BITCOIN thoughtful considerations and feedback

  • imagesThe

    Bitcoin world is full of people who know nothing about economics or cryptography; they only know that they could have made millions if they had not sold at the bottom. These people tell themselves that they are redeemable, that Bitcoin is just the MySpace of cryptocurrencies, that they will have another opportunity to get in early on some other revolution. These people can be dangerous, but most of them are easily preyed upon.

    I think this may explain the origin of “blockchain technology”. It lets people talk as if clones of Bitcoin are important without having to remind themselves of Bitcoin. If someone says “blockchain technology” to me I give him the benefit of the doubt and write him off as someone who doesn’t know what he’s talking about. If I find out that he’s intelligent, then he’s most likely a con artist.1

    When people say “blockchain technology” to you, you can often replace it with “mana”, or “chakras”, or “quantum” and it makes sense the same way. “Blockchain technology” has evolved into a sound Bitcoiners use to extract money from venture capitalists and one another, similar to the way that male birds use a song to attract females. It’s a phrase for people who know there is a lot of money around, but don’t exactly know where it’s coming from.

    I don’t see that there is a lot of use for some kind of general “blockchain technology” outside of its application in Bitcoin. In Bitcoin, the blockchain is a way of solving the double-spending problem without privileging any party as to the creation of new units or of establishing a consistent history. This is an extremely costly and complicated way of maintaining an accounting ledger. How often do I really need to do my accountancy in this way? I would say that it is only a good idea when the game being played is so important that no one can safely be put in the position of referee. There are not a lot of things that I would really need that for, but I think there is a good argument to be made that a blockchain is a reasonable alternative to the monetary system under which the rest of the world is currently oppressed. Otherwise I’d really rather be able to keep my accounting records to myself rather than leaving them out in public.

    There are no applications of blockchains which do not involve a double-spending problem. A blockchain that was used for an application with no double-spending problem is nothing more than a database, so you could just replace it with a distributed hash table. People have also used the blockchain for timestamping. This only works because Bitcoin has become well-known as a point of reference. If you had a need for timestamps, you certainly wouldn’t invent a blockchain to do it.

    Yet people are running around everywhere in the Bitcoin world screaming “blockchain blockchain blockchain” for all kinds of non-intuitive purposes until they’re buried under piles of money. I can’t believe how long it’s taking for people to get wise to this ruse, but I hope it won’t last too much longer. A blockchain does not have a wide range of applications. However, there is one application2, namely that of being a currency, which is overwhelmingly important.

    Money as a Hallucination

    The foundational fallacy about money is to explain in physical terms what is really a sociological phenomenon. Money is about macroeconomics even if we’re talking about a small currency like Bitcoin. Gold is not valuable because it is durable, fungible, portable, and scarce; it is valuable because of a beneficial and self-sustaining tradition in which it has a special place. The physical properties of gold make such a tradition possible, but they do not determine that it will arise; other goods with similar properties may also become the traditionally established good. Bitcoin is the same way, of course. It could not run without the technology behind it, but its value is what makes it important. People who think “blockchain technology” is important are making the same kind of mistake as the people who think gold has intrinsic value.

    What’s weird to me is that I know I have heard many people express correct ideas about what money is and then look at me like I’m crazy when I seriously consider the implications of what they said. I have heard people say to me things like, “money is just a shared hallucination” or “the value of money is whatever we all agree it is”. Yes! That is correct. That’s exactly what I’m saying. And if money is a shared hallucination, then you can’t replicate Bitcoin’s value by replicating the technology. You would have to also replicate the hallucination, which you can’t. You’ll have two blockchains, but only one of them has a shared hallucination. This makes one of them valuable, the other worthless.

    If that seems like a strange claim, think about the alternative: it means that it should be possible to create value for essentially no work. Every new blockchain ever produced was built on the premise that you can create a valuable investment that offers no income for the fixed cost of copying Bitcoin with alterations.

    There is nothing magic here. Human behaviors have real costs and benefits. Money may be little other than a bunch of people attributing value to something without much direct use. It doesn’t matter if this sounds ridiculous; if there is a behavior that corresponds to this belief which benefits people, then they will keep behaving that way. Other people had better understand what they’re doing or else they will become relatively poorer.

    Money as a Behavior

    The overwhelmingly most popular thing to do with gold is to store it away and leave it for long periods of time. Therefore, an explanation for the price of gold should mostly depend on the reasons someone would want something that is good for being stored away, with some minor additions due to gold’s use as jewelry and in industry. We can study money as behavior by abstracting away all the uses of money other than that of storing it. No matter how silly that sounds, we know that it must be good for something because people actually do it and have been for some time.

    When I talk about money as a behavior what that means is that everybody has a socially established number that is objectively associated with them. They can show other people how much they have, and everyone will agree as to what the number is. People can do something which subtracts from this number and adds to another person’s number. Also, people demand to have higher numbers. This means that they are willing to give up other things in order to increase their number. If we know the costs and benefits of increasing the number, then we can understand the price of these numbers on the market.

