Will a low price actually prove good for crypto?

That is the topic of my latest Bloomberg column, here is one bit:

Now the time has come for crypto to go on a diet. No more easy money. No more thoughts about ICOs leading to quick riches. The rhetoric is shifting toward a more cautious or even apologetic tone. The corresponding reality can perhaps be one of greater focus and relevance.

We’re at the point where crypto finally has to prove its social worth. But what might that mean? Imagine using crypto as a medium of micropayments to pay for media on the internet. Or perhaps you’ll use the blockchain to verify your identity, rather than telling some stranger on the phone the last four digits of your Social Security number. Or how about a system for self-executing, zero-cost contracts? (For example: I will give $10,000 to a charity if 10 other people do.) Maybe the burgeoning field of virtual reality will rely on crypto to support some of its transactions, starting with virtual sex, which the major banks might stay away from. Alternatively, I might use crypto assets to send money to Mexico, avoiding the steep charges from current money transfer systems. In the more utopian visions, crypto leads to the rise of entirely self-governing systems, powered by the blockchain.

And this:

By the way, if you are confused by the terms “proof of stake” and “sharding” (and others), that is probably a good thing. As the tech guru Stewart Brand is reported to have said, the proliferation of terminology in crypto is a sign that new ideas and possibly important new technologies are afoot.

Stay tuned…


I don't follow the crypto markets closely but BTC seems to have found a very tight range around $6300-6400 and has been there for months. I wonder if that's meaningful?

Good point. It might be meaningfully bad, in that BTC is a speculative vehicle that demands high volatility. Being stuck in a range will scare off speculators and might be bad long term for BTC interest. It feels strange to have an intellectual conversation with you, msgkings. We should go back to trading insults in the next thread.

Meh, there's enough of that already here.

If you own some, you must declare that is very meaningful.

I don't own any, so I argue $0 is meaningful, and advise anyone to pay more more than $0 for bitcoin. Once I convince enough, the price will be zero, and the savings of workers can be put to better use paying workers to build useful productive capital assets like solar roofs plus battery storage, electric vehicles, ground source heat pumps, etc, assets that will decline in price as they depreciate but provide imputted income not taxed as return on investment. And unlike buying bitcoin, buying capital assets creates jobs, and those workers will in turn buy more stuff produced by workers, driving up GDP.

I assume you apply this same logic to dollars and gold? Your philosophy sounds familiar...

I saw this earlier, and something put me off. I'm not sure it is really trivial either. Really every occurrence of "crypto" in this article should say "block-chain" instead.

Sure, "crypto" is what the kids say, and it is cool, but saying it kind of argues against the theme of the essay.

Block-chain technology may find niches, but only after the kids and pundits who call it "crypto" depart the scene.

I should not have used a hyphen, wiki has pages which contrast:




Why say "Block-chain" when you can just say "Merkle Tree"?

It's not quite the same. Blockchains use hash chains, but also some kind of distributed consensus algorithm. They can also use Merkle trees but that's not required, it's just that Merkle trees are super useful tools.

careful with what you wish for. if the kids and pundits leave for real, prices go down.

also, if you want to get rid of stupid people and stay only with the true and engaged ones..... it's a cult.

The terminology has been obscene and over defined. My model is digital bearer cash, how does it work. If that is explained then most of the concepts are explained.

Most blockchain doesn't have anything like digital bearer cash. For example, Bitcoin is basically moving money between accounts, where each account number is a public key, and you need the corresponding private key to move the money back out.

Then this market is horse manure.
They start with the idea of digital money and immediately rule out the idea of having digital bearer notes. Fintech will fix all this, they know about digital bearer notes.

Let me amend that slightly. It may be but there is a path to success by which cryptography and blockchain find adoption as actual cryptocurrencies.

I consider that a long shot, but it is possible.

More likely, our society will rely on strong cryptography centrally managed by corporations whose lives depend on strong security. In other words, if Google loses their ability to place ads and get paid they are dust.

Blockchain definitely has some potential as audit chain, and that could become very widely used.

But what I have difficulty seeing in late 2018 is why these technologies would necessarily be "currencies" at the same time.

The power consumption and volatility of cryptocurrencies have already defeated their usefulness for mundane tasks.

Never has so much been written about nothing.

For example, this post.

'Blockchain': a technology bereft of a Use Case.

Yes. ICOs were and are mostly a scam.
As far as the ‘real’ cryptocurrencies—

Proof of Stake may never become truly useful. There are apparently significant security issues. It also devolves somewhat into centralization in which case you might as well use Venmo.
This means POW will probably be the winner. Which means a lower bound I
on value to justify mining power for transaction validation.
There are some very interesting new coins coming down the pike that are being built smartly and with an eye towards regulations- no premining or ICO for example.

In my understanding proof of stake is the same thing as interest on money in the bank. But the bank gives interest because it can loan your money. What benefit is there to a person holding crypto currencies?

Yes, in POW, the miner is adding security to the blockchain and is being paid for his efforts. POS just hopes the staker isn’t willing to devalue his stake by messing with things. The chains security isn’t increased with the new block because not much work has been done to secure the block.

I hate saying that I agree with Krugman, but I agree with Krugman when he said cypto "is a bubble wrapped in techno-mysticism inside a cocoon of libertarian ideology."

