Bitcoin - Part 2

[psionl0]

I am researching some of the issues about currency, and taking one issue at a time.

Here is a false claim:

https://steemit.com/cryptocurrency/@...itcoin-is-born

The second is even more mind blowing: American dollars are created by debt. In stark contrast, cryptocurrencies are created by work. If there was ever a scam at work in the world of currencies, creating new dollars out of debt would seem pretty high on my list. Mining Bitcoin or curating Steem? Not so much.

When a person buys a house and takes out a loan from the bank, the debt is backed by a physical asset. The house. The bank can ask the Reserve Bank for cash and use the debt/asset. The dollar cash is backed by an asset.

When a bitcoin is created, electricity is used which creates nothing but a number. That is not "work". It is the same as burning down a tree and getting nothing but smoke and carbon dioxide as proof or work.

The claim is not entirely false. It is true that debts must be backed by an asset but it does not have to be a totally physical asset. It could be backed up by somebody else's debt or even just the word of the borrower (think: credit cards).

Fiat currency is ultimately government debt backed up by the liabilities of tax payers.

OTOH crypto currencies are not backed up by anything (except themselves) because they are not debt instruments. They are worth only what somebody is willing to pay for them. They operate as "currencies" in a similar fashion to the way gold and other precious metals used to be currency. The energy used to create crypto currencies is a red herring since this energy is irrelevant to the "value" of a crypto currency.

What I find astounding is the apparently hard core belief the one day all the bitcoin holders will decide that bitcoin is worthless and dump them. It is going to take a lot more than a spontaneous change in public belief about bitcoin to get it off this never ending roller coaster.

 

[Beelzebuddy]

That reminds me, I've been meaning to look into other cryptocurrencies for a while. Back when Bitcoin was peaking for the first time, I made a small list of requirements I'd need to imagine people actually using a currency instead of storing them in their digital socks. Does anyone know of coins that meet them today?

My list:
No "gold rush" - It should not heavily reward the people who first start mining it, and sure as hell shouldn't start with enriching the creators with huge theoretical sums. That's begging for a pump and dump scam. Ideally it'd start with a high difficulty, as if there were already a lot of coins and everyone was already just mining the interest. The idea would be to encourage people to join the mining swarm at any time without them "missing out."
Inflationary - it needs to grow about 10-20% per year. More coins entering with time encourages investment and discourages hoarding.
Scalable - Bitcoin's model is that every transaction has to be confirmed by everyone. Which is inherently unscalable. Imagine half the world's economy using it. No way would that be feasible. No giant block chain, no "self-limiting" transaction fee. I know there's some coins that do this but I don't know the details.
GPU-focused - to discourage ASIC farming. I know there's coins that do this already.

 

[rayheno]

The claim is not entirely false. It is true that debts must be backed by an asset but it does not have to be a totally physical asset. It could be backed up by somebody else's debt or even just the word of the borrower (think: credit cards).

Fiat currency is ultimately government debt backed up by the liabilities of tax payers.

OTOH crypto currencies are not backed up by anything (except themselves) because they are not debt instruments. They are worth only what somebody is willing to pay for them. They operate as "currencies" in a similar fashion to the way gold and other precious metals used to be currency. The energy used to create crypto currencies is a red herring since this energy is irrelevant to the "value" of a crypto currency.

What I find astounding is the apparently hard core belief the one day all the bitcoin holders will decide that bitcoin is worthless and dump them. It is going to take a lot more than a spontaneous change in public belief about bitcoin to get it off this never ending roller coaster.

Hi ,
I am just wondering if you know of any other crypto coins that look to have good prospects going forward. I have done quite well out of Ripple and Stellar, any insights you have are very welcome

 

[Delphic Oracle]

Existing currencies are backed by nothing but fraud and violence. The assets that the Fed has acquired were purchased via fraud, and the sellers were typically rewarded with 100 cents on the dollar where the assets were worth a fraction of that.

The decentralized nature of bitcoin is a feature, not a bug, to people interested in it. Obviously you are not one of those people.

How the Fed came to acquire it is not within the scope of the issue.

You have now refuted your own claim of fiat money having no source of value to back it.

