I honestly don't understand where the perception comes from that this technology is only useful for laundering and speculation. Certainly it is currently being used for those purposes. But to say there is no imaginable use outside of that seems unwarranted.

I've commented in the past here that the use of public blockchains to automate the functions of clearinghouses and escrow services will be a huge cost reduction for many industries such as finance. The technology as of today is not ready to handle that use case, but with the developments currently in the pipeline for Ethereum v2, progress is being made in that direction.

If you look at what MakerDAO is doing with the Dai stablecoin, they've proven that it's possible to create a synthetic asset closely pegged to the dollar purely through financial incentives, and they did it all just using Ethereum v1. A holder of Dai can earn 4% APY through a Dai Savings Account, and a vote is currently in place to raise the rate to 6%.

I personally find it incredible that an asset exists on the blockchain that's equivalent in value to USD, with a higher APY than you can get from any US bank. And because everything is on the blockchain, there's a public ledger of exactly how much is being collected in interest from those who are collateralizing their Ether for a Dai loan, how much of that interest is being paid to savings account holders, and how much is being collected by the system as surplus. It's the closest thing we have right now to a decentralized bank.

Whether or not you buy into the technology, it's improving by the day and more and more use cases and applications are being tried out and built. If all you see in blockchain is money laundering and speculation, you haven't been paying attention.

> If you look at what MakerDAO is doing with the Dai stablecoin, they've proven that it's possible to create a synthetic asset closely pegged to the dollar purely through financial incentives, and they did it all just using Ethereum v1. A holder of Dai can earn 4% APY through a Dai Savings Account, and a vote is currently in place to raise the rate to 6%. >I personally find it incredible that an asset exists on the blockchain that's equivalent in value to USD, with a higher APY than you can get from any US bank.

I also find this “incredible”, but in the old sense of the meaning as “not believable”.

The complete functioning of the MakerDAO system is publicly documented here [1] and here [2]. Feel free to peruse the documentation and point out which parts seem unbelievable. The system is currently live and I hold a Dai Savings Account and can attest I've been paid according to the system's documentation.

[1] https://community-development.makerdao.com/makerdao-mcd-faqs

[2] https://docs.makerdao.com/

> Feel free to peruse the documentation and point out which parts seem unbelievable. The system is currently live and I hold a Dai Savings Account and can attest I've been paid according to the system's documentation.

The problem with bad financial instruments is not that they don't work at all, but that they work fine for a period of time and then blow up.

I think the point your parent was trying to make is that the long term interest rate of any security has an upper bound of the growth rate of the economy.

I don't know of anyone who things the US economy has a real growth rate of 6%.

> I think the point your parent was trying to make is that the long term interest rate of any security has an upper bound of the growth rate of the economy.

This is incorrect. Economists won't need it explained, but you're probably not one. Think about it like this - the growth of the economy is a weighted average of the growth of many different assets. By definition, a few of them will have higher rates of growth a few will have lower rates of growth.

What you should've said is that the higher rate ones are typically higher risk. So at the lowest possible risk, you probably cap out at the economic growth rate (also not a truism, but somewhat closer).

There are certainly black swan scenarios, such as the value of Ether dropping largely overnight, that would test the system and possibly lead to a decoupling of the peg. The bubble bursting in early 2018 tested this aspect of the system and the peg was able to be maintained.

The 6% Dai savings rate is not static. Overtime, both the interest rate charged to those taking loans and the savings interest rate will need to be adjusted in response to economic conditions in order to maintain the peg. These adjustments have occurred many times and are part of the normal operation of the system.

That being said, MakerDAO has considered these scenarios and in the event that the peg can't be maintained, an emergency shutdown procedure occurs that gracefully shuts down the system. There's a separate token called MKR, and holders of the MKR token are the lenders of last resort. In the event of an emergency shutdown, MKR token is printed and auctioned off to settle debts in the system, devaluing the MKR token. Similarly, when a loan holder pays off their debts to the system, they pay that in MKR token and the MKR they paid is burned, creating scarcity of the token to reward MKR holders.

Seriously.

The risk adjusted return on whatever that crazy contraption is is almost certainly negative, and probably incalculably so.

The idea that any sane financial instrument could increase its return by two points by the holders of it voting to do so is... I haven't the words.

> The idea that any sane financial instrument could increase its return by two points by the holders of it voting to do so is... I haven't the words.

Raising the savings rate will also raise the interest rate that those holding loans must pay. If a loan holder doesn't agree with the new interest rate, they are free to close out their loan.

I'm not familiar with this product. How do you "close out" one of these loans? If you mean pay it off, nobody would take a loan they can just pay off at anytime, or where the interest rate can be just arbitrarily voted up.

