Bitcoin on the rise

[delay]

Which makes git centralized.

Everyone will notice if you mess with the central repo. And they can see the changes you made. The central node has no secret information, every node can decide to branch off. There's nothing special about the central node except the trust people have in it.

[daylen]

@jacob I partially agree. Though, I think in the medium to long term this combination of technologies will enable humans to better control automated processes. The noosphere is likely only going to get more chaotic and unpredictable as AI improves. Using digital concrete (blockchain) to verify basic facts about world will likely only get more important.

[jacob]

Using digital concrete (blockchain) to verify basic facts about world will likely only get more important.

Well, there I can see some utility. For example, a way to verify that a picture of an event hasn't been digitally manipulated. Of course a picture could still be framed or cropped. A picture with more content and context would (ideally!) be worth more.

[zbigi]

There's nothing special about the central node except the trust people have in it.

That's the difference between git and blockchain - blockchain is a technology which doesn't require trust. That was the innovation that enabled cryptocurrencies, amongst other things (smart contracts etc.).

[Scott 2]

As the world becomes increasingly virtual, and AI makes it trivially malleable, immutability becomes critical. It represents digital trust and security.

The global networked economy is also increasingly winner takes all. Capture a hundred million users, and the competitive moat is nearly indestructible. Try to escape Meta these days.

Those victories hinge upon advantages of a few percent. The technicial arms race is worth billions (trillions?). That's where the Blockchain will shine, IMO.


What's the individual impact? Maybe not great, or even all that relevant. People want the same things they always have, subject to the same implications. I'm not excited about what it will do for my personal experience. Mostly a new frame, that intensifies the wealth bifurcation we've already seen. I'd like to stay on the winning side.

[Ego]

Buried beneath the flurry of executive orders last week was news that the SEC rescinded SAB 121, the rule that banned banks from offering crypto custody services. Banks can now hold and lend crypto for their customers in the same way they do cash and securities.

When FTX pretended to be a bitcoin bank and used their customers deposited crypto as their own collateral, there was a run on FTX and they were unable to return the crypto. FTX went bankrupt and the resulting loses were borne by the customers.

1) How would that same scenario play out with one or more too-big-to-fail banks?
2) How would one hedge this type of systemic risk when all of the hedges are interconnected?
3) Would self-custody help?
4) What else?

More here: https://egodeath.capital/blog/too-big-t ... in-custody

[bryan]

I've observed many people like those here profiting. Questions that give me pause - What do I want to profit from? Haven't I already profited enough? What's the opportunity cost? Down side risk?

On profit: Originally it seemed like you could buy up this "digital gold" and wait for the industry demand for it to precipitate, to profit. Maybe even contribute to the industry and infrastructure since you have an aligned incentive.. it was an optimistic time pre-2017. Now it seems the future profit (for Bitcoin, specifically) may be from the destabilization/collapse of the US dollar.

On enough: Sure. Same as anything else.. And at this point, I would look at BTC as more of a hedge, anyway.

On opportunity cost: I don't particularly see many costs to worry about? The brain drain (that's already happened), perhaps?

On down side (financial?) risk: same as anything else..

Ditto putting things on the blockchain instead of just putting it on paper somewhere with official stamps or notarized signatures. Functionally it does the same thing with a few extra features the lack of which hasn't been an insurmountable problem as of yet.

I agree it's cool, but I remain unimpressed by the general utility/value-add. I probably sound like gramps wondering why one would put an engine on the buggy when there's a perfectly good horse in the barn to pull it.

"few extra features" is quite the understatement, though you're right that it's been very unimpressive so far (excepting ransomware most notably?). Pre-2017 was extremely exciting to imagine a future where you have a universal, programmable, digital money. Some reality checks, failures to fit specific use-cases since then, to say the least.

I think we'll get there, but it's very unlikely to be Bitcoin as the mechanism. It seems like "DeFi" and "DEX" might be a real thing, so maybe not a big deal if there is an explosion of alternative tokens if they can be actually be exchanged pretty freely, automatically via the DeFi thingies? Seems like Ethereum is still the mechanism for most of this.. though these DEXs have their own governance tokens. Alameda Research (of FTX fame) was a market maker for this stuff.

"Tokenization" didn't make sense for most things to me, but now that Trump and the Si Valley capitalists/accelerationists are at the wheel.. it just got significantly more likely (they have motive and incentive).

Well, there I can see some utility. For example, a way to verify that a picture of an event hasn't been digitally manipulated. Of course a picture could still be framed or cropped. A picture with more content and context would (ideally!) be worth more.

