Recently there has been a trend of inscribing data on the bitcoin chain representing issuance of new assets and in some cases media (images etc.). Keywords here are "inscriptions" "ordinals" "brc-20"
The speculation component of these new asset types has has created a high fee environment where instead of paying for bitcoin moving around, ownership of secondary assets encoded as data are being transferred.
There is currently a big controversy where one tribe says that these transactions are spam and should be banned via opt in from miners.
Why do games have to use so much electricity? They should be fine with a few kb of storage and maybe some minimal networking. Back in the day games were completely fine and playable in tiny cartridges. Games should be regulated to not consume a certain amount of network and processing power.
On the other hand, without the PoW mechanism of Bitcoin, it's impossible to have the properties that bitcoin has - global decentralised money and payment network. If you believe otherwise, make one! Very quickly no one will be willing to pay for Bitcoin, and all those "wasted electricity" will suddenly become available again.
You highlight a bunch of examples where government policy/implementation has failed miserably in the backdrop of higher and higher demand from it. I wonder how far this needs to stretch before we realise that the problem isn't that the government doesn't behave correctly, but that the whole idea that a government is a good allocator of capital and resources is flawed.
It makes perfect sense. McDonalds did something unconventional and apparently popular. People that found that valuable send the strongest signal you can send in an economy - money. "Corporate profits" take a look at the bank and they think "hmm, that seemed to work, we'll do more of that". They might not produce another gameboy game, that signal might need to be calibrated over further attempts to figure out why people bought more hamburgers. But certainly some signal concerning the approach they took will be loud and clear.
Precisely the failure of crypto is thinking that people will follow "fundamental crypto values" and underestimating the power of convenience and ignorance. "Traditional financial institutions" are inevitable in crypto.
But at least in crypto I have the OPTION of storing it myself.
Also, if I do decide to use a custodial provider, I can choose to use a provider that publishes proof of reserves [0], giving me more confidence in the provider.
> But at least in crypto I have the OPTION of storing it myself.
You have the option with Fiat too - you can get paper currency and store it yourself in a secure location. $10,000 can be stored in $100 bills in as little as c0.03 meters^3.
Using a bank is much more convenient to store Fiat though if you want to buy/sell things, much like using an exchange to store Crypto is much more convenient if you want to trade crypto (because let's be honest, not that many people are using Crypto to buy pizzas!).
Storing a 12/13 word string in your head for a cold wallet puts it into territory a lot closer to a bank account, and in the US normally words in your head can't be seized via court order (there are some exceptional circumstances, but they're far more limited than freezing bank accounts).
I think it's closer to hiding a pile of money personally.
The security is based on you remembering a 12 word string or geolocation, and the string/geolocation can't be siezed via court order (other than exceptional circumstances, or by finding the location/keys).
The 'storage' in both instances is decentralised. If you forget your 12 word string or geolocation, you lose your money.
Banks on the other hand:
* Provide convenient and safe access
* Will invest your money (in exchange for interest).
* Allow you to reset your credentials if they are forgotten (by proving identity)
Clearly the advantages and disadvantages have both overlapping and mutually exclusive elements. For this reason It makes sense to me that some may choose to diversify their holdings by taking advantage of both. To me relying fully on the bank doesn't seem safe at all, as the IRS and other agencies have been known to arbitrarily seize accounts based on absurd claims of 'structuring' even for sub 10k deposits [0]. Crypto is volatile, and you can forget your seed string, but nearly impossible to seize if appropriate precautions taken. Local value like land/durable goods retain value largely as long as you can defend them by force, but are poor choices when fleeing.
As time moves on it's clear to me all these assets are becoming important members of the financial landscape. If crypto were merely a degraded version of the dollar, then I don't think so many people would use.
> You have the option with Fiat too - you can get paper currency and store it yourself in a secure location. $10,000 can be stored in $100 bills in as little as c0.03 meters^3.
That's really not the same though. With crypto I can store on a hardware wallet that requires a pin to unlock (and resets after 3 attempts) with a backup seed stored elsewhere (potentially split up in n of m shares). How do I backup my cash? How do I lock up my cash in a similar way?
In addition, I can setup "smart" wallets that require an approval from another person to initiate the transfer. Or forces a cooldown period on transfers. None of this is possible with cash.
You buy a vault or a safe, which you can access with a 'pin-code' (in the fiat world this is called a combination lock). Safes come with two keys, which allows you to keep a backup of your 'secret' elsewhere, and you can also insure the cash inside if you want to pay for a full 'backup'.
In addition, "smart" safes and dual lock safes are available which have two keys, mean you need approval from another person to initiate the transfer.