This is where the tapatalk signature that annoys people used to be

 

[psionl0]

Hi ,
I am just wondering if you know of any other crypto coins that look to have good prospects going forward. I have done quite well out of Ripple and Stellar, any insights you have are very welcome

Hi, and welcome to the forum.

Unfortunately it's no good asking me for tips. I'm a jinx.

 

[Tippit]

The claim is not entirely false. It is true that debts must be backed by an asset but it does not have to be a totally physical asset. It could be backed up by somebody else's debt or even just the word of the borrower (think: credit cards).

It's not true that debts have to be "backed" by an asset. see unsecured versus secured loans.

Fiat currency is ultimately government debt backed up by the liabilities of tax payers.

Fiat currency is not debt, nor is it always conjured ex nihilo in exchange for debt. It could theoretically be created for any reason what-so-ever, or in exchange for anything (not just government bonds).

OTOH crypto currencies are not backed up by anything (except themselves) because they are not debt instruments. They are worth only what somebody is willing to pay for them. They operate as "currencies" in a similar fashion to the way gold and other precious metals used to be currency. The energy used to create crypto currencies is a red herring since this energy is irrelevant to the "value" of a crypto currency.

The energy isn't irrelevant to the value, because it represents that which was expended in the proof of work according to the difficulty in order to create scarcity and thus, an important aspect of bitcoin's value. While bitcoin is speculative, the proof-of-work offers the bitcoin speculator a limited guarantee that the supply of the underlying won't be counterfeited or duplicated, unlike fiat currencies.

What I find astounding is the apparently hard core belief the one day all the bitcoin holders will decide that bitcoin is worthless and dump them. It is going to take a lot more than a spontaneous change in public belief about bitcoin to get it off this never ending roller coaster.

It could happen if some kind of tail risk manifests itself, such as quantum computers rendering elliptic curve crypto useless, etc... but it seems unlikely for the intermediate term, and there are even fail safe measures in the bitcoin protocol to completely swap out the underlying crypto, as i understand.

 

[Tippit]

My list:
No "gold rush" - It should not heavily reward the people who first start mining it, and sure as hell shouldn't start with enriching the creators with huge theoretical sums. That's begging for a pump and dump scam. Ideally it'd start with a high difficulty, as if there were already a lot of coins and everyone was already just mining the interest. The idea would be to encourage people to join the mining swarm at any time without them "missing out."

While I suppose you could make the mining of new coins very difficult from the beginning, what you can't do is control the amount of fiat money that anyone could potentially bid on such a coin. If the coin had a great deal of utility and was popular, people would front run it in an attempt to profit and there isn't really anything you can do about it.

Inflationary - it needs to grow about 10-20% per year. More coins entering with time encourages investment and discourages hoarding.

Lol. Nobody wants inflationary currency, except governments and counterfeiters.

Scalable - Bitcoin's model is that every transaction has to be confirmed by everyone. Which is inherently unscalable. Imagine half the world's economy using it. No way would that be feasible. No giant block chain, no "self-limiting" transaction fee. I know there's some coins that do this but I don't know the details.

See lightning network, and the concept of "sidechains".

GPU-focused - to discourage ASIC farming. I know there's coins that do this already.

I'm not sure what the point of this is. In fact, the market prices for GPUs have been driven up so far by cryptos that gamers have begun to complain about it. Based on your comments about inflationary currency and GPU mining, I don't think you have a very strong grasp on how market economies work.

 

[Tippit]

How the Fed came to acquire it is not within the scope of the issue.

You have now refuted your own claim of fiat money having no source of value to back it.

I never said that fiat money is valueless. I said it has no intrinsic value, and that its extrinsic value is based on the petrodollar scam, and the US Military. The value of people who earn and save fiat money is stolen quickly over time, as it is merely another form of regressive taxation (at best) or theft (at worst).

 

[Craig B]

I never said that fiat money is valueless. I said it has no intrinsic value, and that its extrinsic value is based on the petrodollar scam, and the US Military. The value of people who earn and save fiat money is stolen quickly over time, as it is merely another form of regressive taxation (at best) or theft (at worst).