Well, a camera manufacturer could have done this a couple decades ago (maybe there were prototypes! certainly there must have been research and patents?) but never bothered getting it to market, or it being useful if it did get to market. It's Bitcoin that sparked some of the creativity, exploration. Authentication/attestation, chain of trust, DRM ideas were possible before blockchain, but it's the "universal, programmable, digital, democratized" aspect of something like Bitcoin that really fueled the excitement, the demand to "do it on The Blockchain" as opposed to on Nikon's servers (or Valve's, Epic's, Google's, Apple's, Amazon's, Disney's, John Deere's, etc).

For how crazy he is portrayed now, Balaji Srinivasan was the founder of 21.co which, iirc, was one of the company's trying to figure out how to do some hardware around automated (micro-)payments, ownership stuff. He gave a talk at Stanford (timestamped to Gini coefficient name-drop, in 2017 where he opened for Vitalik Buterin) that I went to that filled a conference hall. I got the vibe that he was more of an ideas and marketing guy than anything.. (OT: probably in the same year I went to another talk at Stanford that was amazing, computer architecture topic, that had <20 people there). After the event, I was very interested in talking with him but he was surrounded by a gaggle of Sovereign Individual people and that's what they all chatted about.

The Bitcoin dream of (micro-)payments, i.e. (automated) transactions at a large scale, hit a brick wall in 2017, and some were disenfranchised, disappointed, and maybe even too rich to bother grinding away on alternatives. Progress is still made, of course, but I'm a bit checked out myself. I keep my eyes and ears open, but that's hard when crypto is an epidemic of arrogant, brain rotted shills, charlatans, and gamblers.

[Scott 2]

On opportunity cost: I don't particularly see many costs to worry about? The brain drain (that's already happened), perhaps?

On down side (financial?) risk: same as anything else..

My comment ties back to my personal approach with regards to crypto.

I've opted for traditional investments and have enough. I've only maintained a cursory interest in crypto. So the opportunity cost of playing would be personal - getting and staying up to speed. The field is constantly moving. Also estate planning, in the event of my death or incapacitation. It's easy for my wife to take over the index funds.

From what I've seen - due to the lack of regulation, possible down side risk of crypto is higher. It reflects potential return. There's a history of exchanges failing. Lots of sharks preying upon greed. Not to say that isn't present in the conventional securities market. But not your keys, not your crypto. The safety nets are weaker IMO.

There's definitely still some interest on my side. Specifically - using a frontier AI model as a 1 on 1 crypto coach. That's a fascinating learning experiment. Profit isn't going to improve my quality of life though, and that time could support a variety of activities that would.

[bryan]

All fair. Though, (selectively) getting and staying up to speed about new developments in the world is a valuable skill that aligns with some core values common in ERE. From another angle, I can see how being ERE-enough (and having certain philosophies and dispositions) means not having to worry hardly at all about new developments in the world at large. For instance (as @jacob also alluded to) many of us are/would be content to be car-less.

If I had to predict the not-so-distant future, I can't really imagine humans sticking to 20th century monies. The genie is out of the bottle and it will be quite the disruption, even for the case of an EU/BRICS/US stablecoin.

Estate planning is definitely a risk that slipped my mind and agree with.

[Scott 2]

All fair. Though, (selectively) getting and staying up to speed about new developments in the world is a valuable skill
...
If I had to predict the not-so-distant future, I can't really imagine humans sticking to 20th century monies. The genie is out of the bottle and it will be quite the disruption, even for the case of an EU/BRICS/US stablecoin.

Fully agree on the value of being up to speed. I've never bought any crypto, let alone used it for a purchase, exchanged it privately or maintained my own cold wallet. I think there's benefit in learning those things. If not to profit, to simply understand where money might go, and the potential pitfalls. These systems will run in parallel for quite some time. Heck - around here, simply using tap to pay via my phone, has me in a technical minority.

I think it's clear adoption will move through the world in waves, with those countries having the least stable economies transitioning most quickly. Faced with local hyperinflation or political instability, a global digital currency holds much more appeal. We've seen it with Argentina already. Worth noting - the US currently has the largest admitted bitcoin holdings of any country.

I'm not convinced bitcoin will be the final digital currency. There's a lot of power to grab by displacing it. Given the average human, I also wonder if those who chase power, won't figure out how to re-centralize the digital currency. Effectively returning us to status quo. We've seen it happen with the web.

The US dollar in its current form, will not be the world's reserve currency forever. Whether it is redefined or truly displaced, I'm less confident. I do think a decline would be prolonged. Both due to the historical value and existing military strength. That's part of my comfort in continuing to hold US treasuries. Since I'm unlikely to leave the US, there's also consideration of the lag between a global currency decline, and local decline.