It's not an exact 1:1, but you can hardly say that you don't have the option of storing Fiat by yourself.
crypto has a lot of traits of a bank without the bank. Fast transactions (as opposed to carrying money to different locations), secure storage (as compared to having guards for your hoard of gold), it does not rot/burn (if you backup keys adequately) and many others.
All of those are more convenient than storing dollar bills or gold bars. So, yes, fiat has options, crypto is another kind of option and probably the most convenient for self custody, hence a very good one to avoid trusting institutions.
The problem with fiat is a completely unknown monetary supply function. Gold makes a lot more sense IMO in your scenario as there's a finite amount in and on the earth, and it would take a scientific breakthrough to economically create more than that.
That's nice, but it's unrelated to the issue I'm talking about. If we care about crypto widespread usage, we have to look at what most people will do, and most people will choose convenience and won't have enough knowledge/interest/time to make informed decisions. Relying on "but you have the OPTION to do it properly" just leaves all those people behind and vulnerable to scams and situations like this. And ultimately, as the parent comment says, crypto will just speedrun financial history and find out why regulations exist.
Fractional reserving is taken as something that is good and wonderful, but before you had the fed who could print money at will, you had banking crashes caused by it on a regular basis.
In a fixed money supply currency, fractional reserve banking should be illegal and banks should instead make money off fees. Venture capital should put their own money at risk to invest in the economy. How will people afford houses though? The housing market booms and busts because of the wildly fluctuating availability of credit caused by the money multiplier rapidly creating and destroying money which is tied to the fractional reserve banking concept. Homes would be drastically cheaper and people would actually be able to save to buy them if it weren't for the huge supply of rapidly created and later contracting credit available to buy them. Things we buy with credit like housing and education have gone up steadily in price, while things bought with cash have not.
The fractional reserve people are so sick of crypto, that ,in one platform, you can buy bitcoin but you can't send it to a crypto address. You have to get your friend on the platform, you can send it to them, and then they can convert it back into fiat. It's ridiculous, you're basically just buying and selling a security that tracks Bitcoin and not Bitcoin itself.
I can't really follow the comment. You seem to start a thesis about
>In a fixed money supply currency, fractional reserve banking should be illegal and banks should instead make money off fees
Which, ok... But then jump to
>The housing market booms and busts because of the wildly fluctuating availability of credit caused by the money multiplier
Which seems to be a thesis about our current world. I can't figure out the connection between them. Are you saying this is evidence of why the first thesis is correct? But USD is not a "fixed money supply currency", which was how we started out.
I understand that easy credit induces demand for housing which has inelastic supply and somewhat sticky prices. This doesn't seem to be a problem of Fractional Reserve banking though. The VCs in your proposed system will still invest in mortgages as a fairly safe bet, because people are highly motivated to have a place to live.
And mortgages are an important tool so people have a place to live _before_ saving for 30 years. Given our current population dynamics and everything else...
I remember when WikiLeaks first decided to accept Bitcoin's for donations. Nakamoto cautioned that Bitcoin was not mature enough fr something like that.
I think that the problem with the Cryptocurrencies movement has been that the use peopel want to give to it has surpassed the technological advances that it provides. At some point, the ETH network will get there, providing "trustless" alternatives for a lot of the stuff that CeFi services are giving. But that is still several years away.
And at the point that the ETH network provides its alternatives, centralized services will have better products, more users, and more features simply because building centralized services is far, far easier and less time consuming than building decentralized ones.
> Well yeah - but they still won't be decentralized.
But people don't care too much about that. If so many crypto users, who we can assume are more informed and care more about decentralization than the average person, massively flock to centralized exchanges, why would the general population use decentralized services if they're worse?
I love this observation, because I think it's the perfect wedge point. Will most people fail at this? Yes.
But -- will every single entity that actually does follow "fundamental crypto values" be destroyed? Almost certainly not. That's where the good (and healthy) action is. Follow THAT, everyone.
Yes, because DeFi never suffers from collapses or hacks. Nobody every drained a DAO with a flash-loan, or used one to cash-out illiquid assets with no intention of paying it back... DeFi is as much of a joke as the rest of the ecosystem.
Those stories about smart contract programming errors leading to money getting permanently frozen are quite scary. Though admittedly in the grand scheme of things they seem to have “only” lost millions of USD, not billions.
Yes, it's a risk. If a contract or protocol is several years old, processing billions per day, and the code is un-upgradeable, you might say the risk is lower.
I'd rather gamble with Uniswap protocol risk than FTX human fraud and greed risk.