> If you mean pay it off, nobody would take a loan they can just pay off at anytime, or where the interest rate can be just arbitrarily voted up.

It's true that the interest rate can be arbitrarily voted up. Despite this, 1.46% of all existing Ether (currently valued at $210,036,816) is staked as collateral in the system, so it's not accurate to say nobody would do this.

The loans are mostly used for leveraged trading or liquidity while maintaining a long position. Each loan is fully collateralized with the Ethereum token by the borrower

> nobody would take a loan they can just pay off at anytime

Isn't this just a revolving credit line?

In a way, you're absolutely right.

In another way, you're totally missing the point.

Net ROI hasn't been great for people who were earning x% interest on their ETH while it tanked 50%+.

But the _idea_ the animates DAI, the dream of a decentralized synthetic digital bearer asset, that's a worthwhile dream imo. It's not a simple idea to understand. And it's not simple to implement technically/socially. But DAI has been a beautiful experiment in attempting to create this new-fangled thing. and while the jury is still out on whether the model/architecture they've chosen will hold up, the experiment itself should, in my view, be declared a massive success - it has, for the most part, worked very well. And DAI opens the door to new experiments. And they'll come. A trickle at first. but in 10yrs, it'll be an entirely different landscape when it comes to complex financial instruments. They'll be available in the way stocks can be had on Robinhood. and more. bcs financial instruments that are currently too complex or expensive to be practical, will be within reach. The rabbit hole is deep. and it is real. You can dive in and start learning. Or yell at clouds until your boat gets lifted by a wave of innovation...

> whatever that crazy contraption is

The people who built "that crazy contraption" are pioneers in an industry that is going to help lift hundreds of millions out of poverty via cheap, non-predatory financial services and create trillions in wealth by further unifying the global market.

I am somebody who spends hundreds of hours per year reading about Ethereum and blockchain. I could stop doing this whenever I want, I'm not bound by my employer or anything.

I keep at it because the underlying technology and things being built with it are amazing and valuable.

If you take one thing away from this thread, let it be that Bitcoin is the "Ask Jeeves" of cryptocurrency and the future is actively being built on Ethereum.

Paying 6%, or even 4%, on a savings account is a MASSIVE red flag to anyone with a bit of financial sense.

Those with loans in the system will have to pay a 6% interest rate. Since not all holders of Dai have savings accounts, this allows for the system to use the interest charged to loan holders to pay out the savings rate while accumulating a surplus.

A 6% interest rate on USD would be a red flag, but Dai isn't USD. As far as I know, no banks allow you to use Ether as collateral for a USD loan, so the comparison isn't apples to apples.

> A 6% interest rate on USD would be a red flag, but Dai isn't USD.

Is this written in their documentation? Cos this is where the smart money gets out. The DAI competes against the USD. So all their transactions have to be in USD. No vendor for your products is accepting these magical tokens. No one in the economy except vanishingly small fractions accept digital tokens for trade.

Also, this is how the economy functions. All they've done is create a bank and sprinkled the fairy dust of "tokens" on it so the Fed stays away.

> No vendor for your products is accepting these magical tokens. No one in the economy except vanishingly small fractions accept digital tokens for trade.

MakerDAO has a list of vendors who accept Dai today [1]. The list also contains a number of payment processors that enable businesses to accept Dai. It's true that it's not widely used now, but every product has to start somewhere. I don't think I'm going to be getting paychecks in Dai within my lifetime, but that's no reason to discourage its growth.

> All they've done is create a bank and sprinkled the fairy dust of "tokens" on it so the Fed stays away.

You say that as if creating an automated decentralized bank that generates an asset pegged to the US dollar is something that just anybody could do. Regardless of how Dai is ultimately used, creating the system and deploying it to the public is a successful proof of concept in itself.

[1] https://github.com/makerdao/awesome-makerdao#spend-dai

> It's true that it's not widely used now, but every product has to start somewhere.

Fair enough. If it grows, it grows.

> You say that as if creating an automated decentralized bank that generates an asset pegged to the US dollar is something that just anybody could do.

If you have 100% collateralised loan, yes, anybody could do it in this day and age. Money can actually grow in an automated fashion without a central authority if we accept the inevitability of economic crashes and depressions.

Here's my thought experiment - say DAI suddenly overnight replaces the dollar. I don't know enough about the system, but I know finance very well. Next, say the day after the economy starts crashing. Manufacturers cannot see any orders coming in, consumers don't want to spend money etc etc. Run of the mill crash. What would DAI do?

I'll tell you how this works out in an uncontrolled money system - the crash goes on for more than a couple of years. People lose jobs, companies close etc. The federal reserve's one and only job (the regulation part is hogwash, they can't regulate for shit) is to cushion such an economic crash. What happens without it? Will the benevolent DAI system controllers step in?

