The sort of activity which led to the financial crisis would not be mitigated by the establishment of a decentralized currency. Decentralization would not do away with the need for financial institutions (or the toxic incentives that can drive them and the ecosystem in which they exist).
The USD is pretty decentralized already. Sure the money supply itself is centralized, but the USD is a functioning currency because all people who accept and deal in dollars accept the fact that the dollar is a currency. We're all decentralized nodes in the Fiat network.
What I do agree with is the need for more audit-able, accountable systems so the institutions we trust are less susceptible to corruption.
As far as I can tell, financial institutions are exceedingly well practiced at co-opting new monetary systems, as they have been doing exactly that for a very long time, so I never thought that a new model of ledger was ever going to really faze them.
Money is useful, because it solves for the 'n' of a given trade by using all the pricing of transactions as a form of parallel computation, so the fact that it may often give sub-optimal results is outweighed by the fact that it has such a low overhead, compared to the traditional alternatives, such as planned resource based economies, which have historically been plagued by both sub-optimal results and a very high overhead.
The revolutionary work in economics isn't being done on the blockchain, or in any other new currencies for that matter. It is being done in the world of AI and big-data, when applied to logistics.
If you really want to revolutionise money, you have to try and make it obsolete.
edit: Also, seeking sources of funding may be problematic for such an enterprise - "Please can you invest in this plan to destroy capitalism." - being a particularly difficult sell.
Perhaps if it can be reframed as - "Please can you invest in this plan to destroy capitalism that also has excellent quarterly returns." - then it might get somewhere.
In the actual white paper, Satoshi does not mention any of this, although like you, I do remember these motivations being used very early on. I don't know their origin, but Satoshi simply talks about non reversible transactions, in the context of payments over the Internet.
>The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.
Even the whitepaper has a bit about the weaknesses in financial institutions in the intro: https://bitcoin.org/bitcoin.pdf
The ideological/theoretical purity of cryptocurrencies is completely negated by using exchanges and by the perverse incentives of proof of work leading to enormous returns to scale for those who have developed custom ASICs.
Decentralization requires more effort than centralization, but something that requires effort doesn't generally grow very fast... And so we've centralized cryptocurrencies in a haphazard way, making them a lot easier for people to use--thus enabling cryptocurrencies to grow very fast--but also negating all the theoretical benefits.
Something useful will eventually come out of the current mess (and there are various initiatives that help address many of these flaws), but probably not before the Zeitgeist becomes disillusioned with cryptocurrencies.
Everyone criticizing the current state of crypto as being worse than banks is missing the forest for the trees. These systems are early tech. Ethereum is barely 2 years old. It was easy to criticize dial-up internet, too. I'm sure Barnes & Nobles scoffed at Amazon at one point. Easy to do this, and assume this "dot-com" thing is just a bubble that's going away at some point.
Decentralization is ONE feature of crypto currency. One of several. It's not decentralization alone, but the combination of features that brings value to crypto, including programmable economic incentives (a powerful concept we're just learning the implications of).
To answer some of your other points: even exchanges are being built on the blockchain now. We have 0x, EtherDelta, etc, which allow you to trade tokens without revealing your identity. So, that problem is starting to resolve itself.
We have Proof-of-Stake coins like Qtum, which avoid the Proof-of-Work issues (Ethereum will be moving to PoS soon).
Still not sold on the idea that proof-of-work is inherently bad though. I consider that system very secure, as Bitcoin has proven. The blockchain itself has proven quite resilient to hackers, DDoS attacks, government intervention, etc.
Then again, given that Satoshi's true identity is unknown, a lot of this is necessarily speculation by interpreting a small set of clues.
Satoshi is a team employed by something very rich, probably a government.
Bitcoin is just the clever but natural progression from previous cryptographic cash systems like b-money. The cypherpunks mailing list had long been interested in making more decentralized cryptographic cash systems along those lines. The fact that one of them finally combined the right cryptographic primitives in the right way to make such a system is hardly a sign of any insider knowledge or outside influence.
The creation of Bitcoin was by someone who had been following the cypherpunks' progress in the area for a long time, and finally noticed a clever way to combine standard tools to get the job done. There's certainly nothing superhuman about it. It hardly looks like a problem that was solved by a government throwing money and a team of pros from out of nowhere at it.
Or perhaps a bunch of guys from the offshore gambling industry...
From what I know about the financial crisis, it wasn't the nature of fiat currencies that led to the crisis, but rather the complexity of financial instruments obscuring the weakness of underlying mortgage assets combined with incentives driving industry players that turned out to be toxic in the long term.
It doesn't seem to me that a distributed currency will eliminate financial complexity or perverse incentives.
But as an aside, I remember laughing about Dogecoin with friends back in 2014 when we first discovered it. It must feel awesome to have created something people around the world know about.
Bitcoin wouldn't prevent the mortgage fraud, it would prevent the immoral bailouts that happened after that and that told the industry "don't worry, you're too big to fail, feel free to try harder next time".
If the Federal Reserve sought to increase the supply of money in the economy, but the payment processors disagreed, who would (or even could) stop them from raising their rates for payment processing to directly counteract the actions of the Fed? No one. They could do it, and they will do it eventually. How anyone could be comfortable with middlemen who provide nothing of significant value sitting in on almost every single transaction which occurs in the entire economy and skimming off the top I have no idea.
The financial services regulator in the appropriate country. In the UK that's mostly the FCA, in the US it's apparently the guys listed here: https://en.wikipedia.org/wiki/List_of_financial_regulatory_a...
> (or even could) stop them from raising their rates for payment processing
Using financial services regulation. It's not like they're immune to laws.
Your argument is for more regulation, not a deregulated cryptocurrency.
"Why do we need all these regulations anyway? It's just statist slavery!"