    There could be many reasons that people are able to behave in this way. The numbers could correspond to amounts of a physical good, like gold or wampum, which people physically pass among one another. They could correspond to numbers which are managed and guaranteed by an institution, like dollars or World of Warcraft gold; or it could be numbers that are stored in a blockchain as in Bitcoin; or maybe we all just use the honor system and keep track of our own balances and don’t cheat.

    Often, economists define money in a way that makes money a unique good in an economy. I do not define money this way. There could be more than one good which acts like money. Instead, I will show that in the long term I would expect a single money to dominate.

    The Risk of Money

    Money is often explained in terms of the inconvenience of trading in a barter system.3 While bartering might well be inconvenient, that alone is not enough to explain the existence of money. It would certainly be nice if we could all settle on a good to use as money. However, there is no guarantee that everyone will be nice enough to do that. It is possible to imagine a tribe of people who are all very good economists and who all understand and like the idea of money, without having enough confidence in one another as to get it working for real. The first person among them would be taking a risk because he would have to work or sell his property in exchange for something that’s good for not much other than being stored. His risk would only pay off if everyone else was willing to follow suit, and how could they possibly guarantee to him that they really would do so?

    For almost a year, this was what it was like in Bitcoin. Although Bitcoiners suspected that Bitcoin could be money some day, its price was zero. Consequently, it was completely useless as a form of money. For a long time, Bitcoiners wanted the price to be higher than zero, but they could not make it so just by wanting it. Bitcoin did not fundamentally change as a piece of software when it first developed a price; the only thing that changed was people’s’ willingness to trade dollars for it.

    In general, there is always an individual cost to accepting money, even when the use of money is very widespread. If I work in exchange for money, how do I know that money will still be valuable by the time work is out and I am ready to do my shopping? If I work for something I can directly consume then at least I can get some utility out of it no matter what. But if I accept something whose main use is as a medium of exchange, then I am depending on there being future people willing to accept that money later.

    This is why people can’t just will money into existence and why the inconvenience of a barter system cannot explain the existence of money. There’s a risk. In order to explain why people would use money, we need an individual benefit to match with the individual cost; otherwise people would never prefer to use money no matter how socially beneficial it was.

    The Utility of Money

    There is an individual benefit to using money, and it’s very simple. The person who accepts money gets to defer his decisions about what to buy to a later time. Someone who does not want to use money must have a better idea about what he is going to do with the goods he receives in payment than the person who accepts money. When one has money, then one is not committed. If I am the first person to accept money in payment and my bet on it pays off, then I have the option to choose what I want later, and I do not have to choose based on the limited information I have now. This benefit explains why someone would want something that is good for keeping in storage. If he wants to keep his options open, then he can open his vault the moment that the right opportunity comes along.

    I have now provided a trade-off which, I contend, explains the value of money. I have not proved that there are no other costs and benefits to using money, but I don’t know of any others. If someone can show me that there is another reason to hold money, please do. Now I’ll talk about what this tradeoff implies for the value of money.

    The Value of Money

    In this article, I mean value in the investment sense. So the value of money is the purpose it serves in your portfolio and how much you would want. For the investor, the value of money is determined by the tradeoff of commitment versus optionality. If he wants more deferred choices, then he needs more cash. If he wants more income, then he should get stocks or bonds.

    The reason someone might want to defer his choices is because there are limited periods of time in which investments go on sale. A difficult thing about business is that it is easy to make mistakes whose consequences are not evident until long after they are unavoidable. When that happens a business needs cash in order to survive long enough correct itself. During these times, good businesses can be bought cheaply for limited periods of time. This is why an investor wants a cash balance ready to spend. You never know what is coming, but if you have cash you are prepared for whatever it is. Holding a stock is a commitment to a particular enterprise, whereas cash keeps your options open.

    The reason that buying an investment is a commitment is that you cannot always sell an investment easily for cash. It might go on sale, just as in the previous paragraph, and then the investor cannot get the same amount of cash back that he put into it. If there is a crash, the investor might not be able to follow through on his commitment and must sell at a loss. On the other hand, an investor who can realistically make the commitment won’t care so much if there is a recession because he is prepared to weather safely through any bad times.

    The interesting thing about the tradeoff of optionality versus commitment is that changes in the overall use of money in an economy can change the nature of that tradeoff for an individual person. The more demand for money there is, the less risky it is for an individual person to hold money. If you were the first person to sell goods or labor for money, then you would probably look insane or immensely stupid to bet that other people would want this stuff in the future. On the other hand, if many people are using money, then you are merely depending on there not being a hyperinflationary event in the immediate future. In that case, you might look insane or stupid for worrying about such a remote possibility at all.

    In short, money becomes more useful the more people use it.

    This may seem like a very obvious conclusion given how many words I took to arrive at it, but it has some funny implications that are hard for a lot of people in Bitcoin to accept because they have money riding on a presumption that the opposite is true. As more people begin to hold money, the rational response of everyone else is to try to hold more than they already have. Everyone, therefore, will try to increase his cash balance at the same time, and they will do this by bidding larger amounts of other goods in exchange for it. In other words, all prices tend to go down, and money becomes more valuable. Effectively, everyone ends up with more money, except that they end up with more valuable units of money rather than higher sums of it; and furthermore they end up with larger fractions of their portfolio in money as well.