The products being sold by vendors that accept these tokens still price their products in real currencies, and I'm assuming they immediately exchange it as soon as the transaction completes.

With that in mind, accepting cryptocurrencies is just a technicality and doesn't reflect any acceptance of it as a real currency.

Are there any vendors who actually price their products in a cryptocurrency?

> With that in mind, accepting cryptocurrencies is just a technicality and doesn't reflect any acceptance of it as a real currency.

As a currency sure, but it reflects acceptance as a means of exchange. There are actually big segments of the crypto community who find the latter much more important

Why would someone agree to take out a loan with a 6% interest rate when the fed funds rate (not incl spread for various retail products etc) is 400+ bps lower. Even with the spread you are going to be paying less than that for a regular margin loan for trading, which is what I assume these loans are used for.

Most people? Personal loan rates are closer to 7-8% on average I think. The fed funds rate is the very basic rate of economic activity. I mean, you obviously included the caveat about the spreads for retail products. What did you think those spreads looked like?

The effective cost of borrowing is going to be considerably higher than 6% if a regular person is trying to pay for their living expenses with the principal of a loan denominated in cryptocurrency. Think about exchange fees, taxes for any appreciation/depreciation upon sale, the cost of tracking/filing the taxes etc.

As I said it seems like most of the DAI borrowing is being done by people taking out margin loans to speculate on crypto. Perhaps this might make sense for the limited use case of people trading cryptocurrency (which is its most popular yet pointless application), but I don't see it being useful or economically viable for general purpose loans.

EDIT: upon further thought since the loan has to be secured with crypto assets, its not comparable to a personal loan. The equivalent regular finance product would be for a portfolio line of credit. Those have much lower interest rates, fed funds + 1-3% depending on the source.

> The effective cost of borrowing is going to be considerably higher than 6% if a regular person is trying to pay for their living expenses with the principal of a loan denominated in cryptocurrency. Think about exchange fees, taxes for any appreciation/depreciation upon sale, the cost of tracking/filing the taxes etc.

I agree with that entire paragraph, so the rest of your comment is moot in terms of debate. However, I was just saying that on its face, 6% inside the USA is a good rate for loans.

Personal loan rates aren't collateralized, which you're comparing with fully-collateralized loans. That's apples and oranges. Loans that are actually similar run <4%, not 7-8%.

Fair point.

Who eats the cost when one of these borrowers defaults?

If a borrower defaults, their account is flagged and their Ether collateral is eligible to be auctioned off to pay off their debt. The mechanism is designed so that a loan is closed at a point where auctioning the collateral will cover the debt.

In the event that the value of their collateral doesn't cover the debt, the Maker system has a surplus account that would cover the difference. In the event that the surplus can't cover the remainder of the debt, MKR token is created and auctioned off to to cover it.

Since this devalues MKR, holders of MKR token are incentivized to ensure that the system always runs at a sufficient surplus to cover these events and that loans are liquidated early enough to prevent having to dip into the surplus.

In addition to this, interest on loans are paid in MKR token and destroyed when the loan is closed, which also incentivizes holding MKR.

A default is not possible. The loans are fully secured by Ethereum. If collateral dips below an acceptable threshold, the collateral is liquidated and the debt is payed back to the system in full

What’s the point of the loan then? Why not just use the collateral at 0%?

I said this in another comment below:

> If you sell the Ether, you no longer have the Ether. If while you're holding the loan the price of Ether goes up, you benefit from that. Of course, if the price of Ether goes down, you're at risk of having your loan liquidated, but that's a requirement imposed by the system to maintain the Dai peg.

maybe they want to leverage? take out a loan secured in eth, and use that loan to buy more eth

The interest rates are set by a governance group that collects data on supply/demand for the DAI stablecoin. The interest rates are a reactionary function of global spot supply and demand for DAI.

Their governance calls are open, you can join and watch them be money scientists.

Here's the link to the most recent governance call https://forum.makerdao.com/t/agenda-discussion-scientific-go...

> Paying 6%, or even 4%, on a savings account is a MASSIVE red flag to anyone with a bit of financial sense.

Not necessarily. Our equivalent to a savings account (caderneta de poupança) had a return above 6% per year until a couple of years ago (it's down to slightly above 4% per year now). It's very easy to beat that (for instance, the 5-year prefixed federal government bond has a return of 6,39% per year at this moment). So a return of 6% per year would be considered normal around here, not a red flag.

6% in a currency that was inflating 6-9% each year (the comment you were replying to was almost certainly referencing USD, which has recently inflated at a little under 2%). The real rate would've likely been no more than .5% on those accounts, and probably negative some years. Does dai inflate at 5.5%+ per year?