"Ah right, the fraud and the scams."
It is kind of funny, actually. Engineers rediscovering by doing, and wall street having these existential self-doubts about whether there is some hidden sophistication which is entirely absent.
It actually would deal with the issue that led to the GFC.
Remember --- the problem wasn't that there were fraudulent mortgages -- it is that these mortgages were packaged and repackaged in ways that deliberately obscured the risk involved so that people were buying stuff that had no underlying value. The lack of transparency is what encouraged the fraud and created the incentives for it, which is why the behaviour only stopped when there was a 65% fall in the value of pretty much all mortgage-backed-securities.
A mortgage CDO built on something like Ethereum would be programmatically transparent and anyone could look in real-time to see the value of their tranche. It would be trivial to distinguish between good and bad investments. And while there's still the potential for people to purchase things that do not have value, it becomes pretty much impossible for 2008 to happen again in a financial system run on crypto fintech -- intermediaries in the financial system would simply not be able to deliberately obscure transparency into which assets were owned and covered by which securities: if you wanted to check repayment rates you could script something to do the work in real-time by simply monitoring the blockchain.
You could spend all day real time looking at the fact that few of the mortgages in your CDO are failing, and then when they fail systemically, you could watch in real time that a lot of assets that were thought to be pretty robust are not.
Your argument seems to be simply that radically more data would enable better predictors. Whether that is true or not, it's unclear whether bitcoin et.al. could help much with delivering that data. If we agree to a contract that I will pay you 5 bitcoin tomorrow in return for 4.9 bitcoin today, that contract is not publically available on bitcoin. Nor is, the fact that a certain money stream is part of a mortgage.
So unless you force every contract to be public, blockchain technology will not help you that much. And if you force every contract to be public, then you don't need a blockchain.
The point is that transparency enables markets to accurately price risk and prevents the sort of market paralysis that caused the liquidity crunch.
Yes, it's true that people COULD have spent weeks figuring out the status of at least some of the CDOs on the market. But in reality no-one was reading 200 page long prospects that listed the exact mortgage originators and housing complexes of their CDOs. Buyers and sellers did not necessarily even have this data in peer-to-peer marketplaces. Financial institutions and their brokers bought securities based on their ratings, and dumped them ASAP once it became clear the entire sector was poisoned and they were doubtless overvalued.
> unless you force every contract to be public, blockchain technology will not help you that much
Smart contracts are public BECAUSE blockchains are open access. All parties can see the transfer of tokens on the network for the contracts that matter to them. No-one in the public necessarily knows what any contract represents, but if I am sold one I can monitor it in real-time. That was not possible with mortgage backed securities in 2007.
Information dissemination / transparency wasn't the issue. It was people's wrong model assumptions that were the issue...
If the market was rational and had full insight into the performance of its securities, losses would have been no more than 20-35 cents on the dollar. That is enough to cause a major crisis, but it wouldn't trigger the paralysis of the global financial system.
No-one knew what was in them -- the value was asserted by the ratings agencies and they were purchased based on expected rate-of-return. Even the people who went short on the market ended up using heuristics: there is a wonderful passage in The Great Short which describes a character who tells his broker that he will short anything bought by one of the people he has just met.
Once the extent of fraud became clear the entire market dumped down to 35 cents on the dollar. The fact that transparency was an issue is also apparent right here, since nowhere near 65% of consumer mortgages failed. But no-one would buy because no-one could tell if any particular CDO was backed by anyone who was still capable of making payments.
With Ethereum and smart-contract based mortgage systems this completely disappears, since the blockchain broadcasts every single payment made in real-time and it is possible for anyone to simply look and see if whether defaults are rising or falling among the mortgages that underpin their collateralized securities.
The fact that CDOs were trading 35cents on the dollar is largely a part of default EXPECTATIONS resetting up. Smart contracts cannot expedite this process of resetting expectations. Ethereum (which, by the way, is too slow to run CDO pricing models) can only broadcast what the latest market price is. Ethereum helps price dissemination no more than a Bloomberg terminal can.
Yes, exactly! But take the next step and ask what sets EXPECTATIONS about the worth of a security in a smart-contract environment? It stops being generalized market fear and it starts being actual DATA about performance.
> Ethereum (which, by the way, is too slow to run CDO pricing models)
You don't run the monitoring software ON the blockchain (you could but it would be inefficient). You run that off-chain using blockchain analysis software.
Yes, you can purchase a bad CDO on a blockchain just as easily as you can purchase bad real estate in real life. Nothing prevents humans from misrepresenting data. But that isn't the point of the blockchain.
The point is that the transparency of the blockchain lets you (and others) know when you're holding a lemon, because you can see in real-time that no-one is paying off the mortgages in your CDO. What you do when that happens is a good question and the blockchain can't help , but it doesn't crash the entire market because people can tell the difference between your CDO and the quality ones that are still 100% good.
 it actually can help in one important way -- it provides an indisputable record of contract execution and payments that is not contained within the computer system of your counterparts (the bank). So if there is fraud it will be much easier to prove it to the courts than if you need to subpoena records out of the bowels of a corporate banking system.
It actually would deal with the issue that led to the GFC.
The idea that it would become trivial to distinguish between good and bad investments seems to me to be incredibly naive.
It is not naive. It is exactly how smart contracts work.
If you purchase a CDO on a blockchain, you are purchasing a share of whatever revenue paid into another contract. You can monitor those contracts, and the ones that are programmed to pay into THEM, and the ones that are programmed to pay into THEM ad infinitum.
Yes. And this is impossible with smart contracts. You can commit fraud by pricing the asset, but you can't prevent the market from demonstrating its quality in real-time.