    The Network Effect

    This is the opposite of how most investments work. If the price of a stock goes up, then the value decreases because its dividend yield is smaller in proportion to its price. If the price goes up too much, an investor would eventually want to sell for something cheaper. By contrast, $100 worth of bitcoins today has a better value than $100 worth several years ago, even though the price of bitcoin is much greater. The value is better because there are more opportunities to unload the bitcoins at the owner’s discretion.

    A positive feedback between price and value implies that the growth or shrinkage of money can be self-sustaining. One might well find this conclusion hard to accept. Afterall, value in a business is built by hard work and careful strategy, whereas money can somehow drive its own value according to me. I would invite anyone to explain Bitcoin’s value any other way. And saying “bubble” doesn’t count because that’s virtually the same thing. Money is basically a self-sustaining bubble. We don’t yet know if Bitcoin will arrive at a self-sustaining state, and even if it doesn’t the “blockchain tech” people are still wrong because in that case there would be no good blockchains rather than one.

    What would a self-sustaining bubble look like? Naturally, there must be a limit to the growth of money. As the value of money increases, eventually the individual benefits of holding more of it will go down. This happens as the market cap of currency becomes a larger and larger fraction of the whole economy. There are only so many errors that the economy produces for a cash-holder to take advantage of. The economy becomes saturated with money once there are enough investors sitting around with piles of money such that they are able to catch all the errors that are worthwhile. At that point it is no longer individually beneficial to hold more money even if the value of money has gone up. This prevents the value of money from going up further until more people or businesses are added to the economy.

    This limit is independent of the underlying technology of the money. If people were sufficiently honest, it could run on nothing but the honor system. Thus, the value of money is a macroeconomic phenomenon, even for a tiny, quirky cryptocurrency like Bitcoin. This is the reason why Bitcoin can be worthless one year and valuable the next without a fundamental change to the software or protocol, and why it can range in price by enormous margins over short periods of time for reasons that seem inscrutable. It’s because the value of money is a shared hallucination, and the price is caused by the vividness of that hallucination.

    How Bitcoin’s Value Was Created

    For a year after Bitcoin was first released, it had no price and was quite worthless. Therefore, the value was not created when the software was originally developed. It was caused by step-by-step investments that came later. Since it first gained a price, Bitcoin has had periods of rapid price increases. There can be events which are set off for no apparent reason in which Bitcoin’s price drives itself rapidly up or down. A small price increase is interpreted as an increase in demand. An increase in demand would mean that bitcoin is becoming more useful and therefore more valuable. Hence, more people buy in and cause another price increase. These manias make people outside wonder if Bitcoin is for real. They make people who previously thought that Bitcoin was stupid to think that they should maybe buy a little bit just in case there could actually be something to it. In other words, they are starting to think that Bitcoin is good for the only thing that money is actually good for, which is to be kept just in case.

    Above I wrote about the hypothetical idea of a tribe of economists who all wanted to develop a money economy but could not because each felt the investment to be too risky. Here is how they could solve that problem. They could go around in a circle and take turns investing tiny amounts. Then none of them has to take a big risk. Their economy would not be monetized after one round, but they could see who among them was willing to take a small risk. If they had all shown themselves willing to invest a little bit, then many of them would be willing to risk a second round. If the game should proceed well, the economists would start to think about how wealthy each would be if they managed to get more than the rest. Soon the game would cease to be orderly as they all tried to sell as much as possible in order to buy the new money while it was cheap.

    Bitcoin did not arise out of a barter system. The dollar and the other state-managed currencies had long since subsumed nearly all trade. However the calculation of the initial investors to Bitcoin was very similar to that which faced the economist tribesmen. It was clear to many that Bitcoin would be cool if you could actually buy things with it. However you can’t buy anything with it and its investment prospects depend on the presumption that it somehow one day will be demanded in exchange for goods. How could one even estimate the risk of such a possibility? The fact that other currencies already existed does not change the problem. From the perspective of a Bitcoin investor, Bitcoin might well have existed in a barter system in which Dollars, Yuan, Euro, Pound, and Yen were traded rather than tea, silk, salt, and flint. The only difference is that the national currencies are better competitors than tea or salt, so the risk is greater than if Bitcoin had arose in a real barter system.

    Competing Currencies

    I’m not against competing currencies in the sense of thinking people should be physically prevented from creating them. I am against competing currencies in the sense that I think currency competition is inherently monopolistic and that it is extremely dishonest or stupid to promote a new currency as an investment without taking this reality into account. So I am against competing currencies in the sense that someone who creates a new currency had better be able to present a case that his idea is capable of replacing the current system, and should be treated as a con artist otherwise.

    The fact that money has a positive feedback between demand and value implies that there cannot normally be a stable equilibrium between two moneys. Any initial imbalance between them would tend to expand. If one currency was slightly more preferred than the other, people would react to this by demanding slightly more. This makes the preferred even more preferable than before. Any two moneys will interact in this way, thus leaving one to dominate the rest.

