What I hear from people who invest in crypto is hoping they will make money on it. Maybe that technology is part of it but I've only known people that want to invest in it for a greater return. It's thought of as a stock, but unlike a regular stock there is no company behind it that produces something of value. It's a made up digital collectible spawned from the mind of boy geniuses that is literally nothing.
My recommendation for investing in collectibles is comic books, trading cards, etc. They are finite, they exist, and they are not propped up by VC money.
Wow this got me thinking... like all collectibles the value is not intrinsic in the item itself, but subjective to the eye of the beholder.
What exactly is the subjective thing that's being collected here? I wonder if the appeal of crypto is that literally represents (well, as literal as a digital good can be) a piece of "the digital new", whatever that may be. It's a piece of the our perceived digital future, but one you can own and say is yours.
This must strongly resonate at a subconscious level to those weaned on social media who now live in a state of constant anxiety due to FOMO. The digital world is ephemeral, but bitcoin is something you can hold on to.
The average person doesn't understand the digital revolution and the world it's built and are discontent as they feel left out it's promise; namely a techno utopia that brings great wealth and power to those in the know (Gates/Jobs/Zuckerbergs/etc.).
Crypto therefore allows these people to believe they own a piece of the action. That may be it's only appeal. They can point to it and say it's theirs. "I don't understand it, but I'm not going to be left out of it."
It is the ultimate nexus of everything wrong with social media and the modern digital world. The future is coming, everyone else on my feed is having fun and smiling, and vast riches await you too if you only have Diamond Hands and HODL, which ensures you will never experience FOMO. A collectible that acts as a balm against all the anxieties of the modern world. Snake oil as a collectible.
I must think on this further.
Nailed it!
But how would you respond to the argument: those that lost money in FTX weren’t consciously in on the con, but instead had (vastly) exaggerated expectations about the future of crypto?
I've said multiple times on HN that I consider blockchain to be the most economically important invention of the last 500 years, e.g.:
https://news.ycombinator.com/item?id=14633148
https://news.ycombinator.com/item?id=18574399
But the reason it's exciting is, among other things, because it should radically drive down the cost of borrowing money. So yeah, I'm probably literally on the most bullish person on crypto on HN, but that's why it's so easy for me to see how the folks chasing those double digit interest rates on FTX aren't exactly the innocent victims they're being portrayed as.
I'm hardly an economist, but even the most financially illiterate people know that interest rates should be vaguely proportional to risk.
It's just virtual tulip bulbs and South Sea Company shares. And that's all it's ever been.
The fraud is the point. It's not an unfortunate, isolated, and regrettable accident. Crypto literally raises the cost of borrowing by making it trivially easy for fraudsters to steal it, under the cover of running a "secure exchange" or a global high profile pump and dump, or worthless NFTs, or whatever the next scam du jour is.
After removing "banking as SaaS" from the value proposition, what was left was a bunch of hustlers running cleverly incentivized Ponzi schema. It's not even tulip bulbs. We're finding its black boxes, creative financing and yield farming as far as the eye can see.
I estimate that approximately 80% of people would not even understand the claim you're making, let alone be able to evaluate how true it is.
Not really. If we take nominal interest rate = real rates + inflation expectation + credit spread, then only the (counter party dependent) credit spread reflects riskiness. Real rates reflect an equilibrium of time preferences.
None of these would have been possible without the invention of double entry accounting, because before double entry accounting you couldn't even really run anything larger than a family business because there was no way to know whether or not you were making or losing money. So it stands to reason that because blockchain is a breakthrough in accounting of a similar magnitude, in the sense that it will enable all sorts of new economic relationships that aren't possible today by radically driving down the transaction costs of doing business, that these new relationships will similarly enable all sorts of new technologies that we can't even imagine today.
To understand blockchain, you need to go back and read all the books on the history of double entry accounting in order to understand the changes that it enabled within society. But these changes aren't going to happen over night, they'll take a couple hundred years to play out, in the same way that it was a couple hundred years between the invention of double entry accounting and the height of the Dutch East India company or whatever.
What? I thought the benefit of double-entry was that it make fraud and inconsistencies easier to catch, not detection of profit per se (which single-entry can surface).
One of the key principles of double entry accounting is denominating profit and loss in a fungible currency, rather than just recording the number of goats you own or whatever. Double entry is actually the codification of several different best practices, it’s more than just having two sides of the ledger. But even with just the fraud part, you are very limited on the number of employees you can have if you don’t have any way to know if they’re stealing from you. That’s why even though e.g. Ancient Rome had thousands of fast food restaurants, they didn’t have franchises like McDonalds.
There are many reasons that they didn’t have McDonalds-like franchises, and none of them have to do with accounting. Those kinds of franchises didn’t exist in the modern world until the 20th century; they are product of many elements of modern culture (and modern approaches to business). What the heck would a franchise even do for someone in Ancient Rome? It’s not like there are massive chicken suppliers or industrial-scale bakeries that produce standardized food products to sell. Every restaurant needs to source local suppliers directly anyways. Fast food chains make no sense without industrialization, among many other things (bookkeeping being the least of them).
I got my mortgage for less than 2%. I can't see how crypto is going to enable negative rates.