Great, you can point to some that haven't been hacked, exploited or just plain collapsed yet.
You said "day traders on FTX are learning first hand the value of DeFi", but DeFi is just as much of a shitshow as the rest and has had just as many collapses.
Uniswap, AAVE, MakerDAO traders will disagree with you.
I am one of these people: I had funds locked into a CEX, was lucky to pull them out some days before turmoil but others not so lucky. During that time my DeFi holdings were fine. I would now rather take on protocol risk of something established and proven like Uniswap, instead of risking with an unregulated CEX.
But you realize that banks (and individuals) could have all the advantages of decentralization if they just chose to be decentralized too, right? This prompts the question: why are they so centralized? It turns out the advantages of centralization are more significant than the advantages of decentralization, and this is true even in a market with religious orientation toward decentralization.
All you've gotta do to get people to keep their coins "correctly" is eliminate the benefits of agglomeration. Good luck!
The point is to custody money, of any sort. And for that, they are excellent - the economy of scale in having a single organization arrange for security of such money for thousands or millions of customers, is unbeatable. Unless you enjoy employing security guards, building vaults (digital or otherwise), and arranging transports, you want to use a bank - or risk losing all your valuables to skillful thugs every single day.
The banking industry is not centralised. Banks provide financial services and compete against each other for customers. DeFi can't even get the most basic terminology right, yet somehow thinks that it can replace the entire financial sector.
Issue is they reinvented the wheel in the crypto space. Centralized or decentralized it's all on the same market is only a matter of scale. As even in centralized markets the concept of edge is just hitting parity.
What really surprised me about the space was the refusing of not registering as a speculative asset. As even if you look into the regulations, it's merely making the mechanisms transparent and creating reporting.
As if DeFi followed through with the true promise of decentralization and transparency. The FTX situation would never have happened in the first place. So with that, the crypto space actually went against its principles and we are seeing the result.
Namely no risk of you losing your assets due to technical glitch, fraud, or overextension. Of course this is not a substantial advantage, especially in the US, given the various non-technical (i.e. legal/cultural) guarantees against these failure modes. It doesn't overcome the disadvantages of e.g. having to physically protect your own assets - thus why people tend to use financial institutions.
>But you realize that banks (and individuals) could have all the advantages of decentralization if they just chose to be decentralized too, right?
The closest you can get to decentralization with the traditional finance system is to withdraw and store cash, which is expensive/risky and causes inflation to eat away at your savings. Good luck with other parts of the finance system (eg. investments or loans). It's ironic how you portray centralization as something that people willingly engaged in because it was beneficial, considering that the disadvantages are all there by design (eg. the government refusing to make high denomination bills, or instituting a monetary policy that causes inflation).
> The closest you can get to decentralization with the traditional finance system is to withdraw and store cash, which is expensive/risky and causes inflation to eat away at your savings.
I don’t see how it’s any different from the situation with, say, bitcoin. If you store a bitcoin, it just sits there, and its value follows that of the market. The fact that bitcoin is deflationary has nothing to do with decentralisation; a central bank could do that as well. They don’t because deflation is a terrible way of running an economy, not because it’s not possible.
> Good luck with other parts of the finance system (eg. investments or loans).
You could loan cash as well and get interests from that. Decentralised, anonymous, not traceable in any practical sense if you use regular used notes. Again, this has nothing to do with cryptocurrencies. The infrastructure that was built on top of cryptocurrencies enable doing it at larger scales and over longer distances, but that’s not a qualitative difference (besides the fact that this tends to concentration, running against the decentralisation ideal).
> It's ironic how you portray centralization as something that people willingly engaged in because it was beneficial,
It’s something that emerged because of economies of scale. Personally, I feel much safer with my money with an institution that is big and resilient enough that I am very close to 100% certain that it’ll still exist tomorrow. This can also be done with cryptocurrencies, but against this goes against the dogmatic ideal of decentralisation.
> the government refusing to make high denomination bills
How is it a problem in practice?
> instituting a monetary policy that causes inflation
Mild inflation is much better than deflation from an economic point of view. What do you think are the advantages of deflation? I can see the “the value of my pile keeps getting bigger”, but how would that work e.g. for farmers who need to invest to produce food, or people who need a loan to buy a house, if the whole system is deflationary?
But again, that’s a red herring because central banks can have deflationary policies. They don’t because that causes the economy to contract, unemployment to rise, and investments to fall.
>I don’t see how it’s any different from the situation with, say, bitcoin. If you store a bitcoin, it just sits there, and its value follows that of the market.