    Many people get fooled upon first entering Bitcoin because they think diversification is important. The problem with diversification is that it is possible to create an infinite amount of bullshit at no cost, and if you diversify into that you lose everything. Diversification only makes sense among investments which are not bullshit. If we were looking at a bunch of stocks that all already paid dividends, then diversification would make sense. On the other hand, there are potentially an infinite number of scamcoins. During late 2013 and early 2014, new ones were being produced and hawked every day. They can be produced at this rate until everyone who thinks diversification is a good idea goes broke. Now that all the dumbest people have gone broke, the focus has shifted to using “blockchain tech” to exploit ignorant venture capitalists.

    There is always some risk in accepting money in payment, even something very well-established like dollars. If everyone settles on the same money, then they have coordinated so as to reduce that risk as much as possible. If you expect people to use two currencies, you have to have some reason that both would offset risk in different ways. I have never seen an altcoiner or “blockchain tech” enthusiast come anywhere near to addressing this issue. Clearly, if two currencies are virtually identical, such as Bitcoin and Litecoin, then whichever currency is bigger has the advantage. Recently, Litecoin’s price has decoupled from Bitcoin’s somewhat, so maybe people have finally figured this out. Once Litecoin loses its shared hallucination, no amount of sloganeering will bring it back.

    Litecoin prices, all-time (via CoinMarketCap)

    But what about something more elaborate? Let’s pretend for a moment that Ethereum actually worked and was actually something that competed with Bitcoin on some level. Do its smart contracts give it a serious advantage over Bitcoin? I don’t see how Ethereum’s smart contract system would tend to bring in opportunities to unload ethers which are superior to the opportunities provided by Bitcoin. No matter how cool smart contracts sound, they make Ethereum just another appcoin, and as with other appcoins, people will reduce the risk of holding them by not holding them, or holding them for as short a time as possible. This willdrive the price down until they are useless in trade.

    By the way, I would prefer to be called a “Bitcoin minimalist” rather than a “Bitcoin maximalist” because the other blockchains appear useless and are easliy eliminated.

    Bitcoin Versus the Dollar

    On the other hand, Bitcoin improves over the dollar (and other fiat currencies) where it actually counts. The dollar is not very good for storing “just in case”. Over long periods, it loses value due to inflation. You can’t carry cash around or the police will take it, and if you leave it in a bank, you can have your account frozen and the money drained if you use it for purposes deemed unacceptable. You cannot own dollars the way that you can own bitcoins. It is not that Bitcoin comes at no risk; it is rather that you can always expect to have the same fraction of the total later on, if you secure them properly.

    The national currencies are affected by forces which are beyond your knowledge or control. They are managed by committees serving the governments issuing them. The people on these committees speak in a jargon that is not only incomprehensible to most people, but unbearably dull even to those who do understand it. Everyone is affected by them, but most people will not bother to learn to understand them. They manage the currency in the national interest, which is not always the same thing asyour interest. They can change the rules about how the currency can be spent you can use them or increase the government’s supply. 4 It is usually not possible to predict what they will do, at least over long time spans.

    This is not possible under Bitcoin’s current rules, and it would be difficult to change them in ways that might eventually enable anything similar. Although many new bitcoins will be created in the future, the release schedule is publicly known, and is therefore already priced into current Bitcoins. Therefore Bitcoin will not lose value as a result of inflation. It might lose value as a result of losing popularity, and this risk is greater than that of the dollar’s (at the moment).

    Thus there is a genuine qualitative difference between Bitcoin and the dollar, from an investment standpoint. It doesn’t mean that Bitcoin will necessarily defeat the dollar. It just means that Bitcoin has a relevant competitive edge. There are still significant disadvantages to Bitcoin; it is slow to confirm and difficult to maintain anonymity. However, Bitcoin has done well against the dollar so far and there is real-world commerce that has grown to rely on it. In addition, every time bitcoin grows, its risks decline relative to the dollar’s.

    Final Thoughts

    The reason, therefore, that the monetary aspects of Bitcoin are particularly interesting is the possibility that Bitcoin could become the preferred good for being stored away. If it did, then its value would grow until it was a significant part of the world economy. That would be a significant change for the world and for Bitcoin’s early adopters. Call me crazy, but I think that possibility has more portent than the possibility of applications of blockchains outside of Bitcoin, and is a lot more likely, too.

    Bitcoin the protocol is like a great work of engineering. Its pieces are all adapted to its function. It is not the technology, but what the technology enables, that is most interesting. The blockchain as a concept had no reason to escape the esoteric circles of developers and engineers. Yet when people looked at Bitcoin, the only terms by which they knew how to understand it was as a new technology. But Bitcoin is more like a new tradition than a new technology. It is as if a small section of the crowd in a packed stadium has started to do the wave, and you can bet on whether the wave will eventually fill up the entire stadium.