I expect to die before I'm ruined by traditional investments, essentially.

[jacob]

I think it's clear adoption will move through the world in waves, with those countries having the least stable economies transitioning most quickly. Faced with local hyperinflation or political instability, a global digital currency holds much more appeal. We've seen it with Argentina already. Worth noting - the US currently has the largest admitted bitcoin holdings of any country.

El Salvador recently abandoned BTC [as the national currency] after pressure from the IMF. It was one of the conditions to get a loan funded.

One of the fundamental requirements of a useful currency is low [price] volatility, preferably non-existent. Crypto prices act more like art prices or high-leverage risk-on tech equity. This makes it useless for quoting prices in a supermarket or planning a supply chain which is what a currency is needed for.

[Jean]

I mined ethereum in the winter of 2019-2020. I converted all of it to btc, and finally moved it to a cold wallet last month.
I had to learn a few thing on the way, but it's not very much.
But i'm happy i got "free" money on the way, even if it's just a few hundred.
I'll probably hold to them.

[Dave]

One of the fundamental requirements of a useful currency is low [price] volatility, preferably non-existent. Crypto prices act more like art prices or high-leverage risk-on tech equity. This makes it useless for quoting prices in a supermarket or planning a supply chain which is what a currency is needed for.

You & I have discussed this point pertaining to BTC elsewhere, but I think it's worth stating publicly that many BTC bulls are not suggesting that (at present) it could be a viable replacement currency (although some argue this is already becoming possible by such methods like layer 2 solutions [Lightning Network] and transactions executing ~instant transfers of USD->BTC, BTC transfer, BTC->USD), but rather that it is the apex store of value given its characteristics. To the degree you demand BTC functions as 100% equivalently functional to USD today, you're right. However, if 2025 (as bulls argue) is early in the adoption curve, volatility should diminish significantly over time as it becomes more mainstream and we see less impactful news (this country introduction legislation for a strategic BTC reserve, that financial giant launches a BTC ETF, this regulation changes in the USA, etc.) and more stabilized supply and demand dynamics. In a terminal state of adoption, it's reasonable to expect volatility to be much, much less than that period in which is navigating to maturity and absorbing the monetary premium from other asset classes.

If instead of thinking of it as a currency but rather a store of value, one designed with certain characteristics (most importantly, perfect scarcity, but also others) that allow it to maintain purchasing power over the long-term, the volatility isn't such an issue. More analogous to how gold functions. The value of gold moves more than the USD's purchasing power day-to-day, but that isn't a barrier to it being a good store of value over longer periods of time.

IOW: BTC is much more defensible as a store of value, today, than a currency. Decomposing the idea of "money" into "currency" and "store of value" help think a more clearly about this.

[zbigi]

It's not a great store of value either, as it can lose two thirds of its value in a span of months. SP500 is less volitale than that, which makes it a better store of value than bitcoin. Bitcoin at this point, is still just another risky, speculative asset. Like @jacob said, more similar to art or collectible cards, than to gold.

[Chris]

It's not a great store of value either, as it can lose two thirds of its value in a span of months. SP500 is less volitale than that, which makes it a better store of value than bitcoin. Bitcoin at this point, is still just another risky, speculative asset. Like @jacob said, more similar to art or collectible cards, than to gold.

Bitcoin's price volatility may be more similar to art than gold, but Bitcoin itself is still more like gold, based on its divisibility, transferability, fungibility, and verifiability.

No one is going to be remitting money back to their home country using 1 cm² of a Van Gogh painting.

(what would 1 unit of a Van Gogh be called anyway? An ear? )

[jacob]

The important qualities are

1. Stability
2. Store of value
3. Fungibility
4. Divisibility
5. Widely accepted

USD checks 5 out of 5.
Gold coins check 4 out of 5.
SPY shares check 4.
Cigarettes check 4.
Jewelry checks 2.
Baseball cards check 2.
Art checks ... 1?
Crypto checks ... 2?

High-value per weight or volume also matters. Potable water checks all 5 but we don't use it for economic purposes due to how bulky it is.

[sky]

One of the measures of the intrinsic value of the $USD is amount of mortgage debt in $USD. Each mortgage stands for a property owner who promises to earn or accumulate $USD to pay the mortgage. As of 2023, the value of mortgage debt is about 20 trillion $USD.

https://www.statista.com/statistics/274 ... in-the-us/

M2 money is a measure of the money supply that includes cash, checking deposits, and easily convertible near-money assets like savings accounts and certificates of deposit (CDs). M2 is at just under 22 trillion $USD.

https://fred.stlouisfed.org/series/M2SL

There are other components to the intrinsic value of the $USD, such as gold bullion held by banks, receivable tax payments or other promissory instruments, but debt secured by real property is one of the largest of the components.