(Historical factoid: the world's oldest bank in the modern form is up to 550 years old https://en.wikipedia.org/wiki/Banca_Monte_dei_Paschi_di_Sien... )
Never heard this definition, where did you read this? Any time the word "asset" is linked to a crypto, people should know by now it's eventually going to zero.
I mean literally the reason why everyone refers to crypto as "triple entry accounting" is because entries on the ledger are cryptographically signed, which makes ledgers less expensive to audit and also prevents certain categories of fraud. So that alone should always make the costs of lending on the blockchain lower, and therefore also reduce interest rates.
But if you want a much more detailed explanation of why crypto should reduce the cost of borrowing money, especially in the developing world, here is an extremely detailed explanation on this topic:
I think it’ll come in two phases: first they’ll come around to the idea of debtor’s prisons and demand the governments of the world bring them back. Then when they’re all in the prisons, they’ll lead a movement to ablish debtor’s prisons completing the circle of “why bother?”
In the end we’ll be left with a saturated market of repo companies picking up the pieces for pennies on the dollar.
It's interesting you brought that up because crypto has a similar mechanism to get people to complete the whole transaction and resolve disputes without involving interest rates.
For example, imagine person B was buying a product from A. Should A send the product first or should B pay first.
When both sides don't want to take the initiative, they use an escrow contract on the blockchain where both sides have to lock up 150% to 200% of the value of the product in crypto inside the contract.
A then sends the product.
B receives the product.
If B accepts the state of the product, he can press a button to release the relevant amount of crypto in the contract to A and refund the extra 50% to 100% he had to put up.
If B sees the product is fraud, he presses another button and both sides lose all their crypto. This disincentives both A and B from committing fraud.
There are more nuanced conditions involved so I won't bore you with the details, but the main concept is there and it doesn't involve interest rates.
You just described escrow with extra ~steps~ risk which has nothing to do with loans unless you’re suggesting borrowers put up 150-200% of the capital they want to borrow? (!?!?)
That can't possibly be right. It would mean that if person A defrauds person B, person B would lose 150-200% of the asking price, rather than just 100% if no "crypto escrow" were used at all.
Of course, the fact that it makes it impractical to buy any kind of expensive product is merely a detail. As is the extreme cost of non-fraudulent delivery failures in this scheme.
Cryptocurrency is finance as imagined by people who have never bought anything more expensive than a car or house.
But if cryptocurrency is to be anything of actual value, it must tie into the physical world at some point, even if loans don't exist.
"Exchanges" try to bridge this gap and counterparty risk isn't properly priced in. If anything, the high interest payments aren't high enough to represent risk.
Reducing or eliminating that cost should not make the costs of lending change in any noticeable way, because you're reducing something that is insignificantly small anyway.
.. but this is obviously garbage. The question in lending is always about default risk, which crypto does nothing to address. Most crypto lending seems to be so-called "overcollateralised" loans, which are secured on other crypto "assets", which also tend to turn out to be garbage.
And we can see that everyone in the crypto space is offering higher interest rates for depositors. Even more than Madoff's 8%. 10%? Why not! How about 10% per month! Who's taking the other side of that trade? Well, it turns out to be bankrupt exchanges and fraudsters.
> Sweetbridge converts any Commercial relationship, Supply chain, or Value chain into an Ecosystem that increases the Net Worth of its Members.
Just the casing of that phrase makes me suspect them of some fraud :-)))
Ah, confirmed:
> By running all of the sales and purchases from an organization through an Ecosystem over a 5 year period, members will typically increase their net worth by:
https://sweetbridge.com/wp-content/uploads/2021/06/bottom-li...
For people that can't see the image, it basically promises that companies can increase their net worth by 25-200% and individuals by 50-200%.
Get outta here with that garbage, pardon my French.
Notably, FTX also offered the option of margin loans and options, though they were centralized. This turned out to be bad, not because it made things more difficult, but because they stole all the collateral.
Also note that the DeFi approach would likely have failed here, because the smart-contracts that determine the value of the collateral do a simple "units owned * current market price" computation. That doesn't account for price slippage. In practice the markets are quite illiquid, so selling some collateral will drop the price of that collateral quite quickly. DeFi currently has very little holistic risk management. When you have a lot of, say FTT, as collateral from counter-parties, that leaves you quite vulnerable. If FTT drops quickly, many people will get margin-calls. If they all default, then you get left with their FTT. If you try to sell that, it will crash the price even more.
It's not clear to me that increased liquidity would solve their problem. I'm not against DeFi, but the spectacular failures are proving that it's not nearly ready for prime time.
Let's not forget that the folks using FTX were only doing so in an attempt to steal money from others. If the key innovation of crypto is that it's supposed to reduce the risk of lending by bringing realtime transparency to the assets and liabilities of borrowers, then why was FTX paying vastly higher interest rates than traditional banks? It's hard to feel sorry for those who lost their money because they thought they were in on the con or whatever.
You can hear the folks who lost money saying this themselves, e.g.: https://www.youtube.com/watch?v=9cATvKsZA0A
And to those who think I'm being uncharitable, I've been saying the same thing on HN since long before the FTX collapse, e.g.: https://news.ycombinator.com/item?id=28457273