What the hell is (a) bitcoin?

[AWvsCBsteeeerike3]

I tend to think bitcoin, and some other cryptos, will be around for the longhaul. Obviously people take it as currency now, if banks and/or businesses start to, they'll obviously become more mainstream.

I don't know what to think of them still. In theory, and if executed properly, they make a lot of sense.

[G. Keenan]

Crypto is definitely a pyramid scheme but if it we reach a point where you can use it for more than buying drugs online it might stick around. You can make a case that, in the long run, crypto will be a better store of value than assets denominated in USD. The value of fiat currencies is hugely connected to the trust people place in the government that issues that currency. That's the gist of Modern Monetary Theory, anyway. That trust could erode to the point the world no longer has faith in a government to preserve a currency's value through intelligent fiscal and monetary policy. And can you blame them? Trump's limo driver will probably be Fed chair in 2025.

Not the worst idea in the world to allocate 5% of your portfolio to crypto as a lot of financial types are advising these days.

[Schlich]

Crypto is definitely a pyramid scheme but if it we reach a point where you can use it for more than buying drugs online it might stick around. You can make a case that, in the long run, crypto will be a better store of value than assets denominated in USD. The value of fiat currencies is hugely connected to the trust people place in the government that issues that currency. That's the gist of Modern Monetary Theory, anyway. That trust could erode to the point the world no longer has faith in a government to preserve a currency's value through intelligent fiscal and monetary policy. And can you blame them? Trump's limo driver will probably be Fed chair in 2025.

Not the worst idea in the world to allocate 5% of your portfolio to crypto as a lot of financial types are advising these days.

The tie-in with MMT is interesting. If the gov't wants to fund a social project, they can print dollars, obviously BTC can't do that since their amount is fixed, if i understand correctly. Would the proliferation of BTC undermine US spending capacity? Would it affect our monetary sovereignty? Are BTC and USD competitors or would it get to the point where they rely on the other's existence? Since we can't print BTC, does that make it inflation-resistant or inflation-proof? How would we relate BTC to economic health? My mind is spinning.... very curious.

[G. Keenan]

Crypto is definitely a pyramid scheme but if it we reach a point where you can use it for more than buying drugs online it might stick around. You can make a case that, in the long run, crypto will be a better store of value than assets denominated in USD. The value of fiat currencies is hugely connected to the trust people place in the government that issues that currency. That's the gist of Modern Monetary Theory, anyway. That trust could erode to the point the world no longer has faith in a government to preserve a currency's value through intelligent fiscal and monetary policy. And can you blame them? Trump's limo driver will probably be Fed chair in 2025.

Not the worst idea in the world to allocate 5% of your portfolio to crypto as a lot of financial types are advising these days.

The tie-in with MMT is interesting. If the gov't wants to fund a social project, they can print dollars, obviously BTC can't do that since their amount is fixed, if i understand correctly. Would the proliferation of BTC undermine US spending capacity? Would it affect our monetary sovereignty? Are BTC and USD competitors or would it get to the point where they rely on the other's existence? Since we can't print BTC, does that make it inflation-resistant or inflation-proof? How would we relate BTC to economic health? My mind is spinning.... very curious.

Indeed, it raises lots of economic and philosophical questions. Personally I think Bitcoin or some other crypto or basket of cryptos replacing fiat currencies as the dominant means of exchange would be terrible for democracy as we have known it. Talk about your Big Tech Overlord Oligarchy. It would be like going back to the gold standard where the amount of currency in circulation is fixed to some tangible asset, in this case the spreadsheet on the blockchain I guess.

What would that mean for fiscal policy? Could the treasury issue bonds denominated in Bitcoin to raise money for the country's policy goals? What happens in a crisis like Covid if the government can't just create money and distribute it to the people to get them through the emergency?

How do poor people, old people, people on the wrong side of the digital divide get access to it? What would it mean to live in a society where private actors literally "own" the money supply and the infrastructure to create more?

You have tech-types in thrall to this idea of decentralization as some kind of equalizing force, but as we have seen since the internet emerged from AOL chat rooms to what it is today, the tech industry just throws jet fuel on the pre-existing economic processes driving inequality. Why would a shift to a crypto-based means of exchange be any different?