With smart contracts there would have been a housing bubble, but there would also have been an inflow of capital when the market-value of the majority of CDOs crashed below about 80 cents on the dollar.
It baffles me how seemingly capable people have had the idea that a cryptocurrency would counter 2008 style stuff. It seems like a reasoning short circuit: Big institutions failed us, so something without big institutions must be immune.
The big institutions failed us exactly by allowing each other to do too much. By not regulating (which is by definition centrally imposed).
I think you misunderstood what people mean by saying "counter 2008 style stuff".
The aim isn't to prevent 2008 from happening again, but if 2008 were to happen again, then be in a safe situation.
Also you're taking the input from your opponents, but plugging that input into your own model, without realizing that bitcoin proponents do not share your model.
Your model is: "Lack of regulation caused 2008 to happen", but not everybody agrees with that model.
There are multiple models, but the most common model is that central bank inflating the money supply, and manipulating interest rates caused 2003-2007 to happen. 2008 was merely the well desired correction.
Same model applied to today, it means that we are currently in a major bubble and this bubble will pop in the coming years. Alternate financial systems such as bitcoin and smart contracts, are 'customizable' enough (For lack of a better term) that they give people a fighting chance.
1. Capital controls can't be imposed
2. Bank accounts can't be confiscated
3. If regulations have to be bypassed to make trade happen, then they should be more easily bypassed (for instance minimum wage laws).
So when the next crises happens, people are able to flee nations with their capital, their bank accounts will not be able to confiscated, and they will side step any regulation which screws people over. This is the aim of cryptocurrency proponents, irrespective of what is being said.
The state can damn well impose capital controls and confiscate accounts. You transfer the money elsewhere continue to use it? The state now has perfect transparency to see that. Did you own any assets in the country you're fleeing? They're confiscated. Does the state you're fleeing to have an extradition treaty with the state you're coming from? To bad. You refuse to hand over the account that has been confiscate? You go to jail until you do.
Just carrying gold seems a better choice if that's your game plan.
However, I haven't heard that case that much (and never as explicitly as you put it here).
You can use Monero if you want to keep your balance and transactions truly private.
There are multiple models, but the most common model is that central bank inflating the money supply, and manipulating interest rates caused 2003-2007 to happen. 2008 was merely the well desired correction
So that's how the bitcoin came about to make a currency where there are no central governing body that can just print more whenever it wants.
What we really got was a tacit approval for bankers that they could make highly leveraged bets in the 7 years that the markets were going up, make shitloads of money, feel like geniuses, and then when it all inevitably explodes the government would bail them out and then QE like crazy to pick up the pieces. The QE would be given not to citizens, but to banks to inflate equity markets, and start the whole cycle again.
Now we have a whole new generation of financial "geniuses" overhyping every asset class, making shitloads of money off it all, thinking they are geniuses, and when it all collapses again they think the same thing will happen. It may do, but this time I don't have to be involved in that bullshit. My money is now unprintable. They can devalue the USD shitcoin all they want, but there are still only 21 million possible bitcoins and that's all I care about.
Inflation was near zero for the whole time.
Also, Bitcoin was released in January 2009, before anything but the very earliest trivial reactions to the collapse, it absolutely was not inspired by the much later criticisms of the reactions that largely hadn't yet occurred when it was released, no matter how amusing your theory is that the motivation for Bitcoin was literally people pissed off that an entity existed which had power to act to prevent a catastrophic economic collapse.
The Fed doesn't print the paper bills anyways. The Treasury does it.
That isn't to say the mortgage industry wasn't propped up on fraud, etc. But it wasn't irrelevant.
As to plausibility, I guess that depends on your personal views.
The decentralized aspect of using dollars in cash form(!), is something I would rather call permissionless. And that is exactly what Bitcoin set out to approximate for the Internet age.
(Indeed the "cash" reference in the whitepaper title refers to fungibility and permissionlessness, not tangibility or pictures of old presidents. This idea is much older than Bitcoin.)
I can't speak for every ideological bitcoin supporter, but you and I may differ on what constituted the "crisis". I agree that it would not deal with the activity which led to the financial crisis. But to many, the crisis was not that the banks all failed, but that they were not allowed to fail, and were bailed out instead. The genesis block doesn't say anything about addressing irresponsible behavior on the part of the banks. It says "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks"
People can do stupid and irresponsible things, and they can do stupid things with other people's money, but they have to bear the consequences.
Sure you can. It's code, why wouldn't you be able to change it?
There is no reason that cryptocurrency has to be inherently deflationary, rewards can easily be issued at a constant rate or any other rate. You are mixing up Bitcoin, the libertarian implementation, with the abstract cryptocurrency in general. This is an implementation detail.
In fact, there is actually already a rather storied history of centralized interventions to bail out failing institutions. See: the DAO hack and the subsequent rollback...
Could Vitalik just as easily have said "JP Morgan now has +5 million Eth?" Absolutely.
Nobody else necessarily needs to accept that version of the blockchain (see: Ethereum Classic) but there is a network effect here: if everyone else agrees to accept that version of history then sucks to be you, everyone wants to deal with Eth not PaulCoins. And people tend not to be willing to accept calamity when offered an alternative. Ethereum Classic is the version of history which best upholds those high-minded libertarian ideals, but it's also the version of history where a single attacker has 15% of all the ether.
Fair enough. I'd expand that to say "code + consensus", which is what the rest of your post expands on. If the Bitcoin (for example) community really buys into the idea that we need to bail out some set of organizations, it's possible to execute a fork to do that. And the number of validating bitcoin clients out there is pretty large, so it would require a lot of buy-in.
It would have to be a hard fork (it would be possible as a soft fork, segwith-style, but the new coins issued would not be able to mix with pre-bailout coins unless clients updated).
