as currency was rejected by Bitcoin owners themselves. The initial design obviously couldn't, as it's extremely transaction-inefficient. So plans were floated to reform the design, but most owners were reluctant. So there was a split, and then another, creating two spawns-of-Bitcoin that were technologically better suited to function as currencies. Relatively few people cared. The Bitcoin community preferred to keep Bitcoin what it is: a pseudo-asset.
Sure, this and the other retailer will accept Bitcoins, but it's a silly, decorous exercise. It makes far more sense to first sell Bitcoin then pay with currency. A growing proportion of transactions among Bitcoin investors are conducted through exchanges, avoiding Bitcoin's inefficient transaction system.
So what you have is a kind of digital collector's item. Why should you collect it? Because other people are collecting it. Does it, like a financial asset, include a claim against some income-earning property, business or government? No. Does it, like a currency, have a central bank or any central body, of any credibility level, that manages its value in any way, by intervening in the market to buy or sell it? No. Does it, like precious metal, have inherent jewelry or industrial value? No. Its value derives exclusively from people thinking other people will want it in future.
I'll give this to the Bitcoin community, they did an amazing job of propagandizing an entirely worthless pseudo-asset. But the problem with "going mainstream" is that mainstream investors expect returns, and Bitcoin has significant costs and no income. It can only go up to the extent entries exceed exits-plus-costs. Now that most mainstream investors are down, I don't see what's going to revive the momentum.
Bitcoin (and other popular cryptos) is not good at the things its supposed to do. It's not more convenient way to send digital payments. It's more traceable than cash. It's not a stable asset. It has no theft or liquidity protections. Moreover its inherent to the technology so the next crypto thing is not likely to "get there". It only seems to be good for gambling and pulling scams on other crypto users.
Eh, there are a lot of believers who actually do know a lot of math. Obviously Satoshi (who I am pretty sure is somebody I knew, whose mental health issues eventually, tragically, led to suicide) and others who've contributed to the code to make it work do.
What they totally fail to understand is the social side of economics. And in their lack of comprehension, they've turned to extreme "rugged individualist" ideas about trying to displace the State, and get rid of any need for mutual trust among people doing commerce.
I don't think I have many Luddite tendencies, but I am still extremely skeptical about the inherent value in this stuff.
It has value because some number of people just kind of arbitrarily agree that it has value. Which is no different from gold or fiat currencies, but those things are least backed up by something 'real'.
(Gold by itself, as a durable metal, and fiat currencies by governments and the lands/populations they represent.)
Crypto just seems like a castle made of sand. And if people want to use it for speculation (or a pyramid scheme), go for it I guess.
The post ignored the cost of Bitcoin mining. I can remember back in the early days (a decade ago) when people were running computers 24/7 to get Bitcoins. It was easy at that time as the algorithm released lots of coins early on, decreasing as time went on. This put an upward pressure on GPU prices as more people started mining. It also led to "mining farms" that consumed vast amounts of electricity. Do a Google search on GPU Mining Rigs and you quickly see how much wasted technology has been diverted to this 'get rich' scheme. Those of us who need fast GPUs for photography and video rendering are now overpaying because of this.
Digital currency only works when it has stable value and this past week points to failures in this regard. 'Stable coin' remains an oxymoron until proven otherwise.
I think the comparison to gold here is missing an important factor. Irrespective of the fact that whether gold has uses and whether it has $12T worth of use, GOLD EXISTS IN THE PHYSICAL WORLD.
Human beings love physical things that they can touch and feel. That is why owning the house you live in cannot always be purely thought of as a financial asset. There is no price you can put on painting your own walls, showing the house to your friends and family etc.
People love Apple a lot more than other tech companies because Apple puts a physical device in their hands that they can touch, feel and use. Even though other products like Instagram or Google Maps adds value to their lives, the iPhone that you can touch and feel always feels like a real product over other "apps" and "services" that is just software that runs on the cloud.
Bitcoin is similar to an app or a service while gold is similar to the iPhone here. Even though they both have value only because everyone thinks they have value, Gold is a physical thing that is shiny and pretty and worn as ornaments. Bitcoin can never live up to that.