To me, crypto seems like a hedge against the collapse of social trust and democratic institutions. What will the USD be worth when the Treasury eventually defaults on its debts after one of these asinine debt ceiling games? How can the Fed intervene to stabilize financial markets during crisis if the dollar is replaced by Bitcoin? Will the US government mine it on its own and create a strategic bitcoin reserve kind of like the strategic oil reserve?

Right now there is a lot of money sloshing around global financial markets with super rich investors so flush with cash they can plow it into highly speculative assets like crypto for returns they can't get in boring old bonds or equities. It's definitely a bubble but there's no doubt there's a lot of money to be made for those that can afford it before the party stops.

[Arthur Dent]

Only actual uses of crypto in order of significance:
-Pure speculation
-Crime
-Other transactions seeking to evade authorities

But that may well be enough to keep it going.

It’s useless as a general purpose currency. Transaction costs are super high and holding long enough just to conduct ordinary business is super risky. You may sell something for $100 only to find out you only have $90 when you try and cash out. People worry that the dollar might be getting too unstable if prices move 5% over the course of a year while BTC can easily do that in a day.

The idea that crypto’s value is less based on trust than fiat strikes me as absurd. What do you think is driving the wild price swings in crypto? Are there rapid changes in its use value or changes in beliefs about how much you can sell it to others for? The whole thinking around it based on the idea that you can somehow take the social relationship out of money is deeply confused. People feel like it’s somehow unsettling and bad that money isn’t actually like a quantity of physical stuff but is instead a web of social relationships with all the attendant complexities. Crypto is an elaborate scheme to use a bunch of heavy computation to create a tradable digital pseudo hard asset. All this work goes into a scheme where you use tons of scare energy and electronic components as a substitute for basic legal institutions that allow people to trade by simply recording transactions and creating associated mechanisms for dispute resolution, etc. But then what exactly is this supposedly zero trust “hard” asset actually good for? Only for what other people are willing to agree with you. Ultimately, it’s just another trust system, but one that is insanely wasteful, poorly designed, and poorly managed.

[Arthur Dent]

There seems to be another hype round going about crypto, specifically the web3 stuff claiming that crypto can be the the foundation of something really useful beyond my three item list above, so I’m thinking of taking another reading dive to try and understand if there is any there there. Unfortunately, the writing on this seems to alternate between people obviously just talking up the speculative assets they own and an overlapping group that seems to only be able to talk in terms of incredibly vague abstractions or write thousands upon thousands of words while managing to say very little.

Are there any believers on here who could make the case using some concrete examples or someone who could point me to any actually decent writing on the topic?

[Superorganism]

Yeah, a few coins are trying to get after that market share early by providing utilities that tie into Web 3.0. I’m most familiar with EverGrowCoin. They are building out an NFT marketplace, and a creator service that undercuts other creator services insofar as fees. There are thousands of coins (and growing by the day) all trying to do the same thing in a largely unregulated market. The fact that you can copy source code of one coin and start your own an hour later is fairly disconcerting.

[thrill]

To me, crypto seems like a hedge against the collapse of social trust and democratic institutions.

This was especially obvious during the Trump admin, where Bitcoin (and ethereum to a lesser degree) would spike every time two things happened: Elon tweets or Trump doing something particularly authoritarian. I made a tidy sum on bitcoin by timing my transactions based on my own instincts and interpretations of social trust/democracy. When things were calm I'd buy, when things were hot, I'd wait until I felt the social/political issue was peaking and then sell. I made money literally every time I did this. Did my timing perfectly match with peak value? Not quite, but it was entertainingly close for someone who spends literally zero time studying crypto. It was just really easy to predict consumer behavior based on current events.

[Arthur Dent]

Checking BTC now, interestingly, I don’t see an Omiricon panic spike.

[IMADreamer]

Checking BTC now, interestingly, I don’t see an Omiricon panic spike.

I was surprised by that myself. Seems like the alt coins are doing well though. Algo, XLM, even AMP are all having decent days. Well Algo was but it can't seem to get past the two dollar barrier.