Consensus is important to valuation, but is not valuation in and of itself. The low price will 1) reflect and track closer to its true value (=0) and 2) not prove good for any but the earliest adopters and 3) remove the get-rich-quick incentive which was vital to further reinvestments into both the technology and the exchanges.

I see crypto's current problems as unsolvable, requiring one or more financial and social paradigm shifts to assign greater weight and value to its oft-spoken of advantages.

"the proliferation of terminology in crypto is a sign that new ideas and possibly important new technologies are afoot."

The proliferation of terminology in any field is a sign that people are trying to obfuscate what they mean. Good, organically grown jargon builds consensus, and doesn't scattershot terms.

Profliferation of terminology at best ceases to be a good sign when people believe that it is a good sign.

But they had 100s of early car companies too. Biggest problem with BTC is that it's too slow for real transactions, and whatever pseudo-security it offers pails in relation to VISA/MASTERCARD. But decentralized blockchain tech does have value, for things like land registries. In Greece, Africa, PH, elsewhere, it's common (Google 'land fraud') to have people alter land registries, which are often paper copies of deed books in some corrupt government office (sometimes the entire city hall is in on the scam in Greece).

It seems like the main thing you need for that is an unchangeable ledger, which is pretty old technology--Surety was doing this stuff in the 90s.

You need to be able to change the ledger, with the existing land owner having a private key and is allowed to "OK" any sale of the land. If Surety can do that, all power to them, especially if it's open source and not proprietary.

Imagine using crypto as a medium of micropayments to pay for media on the internet. Or perhaps you’ll use the blockchain to verify your identity,

I'll imagine it if you can tell me why a blockchain is even vaguely suitable for these use cases.

Yeah, isn't the point of the blockchain that you aren't verifying your identity? Just that you have the requested asset?

The law and economics professoriate has been having a field day writing at length about all this blockchain stuff that they understand only at the most superficial level.

it's been a few years now. people gets bored if the price doesn't go up and move into the next hype.

Pot stocks are the new next thing.

When prosperity is dependent on rising asset prices, one can expect nonsense like cryptomadness. On the other hand, housing prices around the country are falling, but one wouldn't know it reading this blog.

Hi rayward, what is your source on falling home prices? While the Case-Shiller is showing slower rates of price increase (+5.7% y/y) I haven't seen much on falling prices yet.


As it stands now the energy cost of one transaction will have to crash too before it is considered anything remotely related to a currency. From an energy conservation perspective crypto currently is a nightmare.

"I can't wait for crypto to imminently bust wide open with tons of useful applications! This will surely happen any minute now."

There, you can just re-apply this comment to the next ten thousand posts about crypto.

Can we *please stop calling blockchain 'crypto'? Cryptography is a giant field, and blockchain is only peripherally related to it. Using the word 'crypto' when talking about blockchain technologies makes a person sound like they don't really understand the distinction, and it will confuse everyone when we want to have a discussion of some other aspect of cryptography.

On the other hand, it probably nets the annual Crypto conference in Santa Barbara (which is about cryptography, and maybe will have one or two very theoretical papers peripherally related to blockchain) a few extra attendees.

Crypto-currency is most likely a stalking horse for strong PKI. But I promise you regular people aren't ready for the level of responsibility that comes with managing a private key.

Also, scratch nearly any blockchain or crypto-currency enthusiast and you will find a gold bug.

Crypto-currencies don't have to prove anything to anybody. They exist. They are permissionless, decentralized and cannot be stopped by any government. That is why they are still growing. They are tools to help humans avoid capital controls and the confiscation of wealth.

They are tools built to reduce transaction costs across borders. The technology is still improving and far from perfect, but humans want monetary transactions that are permissionless and cost less.
Humans need tools like that and it is the reason we see the technology continue to attract a lot of minds and capital. I am surprised that so many here discount these basic concepts.

capital controls? it's a poor people's problem.

transaction costs across borders? it's again a problem of the poor. IBAN/SWIFT transfer of 10K costs $30 or 0.3 %.

since when the problems of the poor attract that much capital?

When those problems were also alligned with speculative self-interest. That is actually one of the appealing things about bitcoin...it aligns some of the solutions to problems of poor in third world countries with the self-interest of people in 1st world countries.

Comments here are sad. Clearly, people posting on topics they know nothing about is the new norm these days. That's why I have millions of dollars and a packed wine cellar and all they have is whine.

Mr. Troll, if the goal is to rally for bitcoin you ought have said "I have millions of bitcoins ", not millions of dollars.

Well spotted.

Also, the cool kids never put an S on the end of Bitcoin.

I'd argue that the real advantage of bitcoin can be usurped by the first government willing to tolerate true digital cash. Modulo some speculators the attraction of bitcoin is purely as a medium of exchange and the comparative advantage if has there is twofold

1) like actual cash, once you've sent someone your bitcoin (or whatever) your only recourse to get it back is to bring suit.
2) like actual cash anyone can be paid in it or pay with it at any scale without any need to pass hurdles for merchant accounts or worry that the corporation handling the money transfers will be pressured not to serve them.

Yet both these advantages can be provided by any country brave enough to offer a system of digital cash with these features. No questions asked transfers at a flat percentage without protections against account theft or the like. Provided such a country allows the rest of the world to track terrorist payments and (with appropriate legal process) track down money being hidden from the authorities I suspect that such a much more efficient easier to use digital cash system could replace bitcoin quite quickly in the underground economy and eventually push it out altogether.

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