Note, that by "expensive/risky" I was talking about the physical storage of the bills (eg. risk of theft or needing to install security equipment), not the opportunity cost of not putting the money to work. The latter is a whole can of worms that I don't want to get into.
>The fact that bitcoin is deflationary has nothing to do with decentralisation; a central bank could do that as well. They don’t because deflation is a terrible way of running an economy, not because it’s not possible.
>Mild inflation is much better than deflation from an economic point of view. What do you think are the advantages of deflation? I can see the “the value of my pile keeps getting bigger”, but how would that work e.g. for farmers who need to invest to produce food, or people who need a loan to buy a house, if the whole system is deflationary?
>But again, that’s a red herring because central banks can have deflationary policies. They don’t because that causes the economy to contract, unemployment to rise, and investments to fall.
I don't doubt there are great reasons to run an inflationary monetary policy, but the fact still remains that if you want to keep cash around you'll be subject to inflation.
>You could loan cash as well and get interests from that.
But now it turns into a full time job.
>Again, this has nothing to do with cryptocurrencies. The infrastructure that was built on top of cryptocurrencies enable doing it at larger scales and over longer distances, but that’s not a qualitative difference (besides the fact that this tends to concentration, running against the decentralisation ideal).
No, because with cryptocurrencies you can deposit your money into some sort of lending protocol and have that handle it for you, rather than having to do it yourself by being a loan officer/servicer and debt collector.
>It’s something that emerged because of economies of scale. Personally, I feel much safer with my money with an institution that is big and resilient enough that I am very close to 100% certain that it’ll still exist tomorrow. This can also be done with cryptocurrencies, but against this goes against the dogmatic ideal of decentralisation.
But the whole reason why you have to worry about your whether your money is in a "big and resilient" institution is that the only way of storing money in the finance system is at a fractional reserve institution, which can be subject to bank runs. It's possible to structure a bank that doesn't have this problem (eg. narrow banking), but for some reason the government isn't too big on it.
>How is it a problem in practice?
It's an issue any time you want to store/transfer a large amount of money. Although to be fair most americans don't have enough savings for this to be an issue so I'll let that slide.
> Satoshi wouldn't be encouraging people to put their coins on a trusted third party like that. All fundamental crypto values say this.
You can literally say this about "regular" currency. Just don't put your money in banks! But people do, why? Once you answer that, you'll realize why people do it for crypto too. You can't complain that it's "against fundamental crypto values" when it doesn't have any mechanism for preventing it. It's convenient, it has benefits, therefore people do it.
except it doesn't solve either, because it's still risky to keep (whether with a 'trusted third party' or at home on some physical device... at the end of the day it can't be better than physical possession.. i.e. cash). volatility is a lot worse than stable inflation, and deflation (just HODL!) is much, much worse to the point of demonstrating the degree to which bitcoin is not useful as a monetary unit of exchange.
>it's still risky to keep (whether with a 'trusted third party' or at home on some physical device... at the end of the day it can't be better than physical possession.. i.e. cash).
I'm not sure how you can conclude that password protected, geographically distributed (eg. 2 of 3 multisignature) storage "can't be better than physical possession.. i.e. cash".
I mean a realistic use case that a normal person would actually do… people who are used to just tapping their iPhone twice to pay for things. My mom has absolutely no clue what you’re talking about… at best she might have a ledger nano one day
Of course it's still a thing, both regular robberies and digital ones. And people lose savings to online thieves and cheats who take control of their accounts, or manage to perform transfers on their behalf.
Satoshi wouldn't be encouraging people to put their coins on a trusted third party like that.
I find this sentiment of "not your coins, not your crypto" unsettling. The average person doesn't even back up the pictures on their computer or phone and they are one storage device failure away from losing all of their wedding pictures, baby pictures, etc.
The big push now is for people to use hardware wallets. I guarantee that 50% of people over the span of a decade will lose access to 100% of their funds.
2023 will be about everyone learning how much of a joke cryptocurrency is.
> The crypto bag-holders all actually lost their money long before, when they bought the bitcoins. In the time since, they’d been telling themselves and everyone else that their magic beans were worth money and never mind the lack of buyers. But this was not the case. The beans were always worthless, and the only way to make money from them was to sell them off before other people caught on.
I'm technically competent and (before I got out entirely) my coins were on Coinbase.
Why? Because I decided the odds of Coinbase going down were less than the odds of losing the coins myself without their help. There were just too many ways I could have messed up my own wallet.