To be honest, though, you're probably right. In my mind, depressingly so. The biggest takeaway from "too big to fail", even amongst progressives, seems to be that we have to shrink or break up the organizations that are too big to fail, rather than letting them fail -- only diehard libertarians and outcast Austrian economists believe that. The next time we hit this, we'll give the money to AIG to give to Goldman and buy Chris Dodd another house and move on with our lives while we get busy creating the next bubble (I think retail this time; that seems to be where the easy credit has relocated).
This is entirely possible to do in Bitcoin, you can still have a "lender of last resort".
Of course, the plan was that the troubled assets would be purchased by the Fed, an sold in a non-firesale fashion, and cancelled against the increase in the money used to cancel that out, to return the held reserves back to the trendline that predated 2008.
Congress had instructed, through TARP, the Fed to purchase "troubled assets" and had authorized amounts, but the Fed ignored those instructions and restrictions entirely and purchased none of the troubled assets, instead bolstering the reserves through the standard open market operations, and later, through quantitative easing, which is just an acceleration of the standard open market operations, with the purpose of creating enough inflation to allow the economy to recover. But that inflation didn't happen (still hasn't happened) for reasons that literally no person on earth can explain. Then the Fed did some balance sheet gymnastics (mark-to-market is a glorious thing) to show that all the TARP funds had been repaid (with interest!).
Cryptocurrencies could eventually remove enough power from banks to render their failure absorbable by the global economy.
Granted, I find it very unlikely that any cryptocurrency could remove the need for banks in general - they fill too many roles in the financial system - but it could reduce the market's reliance on them in general.
There's a lot of "could"s in all of this and I'm not an economist myself, so, grain of salt and all that. I will say that this is all based on things I've read from people that are, to the best of my knowledge, actual economists, but you should do your own research if such a thing interests you.
If a tbtf bank algo went haywire when trading with the intent to maintain some position in cryptocurrencies because of some market spike/error/or w/e over an exchange and lost alot of money, yet others who were on the other side of the trade safely moved their gains to private wallets, the exchange wouldnt be able to negate those trades and claw back funds (like they did during the gfc) and those tbtf banks will be out of their desired positions; such that even if they were bailed out by some CB QE program, they'd still have to spend those bailed out funds to re-enter their previous positions.
Meanwhile those who came out on the otherside of the trade with their desired positions will still have more resources to allocate at their disposal than had they been clawed back/reveresed.
But I think you may not have fully investigated your assumptions about what makes a bank TBTF and what it means to be "bailed out."
And what it means to not be bailed out means to pay more on ones mortgage than market value of such asset.
And as for bearing the consequences, we simply do not have the capacity within the rule of law to make them bear the consequences. The people who made the decisions were extremely well compensated even outside of equity up until the moment when the house of cards came crashing down, and those people have now moved on to equally lucrative jobs -- hell, they can probably put on their resume that they managed to convince the government to give them billions of dollars to cover their asses, which is more than anyone else gets when their bad decisions come home to roost.
Without the bailouts there would at least be grounds to sue the individuals who created the situation when things unwound, because there would have been consequences.
I'm getting a little up in arms here because nothing triggers me more than the idea that macroeconomics is a science -- all the actions around the bailouts, and this narrative of "economic collapse" and "too big to fail" -- the same people who disastrously failed to predict the future before we're now trusting to predict the future. Einstein said in response to the fact that hundreds of scientists thought his theory was wrong by saying "if I were wrong, one would be enough". In economics, nobody would even consider their models to be incorrect, no matter how much they have been falsified.
It would have been a disaster of epic proportions. Would it have been worse than what happened? I don't know -- and neither do the economists who insisted on action. As it was, innumerable businesses not at the scale of AIG were left in the cold to collapse without billions of dollars of free money, and, more significantly in my view, institutions and well-capitalized individuals who correctly predicted the collapse of the market would have been well-positioned to use their assets to buy up undervalued assets (including home mortgages, which, if purchased at fire sale prices, would have made decisions about de-valuing the loans easy, because the effective yields would have been so much higher).
The real question is why shouldn't they?
It all comes down to moral hazard and lack of due diligence really.
Your concept of decentralization is off. The purpose of it is this: How many points of failure are there? How many of these points can break before the cards all fall? If this happens, who pays for it?
This illustrates that the USD is not decentralized.
Cryptocurrency is an exit from this, much like gold or real estate or other investment vehicles. Cryptocurrency is available to anyone with a phone and internet access -- that cannot be said for any other investment vehicle.
This will take the wind out of the sails of financial institutions as there is another option for people.
Between the two evils, any sane person would rather trust a regulated business than some folks who prefer to hide in the shadows.
What does the end game for this situation look like? Will people just create Bitcoin Zero, which is identical to Bitcoin but preallocates the existing coins starting from the genesis block? (A manual GC, as it were.)
Otherwise it seems like crypto will be around 100 years from now, but probably not BTC. At least not in a form where non-miners can participate.
Indeed, the ‘sort of activity’ which led to crisi is simply called greed. As far as I can tell, crypto currencies have simply become new fuel for greed thus far, and the result will likely be the same.
A cure for centralized currency != a cure for greed.
Money can be created by privately-owned banks, which adds a significant decentralized element to the mix. Cash settlement is also, if done physically, a totally de-centralised transaction mode.
In the gold standard model where the amount of money is completely uncorrelated with economic activity, you have inherent deflation. Deflation is a serious threat, as it pushed people to hold onto their currency (as the real value automatically rises) instead of spending or investing it.
Bitcoin is really a digital gold standard. There is no way that a gold standard currency can support a growing economy efficiently.
Why would people not invest (or spend for that matter)?