What is the intrinsic value of bitcoin?

The only value I see is a speculative value. Next spring tulip bulbs will be worth twice what they are worth today! I will admit that speculative value is a real value and some will earn money from bitcoin. But it is an ephemeral value and can quickly dissipate as the public's interest in bitcoin declines.

The other problem with bitcoin is that it does not have a monopoly. Every new shitcoin makes it clear that the technology allows multiple cryptocurrencies. What makes bitcoin better than its imitators?

Bitcoin is not "crypto" in the sense that it is not secret or hidden. All transactions are tracked and known. Secrecy of transactions would be a potential value of bitcoin, in particular for illegal transactions, but there is no secrecy of transactions.

What is the intrinsic value of bitcoin? I just don't see it.

[delay]

One of the measures of the intrinsic value of the $USD is amount of mortgage debt in $USD. Each mortgage stands for a property owner who promises to earn or accumulate $USD to pay the mortgage. As of 2023, the value of mortgage debt is about 20 trillion $USD.

Exactly! And US citizens have to pay taxes in USD. Countries with USD denominated debt need USD. There is guaranteed demand.

What is the intrinsic value of bitcoin? I just don't see it.

Bitcoin is perhaps technological exploration? Having read how crypto works, it seems ludicrous to me. You can't recover a lost wallet with any amount of proof. It's a public ledger, so anyone can see your current net worth and transaction history. The Bitcoin ecosystem requires hardware and power for server farms, most of which are in China, so it also requires connectivity with China. It requires exchanges and relations with banks and governments. Once money starts flowing out of the Bitcoin ecosystem, who will fund these costs?

The important qualities are

1. Stability
2. Store of value
3. Fungibility
4. Divisibility
5. Widely accepted

How about privacy? In the sense that your family doesn't know your bank balance, your coworkers can't see your payment history, your new employer can't see your old employer's paychecks, and so on.

The government will want currency to be seizable, searchable, and (in emergencies) to ability to limit money crossing borders, among other things.

[Jean]

Bitcoin has a monopoly because it is required to do a transfer on the bitcoin blockchain, which is supported by physical infrastructure. Farming "waste" of energy is not anymorre a waste than building huge vault to secure gold bullion, or invading iraq to force them to accept usd for oil.
The fact that it allows a transaction worth 3 billions usd to be secured for only 3 usd is also remarquable.
Concerning privacy. People can know how much you own only if they know all your addresses.
Common practice is to generate a new addresse for every transaction. There are way to make this even more private. It's not perfect, but it's not worse than a bank acount.
I don't think btc is perfect, but i think you dismiss it rather quickly.

[Chris]

The other problem with bitcoin is that it does not have a monopoly. Every new shitcoin makes it clear that the technology allows multiple cryptocurrencies. What makes bitcoin better than its imitators?

There are new cryptocurrencies daily, but there aren't any new 16-year old cryptocurrencies.

Bitcoin has the most longevity and the largest market cap and largest daily trading volume. If there's one crypto to hack, it's BTC. It's the most susceptible (measured in days of existence) and highest value. If it was going to be a major hack or a rug pull, it likely would've happened by now. Any time people decided to put money into A New Thing, there needs to be some level of trust. In the crypto space, Bitcoin has earned the most trust (on a relative basis; maybe not enough for the average person).

Of the thousands of other cryptocurrencies, why hasn't one unseated BTC in the past 16 years? There are many which offer additional features: higher TPS, privacy features, smart contracts, etc. But the market has not bought in, at least not to the same extent.

I'll attribute this to BTC's decentralization. Comparing it to Ethereum, BTC is more decentralized, both in organization and in supply. Unlike Ethereum, there is no Bitcoin Foundation that places outsized influence on BTC. You'll find that a lot of new cryptos start with a foundation that holds a pre-mined supply of coins. These are then doled out to insiders and early investors, with founders keeping some for themselves. Such a setup is ripe for shenanigans. BTC started from zero, with all coins being created by those who mined them. In the years since its creation, BTC's distribution compares quite favorably to other cryptocurrencies. With a wide distribution, outsized influence by any small cadre of holders is limited.

Finally, a lot of new features introduced by altcoins would be useful for the world. But it's becoming evident that instead of launching a new cryptocurrency for each new feature, the path forward is to build on top of Bitcoin. The Bitcion network is the base layer, with new features built on top of it. The Internet's lack of encryption didn't require an entirely new Encrypted Internet to be built; instead, new protocols were built on top of it (TLS runs on top of TCP/IP).