Gold is even more than that. It’s one of the most unreactive substances on earth - it doesn’t react with other elements to become something else. Pretty much all the gold ever mined still exists as gold. You can carry it around or hide it, SAFe on the knowledge that it will still be there unless someone stole it. You definitely can’t say that of any digital currency, which are lost to you the moment the power goes off and you can’t access the internet.
To paraphrase a previous commenter, it’s a solution that causes a hundred new problems. And the original problem wasn’t actually a problem in practice, and the new problems can’t be solved without abandoning the solution.
David Rosenthal, an early innovator behind some of the decentralized algorithms that crypto would later use, gave a more technical talk last fall explaining additional layers of insoluble flaws in the core concept: https://blog.dshr.org/2022/02/ee380-talk.html
None of this is to say that people won’t continue to trade and prop up crypto assets, at least in the medium term. Decentralized transaction systems will be useful for as long as people take on and pay off illegal debts. If ransomware operators can sell bitcoins to exchanges, that can sell bitcoins to ransomware victims, who must buy bitcoins from exchanges to pay to the ransomware operators, the circle is complete. But if that’s the only basis of value, there’s no reason that governments should tolerate it.
I'm a huge fan of Noah. However, this newsletter contains unwarranted hope for cryptocurrency, especially for what can be built on the Blockchain. Noah has always maintained he's an optimist and is a huge fan of technology. Sometimes, optimists are right. This, in my considered opinion, is not one of those times.
My experiences with the quality of the content and discussion on this newsletter convinces me that I would be wasting my and others' time by making the case for why cryptocurrency ironically cannot function as currency.
However, there's something more insidious going on. People untethered to the crypto ideology can already see that they can't work as currencies. Instead, they hold that the Blockchain is the thing with real utility here. Or, in other words, the tokens are worthless but the game board is valuable.
Part of this is due to how many people dismissed the internet and had to eat their words. But the Blockchain and the dot-com boom of the nineties are as far away as Timbuktu and Tarawa.
The internet enabled anyone to send any kind of information at scale within seconds. People just failed to see how that would be useful. It was the same with the car. The mobile car was faster and more efficient than the horse with the advantage of no possibility of fatigue. People just failed to see how that would be useful. They were failures of conservatism for conservatism's sake.
On the other hand, we've had the Blockchain now for thirteen years. The crucial question is not what can it do( people get blindsided here). It is what can it do better than non-blockchain alter natives. The answer is nothing unless you are a criminal, a speculator, or someone in a financial system so broken that anything at all is an improvement.
This is because the Blockchain is a clever solution to a problem that introduces a hundred more. It's like burning the mansion to save the shed. The reason the electricity consumption is so wasteful is because the Blockchain is not secured by cryptography. Some of the only meaningful contributions of cryptography to the Blockchain are the public keys and private keys which we've had since 1976. Marlinspike grasped this in January.
It's so wasteful because the Blockchain is secured by electricity consumption. You can't take control of the system because you would bankrupt yourself doing so. They are mostly financial barriers, not technological.
The reason its transaction rate is so pathetic is because it can't scale. The mining process is not based on knowledge. Making things is based on knowledge and knowledge improves, so efficiency scales. A fancy name for this is Wright's law. But randomness can't scale. You can't get better at guessing lottery numbers. You can only buy more and more lottery tickets. So mining has predictably consolidated in a few hands. The centralization they sought to avoid re-entered through the backdoor.
Of course, miners can't waste expensive electricity and equipment for nothing unless they know someone is on the other side making these transactions. And so, you can't have these blockchains without the speculation. You can't slice the thorn away from the 'rose'.
And then we have smart contracts. My area of specialization is law and the level of meaningful adoption here is around zero.
A smart contract is based on the conceit that the most important things are what goes into the contract. But the most important things are what's outside the contract- the trust and identities of the parties, the regulatory framework, a legal system available for retribution.
No code is perfect. Unlike normal code in which you can just fix your bugs in peace, smart contracts must be perfect from scratch. If a bug is found and exploited, it's over. This happened to the Ethereum founders who then all forgot about their lovely ideals of decentralization. The point is if it can happen to them, why can't it happen to the average programmer.