It's not like people wouldn't take deflation into account the same way they do with inflation today. If you loan out a dollar today and at the end of the loan its worth $1.03 then you simply adjust the interest rate to reflect this difference. Not like its some complicated formula that starts off with "thar be dragons."
Same can also be said about spending. As a contemporary example why would anyone buy a computer today when they know that in the near future they can get a better model for less? The whole computer industry thrives in a price deflationary sector of the economy.
Whenever someone is trying to push one economic theory over another the key question you need to ask is cui bono.
People will still invest, but risk tolerance goes way down and ROI expectations go way up.
Concretely, your business plan has to compete with "I can get an x% return by putting my money under my pillow", and x becomes very large in a highly deflationary economy. Place yourself in the shoes of a person seeking investment in a productive business, and the problems with a deflationary economy become obvious. Being good isn't enough. You have to be better than "sit on my ass and get rich doing nothing".
In other words, the primary concern in a deflationary economy is discouraging value-producing economic activity.
Also, all of this is wrt deflation in general. Notice that a fiat currency can easily be deflationary. The deflationary nature of gold standards is a major component of the criticism of gold standards, but there are also other reasons that people oppose gold standards.
> Same can also be said about spending. As a contemporary example why would anyone buy a computer today when they know that in the near future they can get a better model for less? The whole computer industry thrives in a price deflationary sector of the economy.
People still buy computers because having a computer today helps capture value that you can't capture by having a better computer tomorrow. For consumers, entertainment tonight. For businesses, automating processes today.
> Whenever someone is trying to push one economic theory over another the key question you need to ask is cui bono.
That's not quite fair. There are people motivated by truth and there are also people motivated by ideology.
I wasn't singling out anyone in particular just the whole 'deflation is the debil' theory.
In an inflationary economy you are motivated to spend the money early, rather than late. And as buyers predominantly drive the economy and not sellers, this keeps things moving at a reasonable tempo (barring extreme inflation).
In a deflationary economy you are motivated to spend the money later. And, again, as buyers drive the economy more than sellers, this slows the pace of the economy. 
Right now it is to my benefit to buy a house for $200k and secure a $180k loan at 3% interest because with inflation the real interest rate is actually more like 1% (assuming the target of about 2% inflation per year).
In a deflationary economy that $180k loan at 3% would have a real interest rate closer to 5%.
The lender comes out great, they still get their 3% interest and the effect of deflation. The borrower gets shafted, they're paying back much more than the property is worth by the end of the loan (even worse than under inflation).
However, while buyers get to drive much of the economy compared to sellers, lenders have control of the capital and are in a better position to set the terms than borrowers. So under deflation buyers are doing fine, lenders are doing better than now, sellers are meh, and borrowers are screwed.
 Why I say buyers drive an economy more: It is very difficult for seller to force a sale. The buyer almost always has a choice. Now, the seller can set the price but as they want to remain profitable they can only push it so high before they lose sales to competitors who recognize the opportunity to undercut and remain profitable.
But this isn't a general rule for other goods and services so they have to devalue the currency to encourage people to not save? Because monetary inflation is basically a tax on savers.
> In a deflationary economy that $180k loan at 3% would have a real interest rate closer to 5%.
Which is why they would adjust the interest rate to take deflation into account.
I can see this argument in today's economy since inflation is built into everyone's calculations and borrowers would be hurt if they couldn't rely on inflationary pressure to adjust the interest rate downward but that doesn't prove that deflation is inherently bad, only that people are capable of long-term economic calculation.
Today, banks need only have ~10% of the money they lend in deposits. The rest is new money. With a fixed money supply, banks can't do that. You divide by 10 the amount of money available to lend. In a gold standard economy, money supply available for financing is much, much more restricted.
The modern economy is a constant bet on future economic growth. Failed bets translate into inflation on a macro-scale, and painful leveraged losses for banks on a micro-scale. With fixed money supply, you cannot bet at all and potential growth is, by definition, much slower.
It's always surprising to me when (not-already-on-the-top-f-the-world) software types see virtue in gold standards. The fact that our work -- moving bits around -- produces so much economic value is an epitome of everything that's wrong with a gold standard.
People are insane.
Fiat currency is the definition of centralized currency
the USD is decentralized in that P2P transactions are accepted with almost anyone in the world without needing a centralized intermediary.
For a startling Exhibit A, consider that North Korea  and Iran  hold and transact with large quantities of U.S. dollars (in physical cash) despite American sanctions.
The rest of us who weren't stupid enough to do that shouldn't be forced to cover their losses.
That's the point.
Overvalued? Its possible but I think the entire crypto market is actually insanely undervalued. I was talking to my financial advisor the other day and he said pretty much 100% of people now are asking him about crypto and are considering putting money in. This seems like it is just the start.
The figure for the .com crash was around a 7 trillion dollar market cap. Crypto is 0.7 trillion today and its more of an international market then the .com days. Easily cypto could 10x in size over the next year or two.
In the end its super high risk speculation. You can figure the entire market is overvalued but there is no doubt that there is money to be made in several sub-sectors of the crypto market.
100% of those are not interested in cryptocurrency at all, they are interested in anything that goes from bottom left to top right if charted against their local denomination. They don't want crypto, they want fiat and see crypto merely as a possible means to that end. This translates precisely to "Crypto is only backed by greed", which is exactly what people mean when they call it overvalued.
(I call 100% and not 99%, because those few genuinely interested in crypto would not bother asking their financial advisor)
Somewhere down the chain stocks invest in actual production value, which creates goods or services that people use, and increases the sum total of wealth in the world.
Buying the stock is buying the rights to a stream of income based on that productivity.
These "investments" in cryptocurrency don't have that aspect whatsoever. There is no claim on productive enterprise involved, and for the more niche offerings that have some element of that the economics are so wildly divorced from the fundamentals of productivity to make the link meaningless.