Why do you call this regressive? Here is s definition

Definition of 'Regressive Tax'. Under this system of taxation, the tax rate diminishes as the taxable amount increases. In other words, there is an inverse relationship between the tax rate and taxable income.​

The taxable income here is the sum of currency held at any time by a possessor. The tax rate is the same per pound or dollar for each payer, so that a person with a thousand units pays exactly ten times as much as a person with a hundred units. Both taxpayers pay any the same percentage rate on each unit, regardless of the total they are holding. That doesn't look regressive to me.

Here are related definitions

A regressive tax^WP is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases ... if the activity being taxed is more likely to be carried out by the poor and less likely to be carried out by the rich, the tax may be considered regressive.​

A flat rate tax on the holders of currency doesn't fulfil these conditions. Holding money is an activity more likely to be carried out by the rich, as the poor tend to expend it on necessaries like food, clothing and shelter as and when they obtain it, and have no surplus to retain as a money hoard.

 

[psionl0]

It's not true that debts have to be "backed" by an asset. see unsecured versus secured loans.

I would have thought that "just the word of the borrower" covered that.

Fiat currency is not debt, nor is it always conjured ex nihilo in exchange for debt. It could theoretically be created for any reason what-so-ever, or in exchange for anything (not just government bonds).

I was trying to avoid the complication of central banks and bonds and keep to the bottom line. When you issue a note you are normally promising to redeem it for something of value. In the case of government, the "thing of value" is your tax liability.

The energy isn't irrelevant to the value, because it represents that which was expended in the proof of work according to the difficulty in order to create scarcity and thus, an important aspect of bitcoin's value. While bitcoin is speculative, the proof-of-work offers the bitcoin speculator a limited guarantee that the supply of the underlying won't be counterfeited or duplicated, unlike fiat currencies.

The energy required to mine bitcoins depends on the value of bitcoin - not the other way around. Yes, "proof of work" is your guarantee that the block (in the blockchain) that has your transaction is not bogus.

It could happen if some kind of tail risk manifests itself, such as quantum computers rendering elliptic curve crypto useless, etc... but it seems unlikely for the intermediate term, and there are even fail safe measures in the bitcoin protocol to completely swap out the underlying crypto, as i understand.

Like I said, bitcoin holders are not going to spontaneously lose confidence in bitcoin absent some extraordinary event such as you describe.

 

[Craig B]

I would have thought that "just the word of the borrower" covered that.

One of the inflationary mechanisms that causes bubbles to swell is that loans to enable speculation may be covered by the value of the speculated object. They are self financing, during the boom phase. In 1929 lenders lent on the security of the price of the shares to be purchased by the borrower.

A borrower might put down $10, borrow $100, thus multiplying his or her available funds tenfold. No problem on condition that prices keep going up; her or his collateral is secure. But if they stop going up ownership becomes a burden as there is current interest on the loan, and no dividend from the asset to offset it. And if the price falls the creditor wants more money to restore the collateral, and sends out a "margin call". If this is not heeded, the speculator is "sold out". That reduces prices even more and so a positive feedback cycle is established, with the explosive results normal for these processes.

As described by JK Galbraith

Prices as they fell ... kept crossing a large volume of stop-loss orders — orders calling for sales whenever a specified price was reached. Brokers had placed many of these orders for their own protection on the securities of customers who had not responded to calls for additional margin. Each of these stop-loss orders tripped more securities into the market and drove prices down farther. Each spasm of liquidation thus insured that another would follow.​

 

[Eddie Dane]

Hi ,
I am just wondering if you know of any other crypto coins that look to have good prospects going forward. I have done quite well out of Ripple and Stellar, any insights you have are very welcome

You can follow John mcAffee on Twitter.

He's essentially a paid promotor of cryptos and will recommend new ones.

Mind you: he's probably just getting money from people to pump and dump currencies, but I've read that everything he promotes shoots up in the short term. It's like riding pump-and-dumps within a bubble.

Extremely risky, but if you take profits in much-maligned dollars occasionally, it may make you money.

Reddit has a very active subforum that is very informative. it is also an information bubble filled with true believers. make sure to consume sceptical voices in addition or you will essentially be in a cult.

On youtube I've found two people who are invested in cryptos, competent, yet not wide-eyed idealists:
Crypto Investor
Trader of futures

That last one has recently been making more videos warning people that they shouldn't take out a second mortgage and invest it in Bitcoin. Apparently, he's very spooked by how blindly people believe that this will go to the moon and are literally betting the house.