Traditional institutions will always be dominant in some capacity, as many people are attracted to the convenience they offer. Unless something catastrophic occurs, crippling traditional financial systems or are truly compelling/easy to use platform releases, I can't imagine anything not owned by a "Traditional institution", let alone anything close to what Web 3 proponents preach regarding decentralization & where ownership lies.
The only way for crypto to ever be a thing will be to integrate with traditional financial systems, to a degree. Continually beating the drum of “this isn’t crypto” has not worked and will never work aside from making crypto fundamentalists feel like they’re the only ones on the one true path.
Unfortunately, absent the crypto exchanges, which let you easily convert crypto to fiat, there is no reason why crypto has any value. Given that bitcoin transaction times are nowhere near VISA or cash times, bitcoin is fairly useless to purchase things in person and few online vendors take bitcoin alone (most use an exchange to convert bitcoin to cash instantly).
So without exchanges, there is literally no purpose or use of bitcoin. Currently it mainly serves as a way to record a store of fiat value.
There is no conspiracy here. The reason exchanges came into being and were successful was that there was no other purpose to bitcoin. Few users successfully use bitcoin as it was intended.
> there is no reason why crypto has any value. Given that bitcoin transaction times are nowhere near VISA or cash times,
You interchanged crypto with bitcoin, but bitcoin is not all crypto. The value of crypto comes from them being decentralized and independent of a financial bank. This has the negative side effect of it being very valuable to illegal and fradulent activity, too.
Cryptocurrency has value because people are willing to trade for it, whether money or goods. I don't understand why people are willing to trade for it, but to say it has literally zero value isn't exactly accurate.
Who is willing to trade it other than exchanges to purchase fiat currency? I've never found an item that I can actually buy with crypto, where the seller is not simply using crypto as a money transfer service. If a seller 'accepts' crypto via an exchange that converts it to fiat... that's not really crypto. That's just using it for money transfer, but we have way better solutions for that.
Other than one off gags, I've never actually seen anything being sold for crypto. Perhaps things are different where you live
If it can be exchanged for money that can be exchanged for stuff, it has value. I can't spend gold or equities at the grocery store but those are priced in dollars and have value as well.
Equities are not currency. Equities have value because of the dividends they pay (or retain).
Gold has value because it is scarce and can easily be verified, and has industrial uses. Moreover, you don't need a third party to check for gold. It is straightforward to ensure that gold is real if you have basic tools. However, if gold brokers did not exist and gold were not also easily divisible, gold would have little utility.
Bitcoin has value because of the exchanges. If there are no exchanges, then it has no value.
But, what all three of the above have in common is that the only reason they currently have any value in our markets is because they can be exchanged for pieces of paper that governments will throw you in jail for should you fail to pay them upon transfer of any of the above assets.
I'm fully aware of the lightning network. I'm also aware of something called VISA and American express. Which number do I call to get concierge service with bitcoin? That's what I thought.
Having sent $100k via traditional banks as well as crypto, I can add my anecdote that the latter was far easier. Some would argue that it shouldn't be that easy, and I agree to some extent.
Setting up our tax system to be transparent and auditable by any citizen would be the greatest benefit to a distributed ledger, but something tells me that the current institutions would heavily resist that transition, so you are correct that it has little current value.
There's some flaw there if people are saying "YOU'RE USING CRYPTO WRONG" in response to these issues and in defense of the tech, but the "WRONG" way of doing it is so popular, and there aren't alternatives.
Speaking personally, they might be concise and precise but the arguments are nothing new and too often have simple counter arguments. That's the reason they're not addressed, there really is no reason to except to directly address the Molly white audience.
No, it's not the reason. Because you'd think that after a decade there would be blog posts or articles with coherent explanations of how these problems are tackled. Nope. All we hear is "there are arguments but we won't show them to you just join the discords believe in blockchain so many smart people are working on it".
There are endless blogs and forums with these arguments chewed out, just a google search away.
Molly sounds like someone with an agenda of wilful ignorance due to how easily rebuttals of her arguments can be located, and thus it’s a waste of time to even engage.
see, this would have been the perfect moment to link your three favourite slam-dunk examples, which I assume from your comment you have right there to hand.
> There are endless blogs and forums with these arguments chewed out, just a google search away.
As I said, "All we hear is 'there are arguments but we won't show them to you just join the discords'". Without fail.
Well, there are some entirely self-referential circular arguments sometimes (as in crypto X is good because it's based/traded with cypto Y), but that's about as far as it goes.
The speculation component of these new asset types has has created a high fee environment where instead of paying for bitcoin moving around, ownership of secondary assets encoded as data are being transferred.
There is currently a big controversy where one tribe says that these transactions are spam and should be banned via opt in from miners.