That's not true. Many coins offer practical solutions to real world problems. Whether they are adopted at scale is the gamble. Very similar to betting on companies with stock.
Ask him how many of those same people consider using it as a currency.
I suspect they will remain interested in it so long as they hear about incredible gains and Bitcoin millionaires. I suspect that when the hype dies off (say if cryptocurrency prices were to stabilize) they would not be holders of any cryptocurrency the same way they are not holders of Yen, Euros, CAD, USD etc. for the purpose of investment.
I understand the network and traction, but this is not very different from each bank having its own currency notes back in the day (1800s?). The biggest problem is they are not stable enough to be currencies their volatility makes them more like commodity/asset and their Transaction speed does not make them huge transaction payment systems. They fail at both promises when they gain traction, of course, there will be ultimate winners in this space. Instead of calling them Cryptocurrencies, calling them DLT (distributed ledger tech) is more appropriate for most the coins anyway.
It changed a bit, but not entirely. Check out the subreddit and you'll still see lots of Comic Sans and image macros.
I have Dogecoin to thank (blame?) for getting me initially interested in cryptocurrency precisely because the community was so welcoming and didn't take itself so damned seriously, and even though Dogecoin is more "valuable" now, I'd still recommend it for those looking for a low-risk and relatively simple introduction to the concept.
The USD is backed by the courts of the USA, which in turned are backed by people with guns (law enforcement and the military). The YEN is backed by guns. The GPB is backed by guns.
What is BTC backed by? If someone literally steals your BTC, what recourse do you have? There is no court to go to, no one to back it up.
Even the most hard core Libertarians acknowledge the need of a court system and force to back up contract law.
So I will never invest in cryptocurrency because of that. Maybe I'll be wrong and miss out, but that's a risk I'm willing to take.
Distributed ledger is a good thing, but it isn't a store of value in and of itself.
When people speak about military backing of currency value, they do not imply that you can expect Her Majesty's Royal Navy to come out in full force should your British Pounds get stolen.
Of all the criticisms about Bitcoin, that was an unusual one. There are no special courts for stolen cars, cattle or currency. There's just the regular ones.
Now it is backed in the sense that if I say that I will not accept USD in payment of a debt, then I am pretty much out of luck. If someone borrows my car and destroys it, and they offer to make restitution in fair value in USD, I cannot say no to that (except to complain about how fair the value is), or demand that they give me a new car in exchange if they are not willing.
There are more subtle differences; if someone takes my USD then they can return the same number of USD, any old bills will do; whereas for golf clubs or BTC the situation may or may not be different.
All of this is just the justice system, though. I fail to see how the military figures into it, except that if another country decides to start printing dollar bills, then our military will get involved, and the cost of maintaining that threat is part of the cost of maintaining the currency. Fortunately, that's a moot issue with cryptocurrency, which has much better anti-forgery systems that do not require the use of guns.
The whole notion of any currency being "backed" by anything dried up a long time ago -- the closest we have now is casino chips, which are backed by the relevant currency and the faith and credit of casinos.
Only if you're in the USA. USD is subject to the US legal system regardless of where the transaction takes place.
And I don't have to guess your secret key -- I just have to steal your computer. Even if I get caught stealing your computer and have to give it back, if I've already compromised your wallet and moved the coins, there is nothing you can do to get them back.
You completely ignore the service that crypto currencies can provide.
I don't want to have a bank account, or if i really have to, i want banking services to be fast, simple, automated, cheap and lean.
That's the same thing as stealing your Bitcoin.
If my private keys are in cold storage in a vault, it isnt any easier to steal that, than if my Bitcoin was instead gold bars.
> I feel some are using our rise to illustrate the absurdity of cryptocurrency pricing (http://uk.businessinsider.com/dogecoin-cryptocurrency-has-ma.... for example). To me, in an environment where a cryptoasset with $30 USD equivalent transaction fees has a market cap of over a quarter of trillion dollars, I don't think we're the absurd one. Yes we take ourselves less seriously, but that doesn't mean we're not serious behind the scenes. We're a 4 year old currency with transaction fees barely over a cent and significantly higher throughput than most other cryptocurrencies.
(Disclaimer: I know him personally.)
> Once the cryptocurrency price bubble pops and takes all the hype with it, will the community be able to recover the energy it needs to build real, innovative technology once again?
As long as people bought bitcoin and ethereum, they probably will end up positive.
The people that are riding on 3 month old coins like IOTA or TRON will lose. Those risking everything on the future of Ripple or BCH or 1-2 specific coins will lose.
Those that diversify impartially will come out major winners.
Your thought process to reach that conclusion might prove more insightful however. So far it seems that cryptocurrencies move alongside each other for the most part, when the big ones go up the smaller follow. If you diversify in crypto and everything crashes at the same time how do you win? How does one diversify "impartially"? What if it turns out that in the end only IOTA remains?
For all the talk about real use cases and replacing fiat cryptocurrencies are 99% speculation and get-rich-quick schemes nowadays. It seems we still have some wild times ahead of us before it settles one way or an other.
Regarding 2018, I'm your fool...here are my predictions:
Bitcoin will remain top market cap and crypto numeraire. Majority of the newest projects like IOTA, Tron, etc. will be down significantly.
Burned by vaporware projects, investors will become more cautious about "new" ICOs and enormous token issuances. None will rise as quickly as TRON, EOS, and others did.
Ethereum will remain #2 but at least once will have had a great run against Bitcoin, hitting 80% of bitcoins market cap.
Overall crypto market cap will rise 200%-300%.
Ethereum will continue to have most transactions, enterprise, and developer support. Could change in 2019 and beyond, but has a huge lead right now.
Ripple will crash further, but the platform will gain real world usage.