    If someone says “blockchain tech” to you, you might as well walk away right there.5 They’re just trying to sell you on their new decentralizedcrowdfunded blockchain tech internet of bitthings appscam. You knowthat they’re lying because everyone who acts like them is a liar and someone who was not a liar would actually do something to distinguish himself from them. Someone who knew what he was talking about would know that you can’t just string a bunch of buzzwords together in order to generate an idea that makes sense. Unfortunately, if a lack of basic critical thought is widespread, and if everyone becomes invested in everyone else’s stupidity, then nobody wants to know either, at least not before they’ve found a favorable time to exit their position. This will probably never happen because although they may think they’re preying on other people’s stupidity, they are more likely being preyed upon instead.


    1. On the other hand, just because someone is dumb does not mean that he is not a con artist. Based on my experience in Bitcoin, I think that many con artists have an instinct to remain as stupid as possible about how they get money so that they can keep believing that they are brilliant entrepreneurs. 
    2. do one thing and do it well” 
    3. When Austrian economists say barter system all they mean is an economy in which no good is used as money, even though the term has much more specific connotations for many people. 
    4. In the US, it is really congress and the executive branch changing the rules, and the Federal Reserve changing the supply. This distinction doesn’t really matter for the purposes of this article, but some people think it’s important because the federal reserve is designated as a private institution, whereas congress is composed of elected representatives. 
    5. This includes Hillary Clinton

    “Blockchain technology” has evolved into a sound Bitcoiners use to extract money from venture capitalists — Love it…. This is so spot on…

  • Avatar

    Awesome.

  • Avatar

    Yes, in theory, Bitcoin should be insurmountable as digital money. Unfortunately, in practice, it is losing its network effect to other digital currencies for a number of reasons, principally because control of the Bitcoin network has gone over to a company whose business interest is to force transactions off of Bitcoin onto their own platform (yet to be delivered), supported by a censorious scammer who bans and deletes anyone who complains about the direction Bitcoin is headed on /r/Bitcoin or bitcointalk.

    People are talking about blockchains because Bitcoin has foundered upon the shoals. Were it not for the failed leadership of Blockstream, your “hyperbitcoinization” prediction would most likely have already happened. Instead, the last new high for Bitcoin was almost three years ago! Now what is increasingly likely to happen is that a Bitcoin 2.0 platform designed for speed and scalability is very likely to suck the market cap right out of Bitcoin on its way to world domination. Ethereum is the most likely candidate, despite their current issue with the DAO theft.

    • Avatar

      “Unfortunately, in practice, it is losing its network effect to other digital currencies for a number of reasons”

      False, the bitcoin domination index has not dropped below 80%, EVER…Other coins have been gaining momentum which is fine, bitcoin can’t do everything, there is much left to invent. However the problem of sending value from A to B has been solved with bitcoin and NO other coin comes close to it’s security.

      “People are talking about blockchains because Bitcoin has foundered upon the shoals. ”

      False, people are talking about blockchains because wallstreet hates to use the word bitcoin.

      “Were it not for the failed leadership of Blockstream, your “hyperbitcoinization” prediction would most likely have already happened. ”

      False, pure speculation. Blockstream and Core continue to push out innovative technology from segwit, to schnorr, to lightning, thunder, bolt, falcon and beyond. It’s getting hard to keep up with all the scaling technology being built. However it takes a while to actually be implemented and be used by the ecosystem. Within 2 years time the scaling debate will be a distant memory.

    • Avatar

      You are probably giving too much importance to the owner of Bitcoin.org… most people don’t ever visit that site, nor they go to /r/Bitcoin. I read in there a couple of times, then I didn’t really need it. People don’t care about the technology behind Bitcoin, not while it’s beginning to spread so quickly. It was important in the beginning, now it’s not. I can bet 999 people on 1000 don’t give a damn about Satoshi Nakamoto or the owner of Bitcoin.org, they just see there’s so much traffic, trading, value, so they know it’s solid to an extent, so they enter the circuit.
      On the other side, you talk about Ethereum, which has far a smaller base than Bitcoin, far less investment and is far less known. You can’t still buy shit with it anywhere, and the first flag app was a failure. Yet you promote it. And here it looks like a Cognitive Dissonance problem: you have proof that quakes shake Bitcoin and Bitcoin is still on the wave, and you have proof that the first quake happened to Ethereum practically killed it, and still you are fan of it.
      I will agree that if there’s a coin that can compete with Bitcoin it’s Ethereum, but that’s all but sure. Bitcoin is like what Windows was in the past: Windows was crap in respect to AmigaOS or MacOS, but it was THE STANDARD. Everybody had it, it worked everywhere, it wasn’t dedicated.
      Bitcoin is in the same situation: it came first, it’s world spread.
      Ethereum has still to born, nothing is around that uses Ethereum, NOTHING. At the moment it’s vaporware, while Bitcoin has been adopted by some millions of people and its growth is going up geometrically.

      see more

  • Avatar

    Daniel Krawisz’ article has sent me into self-reflection and considerable thought. I am a columnist and consultant that believes strongly in blockchain-based solutions–and NOT just to solve the double-spend problem.