And it doesn't remove trust. You still have to trust the programmers writing the code, the oracles feeding the data, the stability of the overall platform. Trust is inevitable so why not just start with building more trustworthy systems rather than creating long, dangerous, and unnecessary hoops that will still require trust anyway.
The Blockchain is also irreversible. People complain constantly that Twitter has no edit button so unless you delete the tweet, your mistake is permanent. Well, how about putting your medical records, financial transactions, on a permanently irreversible Blockchain. Your entire life is like one long twitter thread that you can never edit or delete.
Everything the Blockchain sought to eliminate - audits, central banks, centralization - has simply returned. Only this time, far more inefficiently.
If this is what now passes for innovation, we might as well begin an innovation award in the honour of Charles Ponzi. After all, he did start the whole damn thing
Sure. Might be true. Determining whether there are any useful applications of blockchain in general is just far beyond the scope of this post. I just wanted to make an argument for where I think Bitcoin sits within that ecosystem.
Does that make sense?
Oh, yes, Noah, it does.
Completely agree with this. As I've said in comments several times before, there's nothing you can do with a distributed blockchain that can't also be done using a ledger operated by a trusted intermediary (perhaps controlled by some kind of non-profit whose board is elected by participants in the system), which will be able to operate using 2-3 orders of magnitude less energy and time, and thus undercut the distributed blockchain competitor on price. "Hardcore privacy nuts who want to truly own their keys and operate the algorithms of the platforms they participate in" are a tiny market that is never going to be viable as a business.
And I say this as somebody who _does_ have the technical chops to understand a fair bit of what's going on in a blockchain system. I'm about 80% sure I know who Satoshi Nakamoto was (and that the reason he stopped posting is that he was a friend of mine who tragically committed suicide).
(Relatedly, the fact that "people who actually care about privacy and security" are not a market, is why we're kind of all doomed to deal with destructive security breaches: https://intelligence.org/2017/11/26/security-mindset-and-the-logistic-success-curve/ )
Totally agree. Great post. And I think your privacy point is proven by, no matter how much people worry about the government having the information (which has a lot of legally protection), the fact that so many give huge amounts of their information away in exchange for using social media or making purchase (and maybe getting points or prime or miles)—and they give this information to people that tell them they are going to use it for profit.
I am not sure this proves anything. Most people aren't into, say, same-sex sex - does it mean that Grindr is a failed exercise? Likewise, most people aren't into privacy and security (don't have the security mindset), but the paranoid minority can be a target audience of its own.
Yes. A permanent public database with no one responsible for it only functions in worse ways, including being more expensive, than a well backed up database run by a party that can be held accountable.
I agree with everything Refined Insights said, with one exception. Blockchain transactions are not inherently irreversible; it's simply that blockchain can't forget its past. "Irreversible" is a legal concept; the persistence of blockchain entries is a technological detail. If you steal my cow and brand it, it doesn't mean you own my cow, even if your brand is permanent.
There is one thing that’s important to the blockchain. It can restore the ownership chain of information and knowledge broken by the internet. When the internet arrived, it made information acquisition an externality; information was so slippery and infinitely cheap to distribute that it could no longer be priced effectively. This was first felt in fields where ideas and knowledge where directly priced: recorded music and newspapers. But it has spread everywhere and we still haven’t recovered. The restoration of some form of digitally verifiable ownership of ideas and digital content could partially restore the balance broken by infinitely cheap information.
The blockchain doesn't provide a form of digitally-verifiable ownership of ideas and digital content. For it to do that you'd first need to set up the legal and contractual foundations necessary for entries on the blockchain to mean something about ownership in the real world. That hasn't been done, and there's no reason to do it because we already have a legal framework for ownership of ideas and digital content. It's not "digitally-verifiable", but (a) it's not clear that's necessary and (b) if it is necessary, a set of centralized, government-operated databases are a simpler and cheaper way to do it.
The US government already has such a database and has for decades, managed by the Library of Congress. Throw up an API for registration and querying (may already exist) and you're done. If you want to go one step further, the LoC could digitally sign titles and title transfers. Then you wouldn't even need an Internet connection to verify authenticity and ownership.