Personally, I have not invested in cryptos yet. I am interested in ICO's for cool technical products with proven user cases (not just a whitepaper, my 12-year-old daughter can write a whitepaper). But I'm unsure about how they work, so I'm still looking into it.

 

[PartSkeptic]

(snip)

That last one has recently been making more videos warning people that they shouldn't take out a second mortgage and invest it in Bitcoin. Apparently, he's very spooked by how blindly people believe that this will go to the moon and are literally betting the house.

(snip).

Just heard an hour ago of a man who has taken out a mortgage on his house to buy bitcoin. He made a lot of money initially and is now convinced he can make more.

The downturn of the second DCB seems to have started.

The governments should step in. They should tell people how the schemes work, and the risk they are taking. But it is probably too late for many people.

 

[Eddie Dane]

Just heard an hour ago of a man who has taken out a mortgage on his house to buy bitcoin. He made a lot of money initially and is now convinced he can make more.

The downturn of the second DCB seems to have started.

The governments should step in. They should tell people how the schemes work, and the risk they are taking. But it is probably too late for many people.

Look, I have no problem with people investing in Bitcoin if they can afford to lose money. (same with all investments really).

Some things concern me:
-People with no idea of markets or tech going in with a minimum of understanding.
-People who are absolute believers in the concept.
-The echo chambers talking about the subject where critical voices are shouted down.
-The narrative that "they" want to stop crypto and will lie about it, causing people to disregard warnings from finance, government.
-The idea that some technology superior to blockchain could spring up and replace it quite easily.

I like the idea of investing in and funding a disruptive technology, but people are way too convinced that 'this is it'.

 

[angrysoba]

Last night I had a poker game with a few friends. One of them announced he had put 300,000 yen into Bitcoin and Ripple.

Actually, that is not as much money as it may sound, but more than a month's salary for him. I think he is genuinely trying to get rich quick as he will be reaching retirement age in about ten years.

The thing is he is not very savvy at things like this and decided to invest because a mutual friend of ours who likes speculating and gambling had done the same. He said he had sent money to "a guy" who could buy cryptocurrencies and then bought them a few days later ("after the price had risen!"). Since then the price has fallen, and he isn't able to cash out, but apparently can only sell in other cryptocurrencies.

Now, on the one hand, what he hopes for is the price goes up again and ends up more than it was when he went in. In that case he should probably sell and consider himself lucky. Or he can cut his losses and sell now, hoping not to lose too much (although it sounds dodgy that he is unable to take out his cash immediately. Why not? He doesn't seem to know.) Of course, maybe he won't accept anything less than a stratospheric rise, when the other, likelier, alternative to that, is a catastrophic decline.

And if he is doing it, there will be many other people doing it too.

 

[Delphic Oracle]

One need look no further than the very terms the enthusiasts use to find the real source of "value" of this currency.

When someone wants to quantify their holdings, some other denominated currency is referred to. That is, after all, the entire purpose of the exercise.

This is where the tapatalk signature that annoys people used to be

 

[psionl0]

The governments should step in. They should tell people how the schemes work, and the risk they are taking.

What is this silliness? We need the government to "protect" us from bitcoin because there are some stupid people around? That is the most pathetic argument against bitcoin ever.

 

[PartSkeptic]

What is this silliness? We need the government to "protect" us from bitcoin because there are some stupid people around? That is the most pathetic argument against bitcoin ever.

The argument is against the failure of government(s) to regulate. They step in after a crisis they should have seen coming.

https://en.wikipedia.org/wiki/South_Sea_Company

...Walpole supervised the process which removed all 33 of the company directors and stripped them of, on average, 82% of their wealth. The money went to the victims and the stock of the South Sea Company was divided between the Bank of England and the East India Company.

...When Sir Isaac Newton was asked about the continuance of the rising of South Sea stock... He answered 'that he could not calculate the madness of people'." He is also quoted as stating, "I can calculate the movement of the stars, but not the madness of men"

 

[psionl0]

The argument is against the failure of government(s) to regulate. They step in after a crisis they should have seen coming.

Why should they?

 

[Craig B]

Why should they?

Should they seek to regulate anything at all? I imagine you think not. Or are you saying they shouldn't step in to clear the mess up after a crisis either?