    I was host and MC of The Bitcoin Event (New York). This Fall, I am teaching Blockchain concepts at several New England schools. I am also co-chair of The Cryptocurrency Standards Association. I recently wrote an article that strongly criticizes the rush to invest in or announce blockchain-based services that are not both permissionless and fully distributed among users who generate or “own” the data: Is a Blockchain a Blockchain if it Isn’t?http://awildduck.com/?p=4393

    The article is cautionary—it warns that many Blockchain proposals convey little or no advantage—But it falls far short of claiming that a Blockchain is useful only for Bitcoin or applications with a double-spend problem. This just isn’t the case! I think that Krawisz may be limited by narrow vision…

    The statement about the double-spend problem may be technically correct, but what Krawisz fails to consider is that many processes and mechanisms are substantively analogous to this same problem.

    Some prescient organizations (IMO, most are entrepreneurial, but a few are big legacy companies) will reap rewards from their ability to recognize *which* problems in affairs of business, social interaction, scientific research and politics can be positively transformed by injecting a Blockchain database or other distributed, permsionless, crowd-sourced, authoritative component.

    see more

    • Avatar

      the desire to turn anything and everything into capital has a meeting with destiny. Bitcoin value tokens are a commodity, the Bitcoin protocol is a consensus mechanism which is rat poison to capital finance – they want the technology that produces the value tokens (because it is money) but, yet, it is their nemesis. As soon as you run a meaningful blockchain it is based on – and enforced by – consensus, then who needs the “runner” of that blockchain? If the consensus is only that of a centralized party, then a SAP database is both cheaper and faster – the R3 (or IBM or Fed) “blockchain” is only a pretence.

      Commodity charts go up and down according to social mood and with no observable correlation to news or fundamentals. Not only is Bitcoin a citizen programmable money, its a paradigm shift with revolutionary bias in favor of the non-centralized.

      Good luck to them, they’re consuming large doses of a power laxative that Satoshi designed with the centralized authority, specifically, in mind.

    • Avatar

      Ellery Davies – Could it be that you believe blockchain technology has as yet untapped, but profound, value because the alternative would leave you with no career?

  • Avatar

    Who should NPR Planet Money call about the Bitcoin they sent but it never showed up?http://www.npr.org/sections/mo…

  • Avatar

    Great article Daniel !
    Jerome

  • Avatar

    “…you could just replace it with a distributed hash table.”

    Isn’t the blockchain the only known way to “perfectly” secure the values in an always-on peer-to-peer hash table? Isn’t “double spend” just a specific example of its ability to not have “accidental” overwrites in the database?

    “There is an individual benefit to using money, and it’s very simple. The person who accepts money gets to defer his decisions about what to buy to a later time.”
    Another benefit is that it allows system-wide intelligence if it can be used only (or primarily) under the conditions required by the governing legal system. This enables society to reduce or prevent monopolies, tragedy of the commons, externalities, and wealth concentration (democracy resulting in progressive taxation for community benefits). This is why smart contracts are a smart companion to currency and why currencies are on a per-nation (legal force) basis. This is key to the Euro’s problems.

  • Avatar

    No mention of the crippling 3tx/s capacity limit….The author should stop projecting so much.

    • Avatar

      As a value repository, that limit is more than enough. Most transactions to day are done by traders. Bitcoin is, today, like a reserve currency. It’s network is not good to make everyday shopping, but it’s more than enough to save your wealth from your failing currency if you live in Venezuela or in Russia in example.
      So just don’t make the mistake to consider Bitcoin as a method of payment: it’s not. It’s not NOW and it’s not necessary now. People look at it as different things: investment, wealth saving, mostly.
      So that limit is unimportant. And the proof of this is that adopters keep growing despite that limit.

      • Avatar

        “As a value repository, that limit is more than enough.”

        That is a fallacy.

        The “value repository” function requires capacity too.

        The 3tx/s limit, inherently cripples all the potential this system have, because it limits the number of participants who can transact.

        • Avatar

          You are wrong. I have some BTC and I am not touching them, and like me, there’s millions of people out there already that have bought into it.
          And until we are here, and there’s no reason why we shouldn’t, Bitcoin will have value, and until that day, more people will buy it.
          I don’t need to make transactions with it, not now. I bought it as an investment. People from countries in crisis like Venezuela or Brasil or Russia or China are buying it also to escape their countries currency inflation.
          We don’t need more than that number of transactions.
          And the proof of what I say is that the userbase keeps expanding.
          Maybe Bitcoin will never become a network to make real time payments, also because while the userbase expands, transaction time probably will increase, but it will surely hold up as a repository of value, there’s no escape to that, nothing in the world can beat it.
          There are a couple of ways to destroy it, one is to cut off internet, the other I won’t say here and to nobody, but it’s very unlikely to happen anyway.

          see more

          • Avatar

            Currently there are way less than 10M Bitcoin owners….if only a fraction of the potential users (internet connected people) wanted to obtain BTC we would experience a week or not months long backlog rendering the system useless.

            Also, there is no such thing as sitting on an asset indefinitely. I’m not even sure how people imagine this to work?