BAT will rise and support becoming common on enthusiast sites, like tipjar services.
Most of the smart contract chains in development will make no real progress, but I expect at least one "ethereum killer" to become a reasonable alternative.
Disclosure: I own Ethereum and Bitcoin, would buy some others but maxed out on my crypto exposure.
Just as 2015 was the year of the altcoins, and 2017 was the year of the tokens (why mess with a software project when anyone can create an ERC-type token effortlessly, plus there's no mining so you can sell every last bit of it day one), 2018 will be the year of the forkcoins. Things like Ethereum Classic and Bitcoin Cash are just too lucrative to pass by.
Expect to see Ethereum Black, Bitcoin Plus and Litecoin Gold. Each with a subtle change from the parent in block times, hard caps or other parameters. More than one will also try to steal old unspent UTXOs (including Satoshi's) for the developers themselves.
Every improvement to the underlying protocol will see a lot of manufactured dissent to lay the groundwork for a fork, even regarding opt-in features (such as segwit and p2sh).
Eagerly awaiting being declared a fool in 2019!
Here's my prediction:
Ethereum and Monero continue to grow in market cap as they work and nail a niche very well.
Bitcoin core starts to decline in about 3 months as volumes on Bitcoin Cash grow. Lightning doesn't pan out because it has strong centralizing forces so it is no better than fiat, and it will still have higher fees than Bitcoin Cash because it adds use, rather than limits it, which further increases demand, and therefore fees.
Bitcoin Cash grows as it takes the mantle from Bitcoin Core.
The market hasn't noticed that real innovation and development is taking place on this chain yet. It has adoption coming in from business that depended on the cash use-case and built for bitcoin core. Bitcoin cash also has features coming that were planned for a low-fee environment, like colored coins.
The success of Bitcoin Cash over bitcoin is an inevitable consequence as the public will prefer a store of value they can transact to one that can't be moved. If you make 20 transactions with $400 in Bitcoin Core, because of fees, it is gone! There will be more forks, but none will gather critical mass.
One or two of the newer crypto speculations delivers and succeeds. The others do not. Most of the DAG cryptos are dependent on "goodwill among men", vs. relying on greed, so if they take the spotlight, they will fall to attacks.
This isn't possible - the bitcoin market is literally a zero-sum game. One person's gain can only come from another's loss.
The zero-sum aspect occurs if at some point all participants cash out.
Most people wouldn't consider the stock market to be a zero-sum game. Maybe in the ultimate long-term, but not within a time frame that's meaningful for anyone.
Maybe Bitcoin isn't a speculation bubble; maybe it's something new. But if you ignore the underlying tech and just look at the price chart it sure looks like an old fashioned speculation bubble, and those traditionally don't end well for the median investor.
There is no question that there was a bubble, but the value of the internet as a platform for building businesses now far exceeds what people expected it to accomplish in the dotcom bubble.
I'm not saying cryptocurrencies will have the same fate, but it's not impossible.
I think their valuations will make sense, but no, not right now. I think this whole pile is breaking ground on new tech, tech that will redefine some of the things in our lives. Will Bitcoin / ETH be what holds on? No idea.
Or indeed making any changes at all! The github repo hasn't been touched in over 2 years
Although there hasn't been a release in two years they're currently working on releasing 1.14 this year. In case you're interested the core devs have been doing a pretty good job on keeping people informed on the status of the release on the subreddit. Latest post here: https://www.reddit.com/r/dogecoin/comments/7oxi53/developer_...
Also, there has been lots of updates to the github repo, just look at the 1.14-dev branch instead of master.
Doge is an absurdity. Like "Cards Against Humanity" or the "C'est non un Pipe" paintings. That it can be considered to be 'legit' or anything else is fantasy.
Anyone that is investing in Doge is a fool. Unfortunately, there are just too many damn fools.
Interest in coins are going up, so of course that will spill over to the easier, less risky coins like Doge that people will want to experiment with to see if they like the model.
And with that increased demand inherently comes increased value, not because people are pumping up the meme coin, but just because it's becoming more active, along with the rest of the ecosystem.
It also probably serves as a reliable intermediary coin to use as an exchange or more common coins.
1) Move money around government currency controls (for a small fee)
2) Invest and speculate on potentially valuable assets. Sure you can't live in, eat, or drive a Bitcoin, but finance/trading is all about creating and betting on abstractions, and virtual currencies are the ultimate abstraction. Crypto is especially attractive given the current easy money low volatility environment)
I am similar to the author in that I was very excited about blockchain and its implications in 2013/2014 and had recently become very disillusioned with how adoption played out in the real world.
I think it's time to move past this disillusionment and face reality instead of continuously being angry at how nonsensical a lot of this is, no matter how "useful" we really think these 2 current uses of cryptocurrency are.
The reality is that we are living in a world (in the US at least) we trust traditional institutions/knowledge to be able to provide common goods and help us raise our standard of living less and less. What do we want to do about that? Getting mad/worried about cryptocurrency speculation is not the answer.
It's also an improvement over PayPal or banking for sellers who don't want chargebacks/bad checks/their account frozen for writing "Nico" in the transaction comments.
1. The shipping company doesn't just throw the thing on your porch and SAY you signed for it.
2. You don't sign for it until you've inspected the item.
If you don't sign for it, and seven days passes, the money is deposited back in your account.
Do the same thing in reverse if you choose to send the item back. If the merchant signs for it (upon receiving the return), the money is sent back to your account.
I know it's far from fool proof. There might even be a need for a "cryptocurrency compatible" shipping service in this space.
Also follow along with the classic stock bubble:
These curves remind me of the dopamine response curve to tasks like in a rat running a maze:
But maybe that's pareidolia.