I can easily believe it. I believe there was another famous pre-crypto version of this run by a guy... Madoff or something? I wonder how that's going today.

The difference between MakerDAO and Madoff is that MakerDAO, being on the blockchain, is completely auditable. You can see exactly where money is coming in and where money is going out. Websites such as DaiStats [1] provide basic stats based on this ability to audit MakerDAO. For instance, as of this post, there are 74,223,081.54 Dai in existence, 1,591,183 Ether currently being collateralized for Dai loans, and a bank surplus of 257,346.17 Dai collected in interest.

This level of transparency is the very opposite of Madoff.

[1] https://daistats.com/

>the use of public blockchains to automate the functions of clearinghouses and escrow services will be a huge cost reduction for many industries such as finance.

But we don't want financial transactions to be fully automated and immutable. We want escrow services to be subject to laws, we want a judicial undo and modify button. So if you remove the whole "no one can change history" bit because it's an anti-feature, it is unclear why we need blockchain in the first place.

I'll redily accept that my understanding of blockchain is limited, so I'm open to being told why I'm wrong. Consider this a strong opinion weakly held.

There are definitely cases where transactions need to be reversed, and this functionality can be built into a clearinghouse system. Immutability is a plus here because you have an unalterable audit log showing the original transaction and then the subsequent transaction that reverses the first. The cost savings comes from the fact that instead of having to hire independent auditors to verify the paper trail, the blockchain serves as an immutable audit log and can be verified programmatically.

>The cost savings comes from the fact that instead of having to hire independent auditors to verify the paper trail, the blockchain serves as an immutable audit log and can be verified programmatically.

I don't know enough about the financial industry to know if a real actual problem is being solved here. I do assume that any bank in this industry is already required by law to keep a record of all transactions, and that it's all digitally processed and stored. You'd have to hire an auditor to verify the blockchain software too, and even on the ongoing basis, to audit the infrastructure to make sure it hasn't been improperly modified.

> I do assume that any bank in this industry is already required by law to keep a record of all transactions, and that it's all digitally processed and stored.

This is true, but it's not necessarily organized in a straightforward way, and standards can differ from organization to organization despite everyone attempting to follow GAAP. This is why entire firms exist to audit large corporations.

> You'd have to hire an auditor to verify the blockchain software too, and even on the ongoing basis, to audit the infrastructure to make sure it hasn't been improperly modified.

Not necessarily. Each transaction on the blockchain is cryptographically signed, so all you would need to audit for each transaction is that the claimed signatures verify. It's not possible, even through a bug, to forge a signature if you don't hold the private key.

Blockchain ledgers are nearly impossible to improperly modify. Once a transaction is made it is permanent and verified by all nodes in the system

>> You'd have to hire an auditor to verify the blockchain software too

No. You wouldn't.

"we" want these types of services only when the escrow and judicial systems can be trusted. That opinion changes rapidly when living under corrupt a regime

> But we don't want financial transactions to be fully automated and immutable.

And cryptocurrency does not provide immutability anyway. Remember the DAO Ethereum fiasco where they lost a bunch of money and decided to roll it back.

They didn't roll anything back. That ledger, with the loss, exists today unchanged.

What did happen was a superset of users decided to create a new ledger to run in parallel, containing transactions up until but not including the loss.

The market determined the new ledger to be more valuable

This is a legitimate point to bring up, but seeing as how the community rejected a second fork in order to fix a bug in a smart contract that destroyed millions of dollars worth of Ether [1], I feel confident at this point saying that another similar hard fork will not occur.

[1] https://www.cnbc.com/2017/11/08/accidental-bug-may-have-froz...

Also it wasn't a rollback of the chain. It was the movement of the funds out of the thieves address, which was voted on by the network.

Well said.

pegged decentralized synthetic digital bearer assets.

That's a mouthful. Each word has a purpose and together they describe a hugely innovative and valuable technology. It is my belief that there are very, very few people who have an understanding of how important this innovation is.

And too few people understand the importance of the more simple digital bearer asset, of which bitcoin is the prime example. This still surprises me, especially amongst HN readers, who are certainly more insightful than the average bear when it comes to most existing and emerging technologies...

Surprises me. but also gives me hope.

There is so much room to grow. Long road. Massive upside.

This is exactly what I'm talking about, though. Bearer bonds have been illegal to issue in the US for the last forty years precisely because their principle advantage over registered bonds is that they make it easier to break the law. I'm not saying I can't see the utility of Bitcoin or blockchains in general for criminals. That much is plain. Speculators as well. The question is whether there is any utility for anyone else.

The government doesn't have to use it. Or like it. We don't really care what they think of these decentralized instruments. They are for us to use as we see fit and to build on top of and so far they have shown they are very useful and overall a great thing for the financial system they live in. Like you say we will find out if people find them useful but even now nearly a billion dollars is being used in defi for legal and top of the table use cases so at least some people already find it useful to them.

We are seeing a flourishing system of financial experiments being built as truly anything goes in this new digital worldwide ecosystem. Not all of the experiments will work but at least they will be tried and the market will decide whether or not they are useful and valuable to this digital society.

Please explain exactly how blockchain technology can reduce costs for clearinghouses. Because they're already extremely efficient. There is very little transaction cost left to cut.

Ernst & Young have published some interesting data about the costs of private vs public blockchains, and how they've developed tools built on Ethereum to reduce those costs.

https://www.forbes.com/sites/benjessel/2020/01/06/ernst--you...

https://www.ey.com/Publication/vwLUAssets/ey-total-cost-of-o...

I think your average developer will interpret everything you said as mostly technobabble and not understand why something like MySQL wouldn't just work.

> A holder of Dai can earn 4% APY through a Dai Savings Account, and a vote is currently in place to raise the rate to 6%.

Why not just vote to make it a million percent?

Because then you'd have to change the interest rate charged to loan holders to a million percent, and those people would close their loans rather than pay that interest rate.

But why are the lenders even paying 6% when they could go get a SoFi loan for four percent and on top of that have the balance in a more convenient form?

Because SoFi doesn't allow you to use Ether as collateral for a loan. Many holders of Ether may not necessarily have the credit required to get a loan on more favorable terms.

I don't understand. Cash and other liquid assets are not typically used as collateral for a loan. Etherium is a crypto-currency, right? I.e. it's liquid? Collateral is almost always something like a house, or shares in a business. If you already have liquid assets in the amount you're borrowing, why are you taking a loan and paying interest as opposed to just using those liquid assets?

If you sell the Ether, you no longer have the Ether. If while you're holding the loan the price of Ether goes up, you benefit from that. Of course, if the price of Ether goes down, you're at risk of having your loan liquidated, but that's a requirement imposed by the system to maintain the Dai peg.

Exactly. It has been 10+ years since the Bitcoin paper. No cryptocurrency has significant consumer adoption. [1], [2] Except for light financial crime (ransomware, money laundering, gambling, theft, etc), it has no demonstrated advantage over alternative technologies. I don't think it will go away, any more than Ponzi and Make Money Fast schemes have gone away. But like you, I expect it will fade into the background as "that weird old thing" as governmental KYC and AML efforts make it ever harder to convert it into real money.

I also expect that the fashion for it in VC investment, already waning, will totally fade by the end of the 2020s. And that regulators like the SEC will have ended the various its-not-equity equity investments, cutting off the other major source of funds.

[1] E.g.: https://www.nytimes.com/2018/04/16/nyregion/new-york-today-l...

[2] For "significant" contrast it with M-PESA, which is also digital money and launched around the same time: https://en.wikipedia.org/wiki/M-Pesa

"no demonstrated advantage" - said by someone who doesn't remember what it's like to wait for a large check to clear.

or hasn't tried to fund their IRA via an ACH transfer but their bank won't allow it bcs rules..

or hasn't wanted to wire money (or receive a wire) for a fraction of the price (and hassle) of a wire transfer.

I have sent hundreds of bitcoin transactions. And I admit that it's not perfect. There's lots of room for improvement. But even given bitcoin's flaws, there are times where bitcoin is massively, gobsmackingly better than the traditional US banking system.

And the US financial system has been around 10x+ as long...

So much expectation born of such ignorance. It's a common problem for bitcoin. But not new. And it hasn't stopped bitcoin yet. and I doubt it will.

I believe we're on the cusp of a state change in the world of digital bearer assets. It's not that bitcoin will simply survive, it's more that programmable digital assets and digital bearer assets will steadily win over most other forms of value.

Unfortunately this isn't the kind of conversation that's likely to change minds - forum chats just don't tend to move the needle for most people who are entrenched in their positions. If we were to have a face to face conversation, I suspect we'd be able to find more common ground.

Oh well, I've watched the tide steadily turn over the last 7yrs. And I'll gladly watch opinion continue to shift over the next decade.

A good number of these negative arguments appear to have a similar line of thinking. "I don't know much about Bitcoin, or finance in general, but I can adamantly tell you Bitcoin has no benefit, something something money laundering"

Oh? If you're so confident Bitcoin has demonstrated utility for other categories, It should be pretty easy for you to demonstrate it. The original goal was peer-to-peer electronic cash: https://bitcoin.org/bitcoin.pdf

Real cash usage is gradually declining, but approximately zero of that difference has been taken up by Bitcoin: https://www.frbsf.org/cash/publications/fed-notes/2018/novem...

Merchant adoption is not just stagnating, it's in reverse: https://www.bloomberg.com/news/articles/2017-07-12/bitcoin-a...

If you contrast this with the speedy rise of M-Pesa, it's obviously a failure as digital cash. It's also a failure as compared with things like Venmo, which are all popular with people doing cash-like things: https://money.com/venmo-cash-app-zelle-better/

So if it's not good for the stated purpose, what's it now good for? No speculation about the future please. Just name a specific, significant group of users, state their problem, explain how Bitcoin solves it better than alternatives (better on their terms, not yours), and link to statistics showing sustained, rising adoption.

As a finance professional, I can tell you without shame that much of my industry doesn't understand finance either. The mask of online anonymity simply emboldens people with no knowledge to come forth and spout. I keep moving platforms trying to get away from that shit. Reddit is horrible in this regard, so I only use it for memes. HN has full credibility professionals in programming, but its finance base is really not upto snuff.

Does a hacker newsish platform exist for the finance world?

I'm yet to find it. For a meme-ish sub /r/wallstreetbets is pretty good. Go there and have a laugh. But places like /r/economics and /r/finance are utter shit.

The best resource is financial twitter (fintwit). The news breaks there, the discussion happens there, and loads of meme-ing also takes place (which is always a nice to-have in a serious place). The only drawback is that most of them lean exactly the way I do. So I can bear the place, but I miss out on a bunch of opposing opinions and it's always a challenge finding someone on the opposite side of the fence.

Have a short list of worthy follows to start breaking into it?

Yes. Start with our lord and savious @zerohedge and go from there. He has a bunch of twitter accounts in his follow list. If zerohedge follows someone, they're generally either important to the news, or they're tweeting about the market every day. You can cull his list and find the gems pretty easily. From there, the list will grow as your interest in the markets grows. Twitter is pretty good about exposing you to the people followed by the people you follow. Easy to expand the network.

the forum section of wallstreetoasis is actually pretty good as sort of hn for finance. not as much good content/discussion as here but still enough.

You haven't yet listed a specific occasion when Bitcoin is better than the alternatives. Let alone doing it for a significant group of people facing a specific problem. So I'm sticking with "no demonstrated advantage".

Do existing approaches have problems, especially the legacy ones? Sure. Nobody denies that. But Bitcoin needs to be better in practice, not just in theory.

I'm sure you do believe that Bitcoin is on the cusp of change. But Bitcoin has been on the cusp of change for 10 years. It's the same routine some Christians have been running for 2000 years: Jesus is coming back any day now. When they predict a specific date, they always turn out to be wrong, but that does not change things: https://twitter.com/williampietri/status/1071833726294749184

I was very interested when Bitcoin appeared a decade ago. It's an interesting idea backed by interesting technology. Of course, so was 3D TV. In both cases, however much the respective fan groups are sure it's superior, in practice the great majority of humanity turns out not to care because the other options turn out to be as good or better for their actual needs.

how long do you think it takes to turn fiat into bitcoin and bitcoin back into fiat for the recipient? Hint: its longer than clearing a check

That's not bitcoin's fault, it's the traditional financial system's fault. The transaction can only happen at the rate of the slowest party.

How long does it take in European countries, where the traditional system is (depending on the country) approximately instantaneous?

>Except for light financial crime (ransomware, money laundering, gambling, theft, etc), it has no demonstrated advantage over alternative technologies.

I know this is a crime, but it's not a financial crime: cryptocurrency has HUGE advantages over alternative tech for buying drugs online.

Fair point. It becomes financial crime for the drug seller, but you're right that Bitcoin is also good for other kinds of crime. In a world where marijuana legalization wasn't happening, I think Bitcoin would have more of a chance.

> Except for light financial crime (ransomware, money laundering, gambling, theft, etc), it has no demonstrated advantage over alternative technologies.

Slight nitpick: Cryptocurrencies have demonstrable advantages over existing solutions (pseudo-anonymity, decentralization, inflation-proof, etc) but consumers don't care about these advantages enough to make the switch.

If an advantage falls in the forest and nobody hears it, does it truly make a sound?

I'll grant those can be characteristics of cryptocurrencies, but they're only advantages to people who need those things. And they're only advantages on net if what goes with those characteristics ends up being net beneficial to somebody. E.g., the "inflation-proof" bit is a nice line, but most of the world had good reason for getting rid of fixed currencies after the collapse of Bretton Woods. And being "inflation-proof" implies a degree of value stability that Bitcoin most certainly does not have in practice.

I'll also grant that pseudo-anonymity and decentralization are useful to a very small set of people, but I think that's pretty well covered under the first part of my sentence. There are also some people who like those things for theoretical, quasi-religious reasons, but I don't think satisfying that counts as any sort of practical advantage.

> but consumers don't care about these advantages enough to make the switch.

And, more importantly, governments see those attributes as a downside, and would no doubt clamp down hard on crypto on-ramps in the event that they ever started getting significant uptake.

Your view of government is highly authoritarian. If Bitcoin becomes legitimately popular, no government that needs the support of the people to rule can ban it.

Uber broke every taxi law on the books until popular support made those monopolistic laws unenforceable. The political actors working against Bitcoin own quite similar and quite unpopular state-backed monopolies of their own.

Bitcoin at this point will never become "legitimately popular". It's had about as long as Uber, and it has only grown less relevant to people's lives for the last few years. M-Pesa, which only operates in a few countries, has something like 100x the transaction volume.

Further, the downsides to the rise of ridesharing were very modest for governments. Increased congestion, regulatory uncertainty, and the eventual need for new laws and regulations. But governments have a very strong interest in preventing money laundering because a) tax evasion means less money for the government, and b) serious, sustained crime requires money laundering to survive.

So even if Bitcoin were to become more popular, governments would still crack down on it, and people would happily go back to using things like Visa, Paypal, Venmo, etc.

> they don't solve any above board problem more efficiently or with lower expense than existing technologies

You've picked two arbitrary criteria, which certainly don't cover the entire range of useful properties that anybody in the world might want. And even still, you're only right about one of them. Cryptocurrency is very inefficient from a power consumption standpoint, no denying that. Not sure what you mean about lower expense though, sending money internationally (in a perfectly above-board way, like placing an order or supporting relatives in another country) can be a lot cheaper via bitcoin than alternatives like Western Union. It's also useful as a store of value that's not tied to a single government, so similar to gold in its intrinsic value but with the benefit that it doesn't take up physical space and can be sent and received much more easily.

I'm still quite bullish on bitcoin itself, for these properties alone, I see these properties as basically a floor on the value that it can provide and even just for for this use there's room for a lot of growth. If Ethereum-style contracts/apps and all the other kinds of things discussed in the post also gain wide adoption (which certainly seem like far from a sure thing at this point, but also not completely crazy), that's just a bonus.

> As has been remarked over and over again, they don't solve any above board problem more efficiently or with lower expense than existing technologies.

If you mean by that, it's possible to have a fiat currency with no dilution, that is true.

Crypto currencies are fundamentally a political innovation; it is much more politically expensive to force dilution onto a crypto-currency than a fiat one. Whether that's valuable enough, I suppose we'll see.

> a political innovation

if a regime is threatened with removal of a sovereign power (issuance of currency), i'm sure they will forcifully retake that power by outlawing the means of doing so. Bitcoin is of no exception. political problems can only be solved with political tools, not technological tools.

> political problems can only be solved with political tools, not technological tools.

Yes and no. Some technology changes the balance of power.

One of the best examples is the innovation of gunpowder weapons and the rise of democracy. It's not the case that the invention of the musket and cannon was solely responsible for the fall of monarchy and the rise of democracy. But it certainly helped.

Is crypto-currency that sort of innovation? I guess we'll find out.

Dilution / inflation is a feature not a bug. Money should be put to work doing productive stuff in the economy, not hoarded.

Also crypto currencies, are not currencies. They are commodities. It is far more accurate, conceptually to think about them the same as precious metals and grains, not dollars.

> Dilution / inflation is a feature not a bug. Money should be put to work doing productive stuff in the economy, not hoarded.

There are few people who are interested in crypto-currency and have not heard this argument in many forms. Crypto-currency fans generally either don't care or don't think it's true.

whether crypto fans think or believe it to be false (or not care) is irrelevant. Crypto has only shown the characteristics of a speculative commodity (like gold), and the laws of economics are as universal as any other law - bitcoins cannot become a currency unless it is done by fiat (like how china is exploring doing so right now, but with their own version of a crypto-currency where they control the chain).

> the laws of economics are as universal as any other law

No they are not.

Can people please stop and think for a second before they vomit everything on their minds onto the keyboard and hit enter as fast as they possibly can in an attempt to make themselves heard in the noise?

See what that looks like? Think about these things before you write them. Physical laws are immutable. If they not, they aren't a law. Economics is entire a human endeavour. The laws are what we want them to be.

Now I'm not justifying anything crypto related with that statement. I'm just saying you need to think before you type.

> Economics is entire a human endeavour. The laws are what we want them to be.

no, that's just wishful thinking. Laws of economics are a description of human behaviour, and unless the human condition changes, it will always reflect self-interest and greed. Physical laws aren't "laws" in the same sense as human laws, but descriptions. Economic laws are the same; they describe what people would do under different incentivization schemes.

In this case, despite the proponents of crypto wanting it to be a currency, it has still languished as a commodity. This is due to the economics of using it, the interactions of it with the wider economy, and various other factors that i've termed under the umbrella of 'law of economics'.

There are no laws of economics, only unprovable theories subject to irrational markets and human behavior

If crypto's legacy plateaus at "digital gold" I'll feel satisfied.

> Dilution / inflation is a feature not a bug.

This is not true. We have simply adopted a system where it is a feature. We did not have steady enforced inflation until the 1950s. There are entire schools of economics that believe the concept of controlled inflation should be relegated to the past, and replaced with market ruled inflation / deflation.

I'm not saying I understand how such a fictional world will work (and I am a finance professional so I understand this very well already), but people always saying "inflation is necessary" are people with no imagination who don't look at history.

Greenspan thought we'd solved the problem when he realised he could just keep lowering interest rates and growth will keep on happening. Turns out Bretton Woods withdrawal and the stagflation of late 70s gave enough cushion for him to test his hare brained schemes on the world and lead to the explosion of growth that came afterward. And then 2008 happened. Turns out Mr.Yes-Market was wrong all along.

Inflation is an emergent property of money. It isn't set or enforced it just naturally happens because of money. Monetary policy can be set to try to corral it to certain ranges based on economic beliefs about what rate of inflation implies in terms of growth and risk.

2008 happened because of bad debt. That the bad debt was cheap debt certainly poured fuel on the fire, yet the fundamental issue was deregulation and high risk lending practices that followed from that deregulation.

> Inflation is an emergent property of money. It isn't set or enforced it just naturally happens because of money.

All of this is wrong. Inflation is a supply / demand problem plain and simple. It has nothing to do with money. What money does have to do with it is when the fed devalues the dollar to drive up inflation. It is not natural. It is clearly controlled. If the fed didn't exist, we'd face both inflation and deflation only based on supply and demand. So we'd never have a steady increase in prices (unless the royal mint of our fantasy land was really opening up the spigots, in which case they're the same as the fed).

> 2008 happened because of bad debt.

Yes. But what people don't see is the sequence of events that led to it. If you're in finance, it's blatantly obvious, but outside it, it's shrouded in mist because no one famous will put it in an understandable form.

2008 happened primarily because of Alan Greenspan. What people don't realise is that none of the world leaders since the 1980s have done anything of consequence compared to what Greenspan did. His policy of "let's just keep the pumps open" have inflated markets and literally powered this exponential tech growth we're seeing now. My conjecture is that it'll stall out. Money doesn't grow on trees however much we may want it to.

2008 was the culmination of this 3 decade long money pump. But what did the fed do when it realised 2008 was happening? Oh that's right - it pumped even more money. But that's a topic for another time.

Debt levels are now higher than 2008 levels, what's different? https://www.marketwatch.com/story/us-consumer-debt-is-now-br...

> Consider the source, right? How many people without a large vested interest in the propagation and uptake of cryptocurrency consider further growth likely?

I agree with you in general, but also: The reason it's not that many is because the ones who see further growth, gets a interest into it, maybe even vested interest. So, not a good argument.

> Consider the source, right? How many people without a large vested interest in the propagation and uptake of cryptocurrency consider further growth likely?

So 90% of this post's accuracy is unchanged whether the CEO of Coinbase was the CEO of Coinbase or not. Lets look at some of the points:

People are working on removing the surveillance aspect of cryptocurrencies. thats a truth that has nothing to do with adoption.

People are working on making them faster. that's a truth that has nothing to do with adoption.

The Chinese Government has said they will a central bank digital asset for currency. that's a truth that has nothing to do with bagholding other cryptocurrencies

Every industry experiences consolidation, it doesn't really take a soothsayer with a conflicting interest in to tell you that.

and so on

Not true. Here's an example of how blockchain is changing real estate transactions and the title insurance industry:

https://www.deeds.com/articles/the-real-estate-deal-declutte...

This involves state and county governments recognizing a current problem that is easily solved with blockchain technology. In this particular use case, blockchain is used to prevent fraud and provide a more efficient process.

Governments make use of money laundering and they're willing to pay quite a bit for it

> the main utility of blockchains is money laundering and speculation

Where did you get the data that justifies that assertion?

In any case, don't bother with cryptocurrencies. I'd recommend that you keep all your wealth anchored in US Dollars for the next 3-5 years.

How many people without vested interest? How about the Imf, China, Facebook and basically every big player in the world?

I’d much rather see a practical and modern replacement for physical cash that doesn’t impose a multiple percentage point revenue hit on businesses than a $200k bitcoin.