            Bitcoin is valuable because it’s useful. The store of value function distills from it’s usefulness.

            If you cripple the network, you destroy the store of value aspect on the long term.

            Bitcoin is a payment system, a new form of money. Small blockers go against the very fundamentals of the system.

            The reason small blockers didn’t create their own “store of value scheme” is the fact that it would fail because it would lack network effect and utility.

            Also, you seem to think that Bitcoin exists in a vacuum. While nobody would be incentivized to own bitcoin (more like cripplecoin currently), while there is another system which has a cap on issuance AND utility.

            see more

            • Avatar

              I’ve actually written a book about Bitcoin, so, no, I don’t think it “exists in a vacuum”.
              https://www.amazon.co.uk/dp/B0…
              Still, the network is there, inefficient, and Bitcoin is gaining adopters. You can’t deny it, so what are you talking about?
              I see a Cognitive Dissonance problem here: you have PROOF that Bitcoin is being adopted, with all its network problems, and despite this you WISH Bitcoin sucks because the network is not so efficient.
              My dear, Bitcoin is efficient enough for its actual function: subtract people from central banks shit fiat currency. People buy it as an investment, they don’t need to exchange over and over.
              That problem may arise in the future, but solutions are being designed already, as you probably well know.
              Your opinion is different, ok, but I really see a Cognitive Dissonance problem here.

              • Avatar

                I’m talking about the stone wall front of adoption in the form of the 1MB limit.

                Not sure why can’t you comprehend the implications of a 3tx/s limit.

                You are the one who is delusional if you think that it’s ok.

                “. People buy it as an investment, they don’t need to exchange over and over.”

                But that needs capacity as well (to obtain it, and to use it when needed). Also, only a very few people can afford to sit on an asset infinitely.

                The people who have savings keep them to:

                1.) Have wealth to fall back on

                2.) Spend it time to time on things they need

                • Avatar

                  No you are the delusional one, or just plain idiot, because Bitcoin is not going to hell, it’s growing and despite this you insist that there’s a problem.
                  There’s no problem.
                  People like it like it is, as I wrote (but Cognitive Dissonance doesn’t allow you to see that), they keep adopting it, it’s spreading everywhere, slowly, but it’s happening.
                  Now I say goodbye to you, because you are just a waste of time. Hold onto you fiat currency, don’t buy Bitcoin, I really don’t give a damn🙂

  • Avatar

    In my opinion LTC has a lot of potencial for the sole reason that BTC price will grow beyond of the economic power of average Joe so when people realize they can’t afford bitcoin then LTC comes in scene like second safe heaven just like gold and silver do.

    • Avatar

      Doesn’t make sense.
      While Bitcoin will keep growing, like the article explained, other coins will keep losing ground.
      People will invest on the coin that grants more stability and growth.
      If it’s Bitcoin, and it is, people will migrate on it.
      People that have LTC now will slowly sell it and buy BTC. There’s no escape from this process, unless Bitcoin had to suffer some absurd drama.

    • Avatar

      If it grows more and can retain value over time, it won’t be a “gamble” anymore but a safe haven investment, which is also very good. Also, we’ll probably deal mainly in mBTC denomination in the future if the price goes very high.
      Altcoins will probably retain their value over trading or because they are tied to particular services, but not much more.

  • Avatar

    Seriously, no. You write things like ‘global macro-economics’ but completely misinterpret the implications. I don’t even know where to start. This “institution” has jumped the shark. Tell me how you write about the implications of a new gold standard and the macro-economic aspects and don’t at all refer to 20 years of lectures and writing on the subject by the world’s leading thinking/speaker on Ideal Money, John Nash.

    How do you think you are smart when you ignore this? How can you claim to be reasonable when you completely go against the reasoning and rationality he laid forth?

    You have to do your homework sir.

    • Avatar

      That’s not an argument, sir.

      • Avatar

        “The fact that money has a positive feedback between demand and value implies
        that there cannot normally be a stable equilibrium between two moneys. Any
        initial imbalance between them would tend to expand. If one currency was
        slightly more preferred than the other, people would react to this by
        demanding slightly more. This makes the preferred even more preferable than
        before. Any two moneys will interact in this way, thus leaving one to dominate
        the rest.”

        Do you find this statement true in regard to reality? Do we not function in a world today with many and multiple currencies?

        • Avatar

          I find it true. We have many currencies only insofar as we have many countries and each demands taxes in their own fiat currency. Think of all fiat currencies as one currency bc in effect that is what it is: different flavors of the same currency. What are your currency options for paying for something within a country? Usually just one. Bitcoin is the first really new choice that achieved any kind of scale.

          • Avatar

            Ya, of course the point holds true when you start grouping separate currencies as “one”, but like I point out, that’s not observable reality and its irrational as an argument.

            • Avatar

              I’m only grouping fiat currencies as one currency for my argument because they are the exact same thing and serve the same purpose relative to the country they’re in. If the whole world were one county that used, let’s say, the dollar, you wouldn’t see rival fiat because of the phenomena the author describes.