Of course it will recover. Blockchain technologies are so transformational that you need a lot more than a simple price crash to kill cryptocurrencies. Of all persons, the creator of a cryptocurrency (even a joke one) should understand this. In fact, people always seem to forget that Bitcoin (actually the crypto market at large) has already experienced 4-5 major crashes in the last 8 years where prices lost between 50% or 95%(!), sometimes remaining depressed for months, but the market has always recovered.
Are they transformation? I have yet to see a blockchain application that's not done more cheaply with a traditional database. Most of the practical uses of blockchain are as effectively centralized "distributed" databases (e.g. corporate blockchains), while the rest are cryptocurrencies and other distributed ledgers that are, at the moment, extremely volatile.
You claim most cryptocurrencies are "effectively centralized", but that is false. For example if I make a Bitcoin transfer by broadcasting it to the P2P network (ie. assuming it reaches most miners), no single entity can block the transaction, thanks do decentralization (ie. many disparate miners around the world attempting to include the txn in their block.)
But really, your comment goes to something more fundamental in how we look at inventors and Captains of a ship.
Zuckerburge early code leaks of Facebook show it was some pretty terrible PHP, yet we attribute everything to him instead of the hundreds of engineers that made things like Hiphop, Hack, React, etc. etc. Bill Gates was not a good developer. A lot of his early success projects were license purchases and rebrands and not trying to get fucked by IBM. Don't even get me started on the cult of Steve Jobs.
People like to see a Captain of a ship. People like Karl Marx saw those workers rowing the ores. Even people with the nicer more high paying jobs like navigators, sill made a fraction compared to the captain, but it was enough they felt better than the stack below them.
Orwell agreed, but contested that even if the crew men revolt and take control to give everyone a better and more equal share, eventually over time, some people will convince everyone on the boat they should be at the top, and enough people would follow and you'd be back to where you were.
But yes, we always need to have an "Inventor" .. a Tesla or Musk or Ford; the leader of a ship, ignoring the thousands of people that made it happen.
To show the absurdity, consider the people who buy used cooking oil from restaurants to turn into biodiesel for their modified 1975 mercedes 300D. They might pay $2/gallon for that used cooking oil. Would it be reasonable to assume that the market size of used cooking oil is now $2 * (Gallons of used cooking oil produced yearly)? No, that's absurd. Someone paid a high price for it, that doesn't mean everybody did or will.
The currency analog to market cap is money supply . It's a specialized term with less general utility than market cap for equities.
Market cap is a useful statistic because when it comes to shares, the whole is worth more than the sum of its parts. If you buy every share of Apple stock outstanding, you own a business throwing off $60 billion a year . If you buy every Bitcoin in existence, you have nothing of value.
That said, the quoting of crypto market caps is a symptom. Nobody knows what these things are useful for. Dimensionalising the price is better than simply quoting a number. But you can't measure what you haven't defined.
Market cap requires a trade market in order for it to be calculated. It is money supply x last trade price. That's why you quote a cryptocurrency's market cap in some other currency, whereas a market cap is quoted in terms of itself.
FX traders absolutely look at money supply, amongst other things, re-priced into hard currency when considering e.g. foreign-currency debt burdens; local rates, inflation and borrowing conditions; and the monetary policy relative to the internal and export-oriented economy. It's a specialist metric, though.
Market cap is money supply * last trade price. It mathematically can't be analog to money supply, any more than density can be analog to mass.
Both market cap and money supply are metrics that sum across the set. In America we can just count dollars, because our unit of account is our currency. For countries with FX sensitivities, however, that sum is less meaningful in domestic currency than as a hard currency value.
The market depth says a lot more about a currency's value than the market price or even volume does. It's not something that can be summed up into a tidy single number, though. Which means people don't talk about it when when writing glorified blog posts.
I don't think it stopped being about tech innovation - there is a ton of stuff happening around proof-of-stake, layer 2 networks, state channels etc. It's just that the stories around the speculative aspects of the cryptocurrency assets have been dominating in 2017.
/u/palmerstoned: There is no fucking limit on how high this can go (compared to traditional stocks where there actually is a limit due to economic indicators like P/E ratio's). When someone says it's overvalued or undervalued, they are automatically wrong because we have not found any method yet to actually value crypto's, unless you compare the value between crypto's. The nominal value of derivatives in the world is estimated at 1.2 quadrillion (probably a gross overstatement and a bad comparison but a man can dream). Let that sink in for a moment.
/u/palmerstoned: We are still far away from large investment bank ETF's where they actually buy Bitcoins or Ethereum. But it will come, they will never let all this money lying around. The problem right now is that exchanges aren't safe enough yet to be buying Bitcoins by the millions. UI interfaces for wallets are way tooo complex for the average Wall Street trading desk. But this will change, eventually. (definitely keep an eye out for investment opportunities in this niche market). Goldman Sachs has already announced they will put up a trading desk by the summer. Things are about to get a lot more crazy!
i think the run on DOGE is about how much easier it is to move DOGE between exchanges. i could care less about pump&dumps... that type of behavior will naturally stop if we leave ourselves to discover the risks.
if we use a regulatory mechanism to prevent folks from engaging in that type of behavior, we may very well prevent speculation, but we won't teach anybody anything.
i think it's smarter, on the whole, to let the crazy crypto churn continue, and see where it takes us, than it is to disenfranchise all kinds of folks from learning about markets/currency/etc... by regulating them away from it.
My anecdotal experience has been really wonderful in crypto. I've become part of a really nice online community where people are eager to share ideas and help each other out. I've also found the crypto market to be far more approachable than traditional investments for myself. But who knows, maybe I just have been lucky?
I've never seen a DOGE to anything.
Right now, BTC is the most popular. ETH is second most popular. I know some exchanges support monero, but those are very limited in what can be converted.