It seems really weird to claim that we need blockchain in order to re-assert ownership over content, when we already see huge adoption of (purchased) e-books, digital music downloads, games (I've bought almost all my games as downloads for like a decade, through Steam and the PS and Nintendo console stores), and even a pretty successful crackdowns by the ISPs on stuff like torrenting video, after a brief period of a few years where that was really easy. Streaming video seems to be raking in a lot of money now.
The issue isn't that ownership is unclear, it's that for a ton of content, it's almost impossible to monetize your work, even when ownership is obvious.
There has been a ton of disruption in the business of content production and distribution, and it's not clear what the right business model is for that anymore. Part of the issue is that if you roll back a hundred years, the fact that content _had_ to be delivered locally made it possible to have a dominant local paper, and their advertising power let them subsidize having local reporting.
Between the infinite reach of modern outlets, the dominance of Facebook and Google over ad budgets, and the trend towards polarization around national issues, that model is totally wrecked. Most people unfortunately don't even _want_ local news anymore -- and maybe they never did, they just received it because everyone thought they wanted it, and the business model prevented any alternative from getting tested. In my own neck of the woods, we still have a couple decent local papers, but they're hanging on by a thread. Their reporters go through a fair amount of churn, and I expect they're paid a pittance.
And to the extent that you're talking about people ripping off / reusing content, like, have you not seen NFT "owners" go bananas when people demonstrate that it's perfectly possible to do stuff with their stupid monkey JPEGs? https://www.vice.com/en/article/5dgzed/what-the-hell-is-right-clicker-mentality
But that is my point. Prior to the internet, ownership of ideas and information were directly tied to price. The information they had was scarce, and cost money to distribute. You couldn’t get it anywhere, you had to go to a specific place to get it. And even if you could copy it, it was hard to distribute your copy. Those constraints meant you could price the ability to acquire that information, and that then gave value to ownership. This is the history of copyright, which policed capital so that owners could maintain that scarcity. The internet destroyed the scarcity of knowledge and information simultaneously with price of the distribution. This has made ideas and information exceeding difficult to price and in some case, fund. You point this out. We can never go back to that world. But BlockChain technology does hold the possibilty of connecting ownership and ideas to some form of scarcity. It may not work, but it’s too early to know for sure.
No, it is really not too early to know. Blockchain does _absolutely nothing_ to alter the dynamic of information as bits being easy to copy. Again, see the whole discourse around "right-clicker mentality". Your "ownership" of a piece of digital content via a blockchain has no more effect on somebody who wants to rip it off than an online newspaper's assertion of copyright has on somebody who wants to copy-paste their article.
I dunno. Some math professor could release a new theorem as an NFT. That will not change whether the theorem is accessible, but the ability of the original to maintain some kind of track able ownership of that content could allow that professor to in some way monetize that idea in a way that was literally impossible in the early internet before the blockchain. It’s not the same as before; it’s based on aesthetic and originality.
That is some serious straw grasping.
Nobody was stopping a professor from selling a framed copy of a theorem. Or from selling an eBook of the proof. Or from accepting a digital payment to use public key cryptography to send a digitally-signed copy of the LaTeX publication of the theorem, encrypted with the buyer's public key so they can demonstrate through their ability to decrypt it that they are the true owner.
And nothing about blockchain "ownership" of the theorem will alter the ability of anyone else to look at a copy, or forward that copy, with or without modifications.
Blockchain does not add anything here. It's a solution in search of a problem. To the extent that it does _anything_ useful, you can get all of its actual benefits with a version that relies on a trusted intermediary (which might be a non-profit that is maintaining several sync'd copies of the ledger around the world, so the system doesn't go down if a single node does).
Unless you actually store all your keys on your own local drive, and run the algorithm on your own hardware, you've already conceded that you're fine with a trusted intermediary. But virtually nobody does that. (I certainly _could_ if I wanted to, and I wish I had back before the bubble blew up. I have a friend who set up a bunch of mining servers in the _very_ early days of BTC, and made quite a bit of money off it. I'm not sure if he sold all of what he'd mined, before doing mining on generic linux servers became impractical, but if he does still have them, they'd be a worth 6-7 figures.)
Cryptocurrencies are to the real economy what fantasy sports are to the real sports.
And NFTs are like penny stocks.
Bitcoin is actually one of the oldest financial assets we have ever had: a die. It's an instrument of speculation. A digital casino chip backed up by a pointless technology backed up by hype and unsuspecting capital.
It will survive.
To paraphrase P.T.: Another crypto-bro is born every minute.
Barnum was right. That's precisely why regulation is so important. First, to protect the naturally gullible, and then to protect the temporarily gullible which is the rest of us from time to time.
Thank you. This is the contextual level of commentary I needed as the introduction to crypto. First time I’ve not felt intimidated against looking into it.
Personally, I'm a Bitcoin minimalist. I follow Warren Buffet's rule of not investing in things I don't understand. I'm also put off by the creepy libertarian conspiracism of many Bitcoin evangelists.
Cryptocurrency has one thing going for it. Anyone who owns it is biologically committed to advocating for it, because its value is nothing more than the collective confidence that others have in it. So, unless you are self-immolating, if you own crypto, you're a huge fan of crypto.
Thank you for writing this! I suspected most of this except for the last point about Bitcoin as the gateway drug. I've been wanting to get involved for three years now but I'm really afraid of making a mistake. Thank you for being the people's economist! Now, I just need to figure out a way to get involved without the pesky regulators in Hong Kong or China finding out, ha.
Do you know what kind of role transaction fees play in El Salvador citizens unwillingness to use bitcoin to make payments? How much is the transaction fee on, say, a $30 transaction using the Chivo app?
It's in the survey in the paper!
Vitalik Buterin's bitcoin maxi post was published on April 1--I don't think that's a coincidence.
There's an old saying about commodities that also applies to crypto.
You can make a small fortune trading commodities. First you start with a large fortune.
I'm sure blockchains i.e. distributed databases have a future. But I'm skeptical that crypto currencies have any future, and I'm certain that Bitcoin and similar asset-less pseudo-assets will go to zero, sooner or later.
The idea that Bitcoin should try to function as currency was rejected by Bitcoin owners themselves. The initial design obviously couldn't, as it's extremely transaction-inefficient. So plans were floated to reform the design, but most owners were reluctant. So there was a split, and then another, creating two spawns-of-Bitcoin that were technologically better suited to function as currencies. Relatively few people cared. The Bitcoin community preferred to keep Bitcoin what it is: a pseudo-asset.
Sure, this and the other retailer will accept Bitcoins, but it's a silly, decorous exercise. It makes far more sense to first sell Bitcoin then pay with currency. A growing proportion of transactions among Bitcoin investors are conducted through exchanges, avoiding Bitcoin's inefficient transaction system.
So what you have is a kind of digital collector's item. Why should you collect it? Because other people are collecting it. Does it, like a financial asset, include a claim against some income-earning property, business or government? No. Does it, like a currency, have a central bank or any central body, of any credibility level, that manages its value in any way, by intervening in the market to buy or sell it? No. Does it, like precious metal, have inherent jewelry or industrial value? No. Its value derives exclusively from people thinking other people will want it in future.
I'll give this to the Bitcoin community, they did an amazing job of propagandizing an entirely worthless pseudo-asset. But the problem with "going mainstream" is that mainstream investors expect returns, and Bitcoin has significant costs and no income. It can only go up to the extent entries exceed exits-plus-costs. Now that most mainstream investors are down, I don't see what's going to revive the momentum.
Bitcoin (and other popular cryptos) is not good at the things its supposed to do. It's not more convenient way to send digital payments. It's more traceable than cash. It's not a stable asset. It has no theft or liquidity protections. Moreover its inherent to the technology so the next crypto thing is not likely to "get there". It only seems to be good for gambling and pulling scams on other crypto users.
Would recommend Dan Olson's Line goes up:
https://www.youtube.com/watch?v=YQ_xWvX1n9g&t=2s
Or at least Ezra Klein's interview with Dan Olson:
https://www.stitcher.com/show/the-ezra-klein-show-2/episode/the-most-thorough-case-against-crypto-ive-heard-202061742
This helpful infographic has accurately summarized my feelings for the duration of Bitcoin's existence, and yes, now more than ever:
http://www.buttcoinfoundation.org/wp-content/uploads/2011/06/buttcoin-infograph.png
Eh, there are a lot of believers who actually do know a lot of math. Obviously Satoshi (who I am pretty sure is somebody I knew, whose mental health issues eventually, tragically, led to suicide) and others who've contributed to the code to make it work do.
What they totally fail to understand is the social side of economics. And in their lack of comprehension, they've turned to extreme "rugged individualist" ideas about trying to displace the State, and get rid of any need for mutual trust among people doing commerce.
A good explanation, and very enjoyable.
I don't think I have many Luddite tendencies, but I am still extremely skeptical about the inherent value in this stuff.
It has value because some number of people just kind of arbitrarily agree that it has value. Which is no different from gold or fiat currencies, but those things are least backed up by something 'real'.
(Gold by itself, as a durable metal, and fiat currencies by governments and the lands/populations they represent.)
Crypto just seems like a castle made of sand. And if people want to use it for speculation (or a pyramid scheme), go for it I guess.
The post ignored the cost of Bitcoin mining. I can remember back in the early days (a decade ago) when people were running computers 24/7 to get Bitcoins. It was easy at that time as the algorithm released lots of coins early on, decreasing as time went on. This put an upward pressure on GPU prices as more people started mining. It also led to "mining farms" that consumed vast amounts of electricity. Do a Google search on GPU Mining Rigs and you quickly see how much wasted technology has been diverted to this 'get rich' scheme. Those of us who need fast GPUs for photography and video rendering are now overpaying because of this.
Digital currency only works when it has stable value and this past week points to failures in this regard. 'Stable coin' remains an oxymoron until proven otherwise.
I think the comparison to gold here is missing an important factor. Irrespective of the fact that whether gold has uses and whether it has $12T worth of use, GOLD EXISTS IN THE PHYSICAL WORLD.
Human beings love physical things that they can touch and feel. That is why owning the house you live in cannot always be purely thought of as a financial asset. There is no price you can put on painting your own walls, showing the house to your friends and family etc.
People love Apple a lot more than other tech companies because Apple puts a physical device in their hands that they can touch, feel and use. Even though other products like Instagram or Google Maps adds value to their lives, the iPhone that you can touch and feel always feels like a real product over other "apps" and "services" that is just software that runs on the cloud.
Bitcoin is similar to an app or a service while gold is similar to the iPhone here. Even though they both have value only because everyone thinks they have value, Gold is a physical thing that is shiny and pretty and worn as ornaments. Bitcoin can never live up to that.
Gold is even more than that. It’s one of the most unreactive substances on earth - it doesn’t react with other elements to become something else. Pretty much all the gold ever mined still exists as gold. You can carry it around or hide it, SAFe on the knowledge that it will still be there unless someone stole it. You definitely can’t say that of any digital currency, which are lost to you the moment the power goes off and you can’t access the internet.
Bruce Schneier wrote a good article in 2018 explaining the central flaw in the concept of crypto (as in, permissionless blockchains): https://www.schneier.com/blog/archives/2019/02/blockchain_and_.html
To paraphrase a previous commenter, it’s a solution that causes a hundred new problems. And the original problem wasn’t actually a problem in practice, and the new problems can’t be solved without abandoning the solution.
David Rosenthal, an early innovator behind some of the decentralized algorithms that crypto would later use, gave a more technical talk last fall explaining additional layers of insoluble flaws in the core concept: https://blog.dshr.org/2022/02/ee380-talk.html
None of this is to say that people won’t continue to trade and prop up crypto assets, at least in the medium term. Decentralized transaction systems will be useful for as long as people take on and pay off illegal debts. If ransomware operators can sell bitcoins to exchanges, that can sell bitcoins to ransomware victims, who must buy bitcoins from exchanges to pay to the ransomware operators, the circle is complete. But if that’s the only basis of value, there’s no reason that governments should tolerate it.