              • Avatar

                Just to be clear, you are saying that if the whole world used one currency you wouldn’t see a rival fiat?

                • Avatar

                  I am saying if there were one world government with one fiat currency that was used for all taxes everywhere, as fiat is, then you would not have competing currencies. You would still have commodities, and WoW money, and others but you would only have one currency that you could go to any merchant and use to buy goods and services.

                  • Avatar

                    And you really can’t see how your premise is your conclusion in that statement?

                    • Avatar

                      The premise is that there is one fiat currency used worldwide as part of a one-government world. The conclusion is that this currency would “dominate the rest”, as was first stipulated. Perhaps it was too much to say there would not be competing currencies but I do agree that any other currencies would be dominated by the one fiat.

                      • Avatar

                        Your premise of one fiat currency used world wide is identical to your conclusion that suggests such a currency would dominate.

                        • Avatar

                          Not really, because we’re talking about things happening over time, and the important point is that such a currency would CONTINUE to dominate for the reason stipulated, if ever the situation of one global fiat arose.

                          • Avatar

                            You feel that your conclusion, which is a re-statement of your premise, becomes valid when time is introduced to our inquiry of observable reality?

                            • Avatar

                              Yes. Think in terms of the currencies being like cars in a race that has no ending and new cars can enter the race at any time. With a premise of One-World Fiat being the only car at the beginning of the race, the conclusion that One World Fiat will always dominate any new entries to the race is not circular reasoning, if that’s what you were implying.

                        • Avatar

                          So what? If that currency is better than all the other ones, this could happen.
                          The only “obstacle” would be that you have to trade “stuff” for that currency, thus another widespread good of exchange would be around anyway, like gold in example.
                          But here we are talking in absolute terms, not in real terms.
                          There will always be some other commodities, but Bitcoin is the “perfect” currency for a number of reasons.
                          You probably know this well already, so why are you insisting like this?

        • Avatar

          All those currencies are mandatory for each country. They are a method of control of population and of countries economy. Wasn’t it for countries lines, there would be a single currency. And Bitcoin goes exactly past those lines.

          • Avatar

            The division of the globe into nations, and the currencies that support such divisions, are necessary in order to foster economic diversity and global sustainability.

            Bitcoin goes past those lines, but it does not erase them. And it does not preclude national money systems.

            Thats a fallacy insincere players like Andreas A. passed around.

            • Avatar

              Bitcoin goes past those lines, and does not need to do anything else.
              Also, Bitcoin IS money, and it’s quite ideal, much more ideal than all the other forms we have had up until now.

  • Avatar

    Your style of writing really gives away the fact that you like to sound a lot smarter than you really are. If you do not see the value of smart contracts then you are just an idiot with an opinion… Seriously. Also, if you think bitcoin is going to replace fiat you are wrong there as well. Bitcoin is evolving into more of a commodity than a currency due to the fact that it is very illiquid, I don’t see that changing anytime soon.

    • Avatar

      Regarding BTC being illiquid, is it easier to pay $98.76 in cash or credit card ? Some (self?) education on the part of the seller and customer is needed for sure but wouldn’t it be easier to pay in BTC than via credit card (,especially with the rapidly improving UI) ?

      Other reasons are

      1. Government compliance that can be bypassed like KYC norms.
      2. Paperwork and other hoops required to jump through tie up with a credit card company (or private sector compliance).
      3. No need for credit history for either party.

      BTC has both the advantages of cash and credit card. The only disadvantage it shares with credit cards is the need for electricity and data transmission connectivity.

    • Avatar

      Why should a smart contract have to reside on a blockchain ? It could easily reside on a redundant array of independent disks on servers around the world.

    • Avatar

      This article made me realize that the nakamoto institution is a sham not based on reason and logic.

    • Avatar

      McDolans – I agree with the commodity/illiquidity aspect of BTC. For now. But that can change in a very short time. This “commodity” could surpass the liquidity of the USD, or any other fiat currency quite soon.

    • Avatar

      McDolans: To whom are are you referring? -To the original author? -Or to reader feedback in one of these comments?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

edoardo ferrario

Sogni e pensieri di uno scrittore

The Malta Photoblog

A photographic blog of my island home

MIKI-TRAVELLER

PROFUMI E CULTURE DA ALTRI PAESI

thetabike2014

passionbike

SocialEconomy

l'economia della condivisione

Aurora Iblea

La gente pensa troppo a quel che deve fare e troppo poco a quel che deve essere. M.J.E.

AlessandroPedrini Finanza&Mercati

Blog di approfondimento economico di Alessandro Pedrini

CASA MALTA

CASA MALTA - per acquistare, affittare, investire a Malta. MALTAWAYTRAVEL per Viaggi, Corsi Inglese e Incentive - Copyright 2014 casamalta Sviluppato da casamalta

mirco balatti

Thoughts, ideas and news by a finance PhD researcher

alberto balatti board member blog

GOVERNANCE, INVESTMENTS, FINANCE, ECONOMICS, ORGANIZATION, MANAGEMENT, PEOPLE DREAMS, for BOARD'S MEMBERS

%d bloggers like this: