I recently decided to think deeply about Bitcoin and I think my initial skepticism about Bitcoin was wrong. Most of the criticisms of Bitcoin are centered around the fact that Bitcoin has a very low throughput. However this is not necessarily a problem. And here is one hypothetical example of how we can overcome this issue:

When countries owe each other money they used to transfer gold back and forth or trust someone else to do it for them. So all transactions within a country would happen in a local currency and then once in a while "settlement" would happen.

Bitcoin is digital gold for settlements among digital currencies. For eg I could start a new Stable coin called MyDogeCoin HQed in Switzerland and each MyDogeCoin is backed by 1 Bitcoin. Anyone who trusts me can transact in MyDogeCoins and can convert their MyDogeCoins into Bitcoins if they are willing to wait and pay a sizable fee to account for Bitcoins slowness. However most people don't need this it just needs to be possible. Now anyone using MyDogeCoin can send money to each other quickly as long as they trust me. This isn't any different to how you trust a country. And many countries like Zimbabwe aren't trust worthy at all. This has BTC behind it.

Now suppose you want to send MyDogeCoin to MyMemeCoin HQed in Singapore and is similar. We trust each other and hence we do the transfer. Once in a while we do a "settlement" on the BTC blockchain. This way we don't need that many TPS. And large untrusted nodes can use the BTC blockchain as a trustless settlement layer.

Since BTC is the final trustless layer its a foundation. Now I realized how BTC can have long term value and it could be around even a 100 years from now. Doesn't mean its not over priced now but it will have a non zero value over the long term and is revolutionary. Unless the government goes to war against it. The US government used to use gold and then basically defaulted and forced everyone to accept dollars by force. Thats not sustainable.

One of the properties of gold that roughly held true for centuries was a stable value. When gold threatened to become too scarce for a growing economy the incentive to mine, explore, and develop new mining technology increased. Goldbugs often point out that an ounce of gold has always been close to the price of a nice suit (admittedly a fuzzy measure, and it’s sometimes a really nice suit, and sometimes just a really nice jacket).

Bitcoin has gone from pennies, to around $100 for a year, to around $1000 for a year or two, to between $20000 and $3000 for a few years, and now to $50-60k.

I guess you could argue that this is just going to take a few decades to stabilize, but that’s a pretty big bet, and a pretty weird way to design the next monetary framework.

There was a pretty interesting Clubhouse discussion on the weekend where Eric Weinstein praised the genius of Bitcoin but bemoaned the stupidity of its design (“a QWERTY problem”), and Lex Fridman tried to charitably compare Bitcoin to JavaScript as a flawed tech that had great distribution and has been making the best of it since then. They were both rudely dismissed by a group of Bitcoin maximalists as “not getting it”.

The question I’ve asked since the start is, if this is a functional idea, why is the dumb beta version still the dominant implementation? There’s a bizarre religiousity and post hoc rationalizations for some of the weirdest decisions in its design, and mistaking speculative mania and nominal price for success, while proposed uses for Bitcoin and the blockchain have been quietly discarded. Bitcoin’s valuation is more of a symptom of post-2008 monetary conditions than a long-term challenge to them.

Well, it’s no major mystery WHY you get religiosity and post how rationalizations. Those with Bitcoin, especially those with a LOT of their net worth tied up in Bitcoin, will work the hardest to protect that investment.

Of course, rich people have always done that (post hoc justifications for their wealth), but when that wealth is not codified and protected by anything other than speculative value, it just increases the volume of that effect even more. The lack of technical fundamental superiority of Bitcoin vs other approaches (and no need to mention alternatives, y’all know them) increases the fervor of defense of Bitcoin as that’s basically the only thing keeping it up.

Anyway, as long as Bitcoin has perceived social value, it may still have niche uses like allowing you to get money out of Venezuela. And maybe slightly cheaper than wiring large amounts of money.

So actually you’re left with just: 1) pure social perceived value and 2) small use case when you have utter failure of the formal financial system. The first case is a self-licking ice cream cone, but... Unfortunately, #2 could end up being a self-licking ice cream cone, too, because now you have a bunch of people kind of invested in the formal system failing. I’m not really worried about it as the number of Bitcoin true believers is low vs the total population (and there have often been such people with a stake in system failure), but it is something to keep in mind.

But not everyone just acts mechanically in response to financial incentives, as there are some cryptocurrency advocates who see the need to shore up the formal system and advocate for that.

I hear this idea a lot, that Bitcoin is obviously flawed design that would be done differently if we could do it over again, so either it's the myspace of crypto and something better will supersede it, or it's the QWERTY keyboard (or maybe MS Windows 3.0) of crypto — locked in as a standard due to network effect but it's a sad thing because it's basically a garbage design that we're all stuck with now.

But it's always kind of vague what is fundamentally different about this imaginary, perfected version of bitcoin. Is it the block size, i.e. Bitcoin Cash is really the ideal bitcoin? Seems highly debatable, but anyhow, the block size is a debate about tradeoffs between centralization and throughput rather than an obviously embarrassing decision. Or is it more about the issuance schedule and supply cap?

Generally, if the current bitcoin is an embarrassing beta version that we're stuck with due to network effect, what does the better bitcoin look like? Does it exist already? That seems like a more interesting conversation than a meta-discussion about why we're stuck with this "dumb beta version" or why bitcoin maximalists are so mean.

>There’s a bizarre religiousity and post hoc rationalizations for some of the weirdest decisions in its design, and mistaking speculative mania and nominal price for success

This is a feature, not a bug. It is very difficult to change the protocol. We have a 100% certain monetary policy.

I agree with you that perception of what btc is and isn't changes with time.

If you have a proposal, you are free to create and propose a BIP, or fork off.

Good luck.

Because it's the one that's caught on. There's no actual need for inherent utility of it that can't be papered over by running everything through one of a few big exchanges. Or, preferably, ONE big exchange, where all settlements can take place off-chain and the blockchain sits in a big vault and everyone just trusts you can redeem your account balance for Bitcoin if you ever want it, but you won't want it, because the balance is more valuable than the actual Bitcoin.

(I'm drawing a comparison to gold here, but this is also true for other commodities, and for that matter, stocks.)

> Or, preferably, ONE big exchange, where all settlements can take place off-chain and the blockchain sits in a big vault and everyone just trusts you can redeem your account balance for Bitcoin if you ever want it, but you won't want it, because the balance is more valuable than the actual Bitcoin.

That's an important point, because it prompts the question: what is the problem that Bitcoin is solving if the preferable outcome is that it does exactly the same things that gold and centralized banks already do?

The more that I hear people justify slow transaction times, high fees, and a general lack of platform evolution, the more it sounds to me like the only problem that Bitcoin is solving in the real world is that gold is already stable, and speculators need a new thing to jump on. The arguments people are making today about why slow transactions are irrelevant are not the same arguments that people were making when Bitcoin was new. It's revisionist history. And when people are talking about centralization as the end goal... this is also part of why I'm skeptical about claims that proof of stake is going to solve anything on the environmental front, or that microtransactions are ever actually going to get better.

The overwhelming perspective I'm seeing here is that nobody involved in speculating on Bitcoin cares about the technological side at all, and I don't see what incentive there is for anyone to make mining easier, cheaper, more democratic, or more environmentally friendly. The whole point seems to be that people want to get in early and then erect as high barriers of entry as possible. What makes people think that anyone speculating on Bitcoin is going to care about proof of stake? At the point where bitcoin becomes a nationally backed currency that is just a backbone for other smaller systems and is (for most people) completely independent from their regular everyday transactions -- there's no advantage to creating that world, that is the world we already have. The only difference is that a few people on Reddit haven't gotten rich off of the world we have.

The fact that the majority of the market is still standardized on Bitcoin despite a plurality of clearly better coins drives home to me that the discussion about Bitcoin has nothing to do with practical merits of the system, and everything to do with a bunch of people trying to extract as much money as possible before tragedy of the commons sets in. We can make centralized banks without bitcoin. If that's the end goal, then we should absolutely get rid of the blockchain because blockchain is not necessary for a centralized bank exchange with a small number of government-level actors.

I'm surrounded by people who tell me that Bitcoin is a giant innovation, but who are then openly hostile to any kind of improvement to the platform and who are continually dismissing valid criticisms of its technology and governance model as irrelevant because those criticisms don't directly impact Bitcoin's value as a purely speculative currency. What you're describing when you propose a single, centralized exchange is, "we want to make banks a second time the same way, except less efficiently with fundamentally outdated technology, because we want some of the pie this time."

Which, great, but as a non-speculator, why on earth should I support that or care about it?

The problem it solves is that currently, it's not possible for any single central entity to prove anything about ownership changes directly. Now, you can simply trace every on-chain transaction on the chain -- it's as if there were a universal log of every SWIFT transaction, available to the public. It's incredibly useful for forensics! And we can leverage the huge amount of compute power directed here to do useful work as a side effect, by putting in identity stakes and layer2'ing things like proof-of-identity or proof-of-ownership.

But no, it doesn't solve those problems. Because you're talking about setting up a central exchange and layering separate currencies on top of it. You're talking about the majority of settlements and transactions taking place off-chain.

So when you think about tracking on-chain transactions, what you're really talking about is tracking government-level, giant transactions that are largely divorced from the kind of detailed forensics that people would want to do. Which... there are better ways to audit giant government-level agencies than a blockchain.

Similarly, leveraging the blockchain to handle things like proof-of-identity doesn't work if the transaction speed for ordinary people can't keep up. If you want to use Bitcoin for proof of identity transactions, you need ordinary people interacting with the network, not a central exchange. Because again, if you have a few central exchanges that everyone is interacting with, then it's almost strictly better to just let them handle proof of identity and proof of ownership in shared centralized databases.

The only reason Bitcoin could matter is if it actually did scale enough that it was feasible for ordinary people to use it for micro-transactions and as a performant, robust API. But the problem is that Bitcoin as a technology is poorly suited for that use case, and none of the people hyping are interesting in solving those problems, evolving the technology, or moving to other coins that would be better suited.

In a world with centralized exchanges and secondary layers on top of bitcoin that consolidate and batch transactions, all of the problems you're describing end up being easier and better to solve by just having the centralized exchanges coordinate with each other, the same way that banks already do. And to the extent that banks don't coordinate with each other right now, it's unrealistic to assume that the blockchain is going to suddenly change their incentives or force them to do so.

Currently the MSFT identity approach uses blockchain as an identity stake and then layer2's the access. The identity stake allows for anyone to verify that the credential is valid and belongs to a real person without everyone involved having to run the entire chain back to that point, with a secondary chain providing a changelog. Since you only need to exist once, this can cost $5 or so without major issue. (We can't use a centralized database for this because people in the US are afraid of the government.) NHS is using it as a cross-region credentialing system, since it's easier for them to accept a blockchain entry than work out all the regulatory nonsense about actually sharing history, or getting their systems to work together securely.

I would say first read the article, which goes in detail what it solves. I'm not doing a TL;DR for you here but the post title does have a lot to do with it. You're stuck on speculation side. There are other parts to the problem which also needed a solution. As the time progresses the reward is smaller and then becomes negligible if bitcoin ever fulfilled it's ultimate goal. This is the reward for early adoption.

I did read the article, it's an explanation of how blockchains work. And I know how blockchains work.

What the article doesn't explain is why decentralized consensus and ledgers matter for a system that is increasingly obviously designed to be centralized and used in a centralized manner.

Yes, Bitcoin allows transaction resolution in a distributed ledger. The problem is that everything else around Bitcoin's design, implementation, and community is ill-suited for creating a decentralized currency. There are a hundred coins out there that use a blockchain to "create time". The article does not explain why Bitcoin in specific is worth paying attention to, other than because speculators are currently already paying attention to it.

First to market and the technology that works good enough. Nothing has come around that is better, enough, to warrant a switch. Once that happens we will go with better technology, it has always been the case.

The current banking system is better right now, because it's at least usable and scalable. Of course the current banking system is centralized and expensive, which is a problem, but if a substantial portion of Bitcoin's userbase is arguing for that transaction speeds and costs are irrelevant because Bitcoin will be centralized too, then I'm not giving them credit for that.

And frankly, it's not at all true that no other coins have come around that are better. Monero is vastly better at privacy than Bitcoin in pretty much every way. There are already coins on the market that are using proof of stake today. In pretty much every area, the state of cryptocurrency has evolved over Bitcoin -- but, importantly, none of those coins have become better systems for speculative investing. And I would argue that's the "better enough" that most Bitcoin advocates care about.

I also don't see any reason to assume that once Bitcoin goes more mainstream that a community that is currently hostile to change because it might affect their wallets is suddenly going to be less hostile to change. Bitcoin could be evolving today. People could be switching to better coins today. But they're not. It's not going to be easier to make those improvements in the future.

Bitcoin is the technology. The idea that we need wide adoption of a technology that is ill suited for the problem it is trying to solve, just so that we can drop that technology and choose something that's actually usable on its own without first reimplementing the entire concept of banks -- it just doesn't make sense as a long-term strategy.

You're discounting the whole problem the bitcoin solves because of speculating. Since dawn of time there have been only 2 types of money, token and ledger. Bitcoin came around and created a third type of money and the genius of it is to do that it had to create a new concept of time. That's the cool part that the article goes in depth about. I'm sorry but it's hard for me to believe that anyone who read that article can go back to "speculation" arguments.

There are tons of coins that do what Bitcoin is doing, except better. They also create their own concept of time. They handle distributed anonymity better, they integrate very clever concepts like zero-knowledge proofs and proof of stake. Bitcoin does not have a monopoly on the concept of a distributed ledger or any of the other concepts that are actually interesting about blockchain technology.

But Bitcoin is particularly bad at everything surrounding the concept of a distributed ledger. In fact, it is set up in such a way as to make working with its distributed ledger more difficult than it needs to be. It was an interesting first pass at this technology, but it has been very clearly surpassed by other coins in pretty much every single way.

So the question is, given that Bitcoin is particularly bad at what it does, given that other cryptocurrencies are doing the same things that the article praises except better, why are people sticking with an outdated technology? I would posit that people who are really genuinely excited about concepts of "creating time" would be moving to better coins that are doing even more clever things than Bitcoin is, and the people who remain are largely remaining because they're interested in the speculation part and for them concepts like "first to market" are very important.

But I don't see how anybody would ever say they prefer Bitcoin because of the technology. It's outdated.

There are various "stablecoins" that show you can have some of the benefits of crypto without wild price fluctuations. There is another interesting project called SORA that features a digital central bank managed via sortition (basically like juries, but more complicated).

https://medium.com/sora-xor/sora-the-new-economic-order-3ec3...

> then basically defaulted and forced everyone to accept dollars by force

I found 3 instances of "defaults" over the history of the U.S. Federal Government[0], and I cannot figure out to which of those occurrences you might be referring. Bretton Woods was the agreement that made the USD the world's reserve currency, and that lasted for 30ish years while the U.S. was still on the gold standard.

[0] Has the U.S. Government Ever "Defaulted"? https://fas.org/sgp/crs/misc/R44704.pdf

In Bitcoin, the “local currency” equivalent to your “MyDogeCoin” example is called The lightning network.

Simplifying a bit to support your analogy:

Bitcoin lets you lock coins on the chain for a certain amount of time. Two people can do this, then trade bitcoin transactions back and forth without submitting them.

For example, I lock coins and give my coworker a bitcoin transaction I have signed giving him $10 worth of bitcoin for my share of the days lunch. Next day he fives me one for $13 for his share, and I give the restaurant $43 for the bill— all these transactions are literally trading bitcoin IOUs, but in a nearly trustless way.

This means a great deal of transactions can happen off chain without the risk of theft.

That's all fine, but the argument isn't that BTC has some use case. The argument is that BTC has some use case that is so valuable that the combined value of all BTC should be in the tens or hundreds of trillions of dollars.

Why are you so excited about a really inefficient clearing house? We already have those.

Ask Venezuelans and Iranians.

Have you?

Venezuelans and Iranians aren't using crypto in any large numbers outside the dreams of speculators. Real people who actually need to do commerce prefer to transact in USD when the local currency falls short. You're never going to lose all your dollars because somebody guessed your email password.

I'm Venezuelan, for me, getting paid in BTC is orders of magnitude easier than any other alternative.

Paypal closes your account (after letting you deposit some amount which they will hold for 6 months before letting you wire it out to some other normal bank account) if you're Venezuelan.

Transferwise doesn't even serve Venezuelans and when they decided to stop serving us, a friend got his account blocked (he signed up before they banned Venezuelans) and unlike Paypal they just kept the money with no option to withdraw it.

Venezuelan bank accounts cannot receive international wire transfers.

Colombia/Brazil, the nearest countries (a round trip could cost you less than $200 pre-pandemic) don't let Venezuelans open up bank accounts unless they got a residence card.

This is in part due to USA sanctions, but the Venezuelan government is also at fault too (currency exchange controls, etc).

Ironically, USA is where it's easiest for a Venezuelan to open up a bank account. But pre-pandemic you had to spend more than $1000 (now it's more) in travel and accommodation to the USA to accomplish this. Not to mention you need a Visa.

It's also relatively easy and cheap (less than $1k) to remotely open up a business + bank account, again in USA, and do business through there which is what people are starting to do now (even though it's been possible since years ago if I'm not mistaken).

This is what I'm about to do in order to be able to do business (i'm a freelance programming contractor) with my clients easier, but it's still more expensive and harder than just set up a wallet + a localbitcoins account.

Yes, my aunt isn't going to buy bread with bitcoin, we all know that, but thanks to bitcoin her daughter can get paid as freelance Graphics Designer by her clients. Lots of remittance going on through bitcoin too.

Why are they interested in producing a public record of their transactions? Isn't that dangerous given their current political situations?

It doesn’t seem like Bitcoin has actually solved any problems for them.

According to localbitcoins, $235 million was traded in 2018 alone in Venezuela, that's a lot for such an small economy.

It's solving /some/ problems, for /some/ people, maybe businessmen that create jobs or wealth even.

> It's solving /some/ problems, for /some/ people, maybe businessmen that create jobs or wealth even.

Sure, but by that logic, selling crack cocaine solves some problems for some people, maybe businessmen that create jobs or even wealth.

Such an apt analogy of course...

But why use bitcoin? It is completely inferior to a lot of the coin technology that came after which can be used as "moneY' and not a store of value. I think that ultimately this will be its downfall and something else will replace it. Unlike gold it doesn't have any inherent value and isn't necessarily forever. It's almost impossible to lose a few tons of gold, whereas bitcoin can be wiped out (on a national "store" level) with one dumb (or insane) wallet holder(government official)

> Bitcoin is digital gold for settlements among digital currencies.

What are the implications of this on the network stability wrt mining? Doesn't bitcoin need transaction volume to remain a stable network?

My read is that the incentive structure changes. Right now, miners are motivated by block rewards. In the future, they'll be motivated by transaction fees. If transactions are rare, mining profitably is going to become much more difficult. Pair this with 51% attacks, and the long ramp-up of mining capabilities starts to look like it will regress after the the rewards go to zero. Can the network survive that?

To answer that question you have to make assumptions about the cost of mining, the cost of attacks and the cost of hash power at a point 117 years from now. But we know in the future hash power (technology) will be cheaper and thus bitcoin security will be cheaper, while bitcoin will be more valuable (or non-existing — it has to be either or).

Also remember if you have wealth in bitcoin you would likely mine at a loss merely to secure your own bitcoin.

I can’t imagine mining going away.

I think every appliance in a household will end up mining a little bit and it will be intrinsic to the fabric of the economy. The way the internet is now.

> But we know in the future hash power (technology) will be cheaper and thus bitcoin security will be cheaper,

This is not in line with my understanding if BTC. The difficulty adjusts automatically, so the real cost isn’t hashing, but energy. And there is no inherent reason why any less energy would be spent/wasted on mining/securing BTC (assuming it will be worth more than today).

The costs of mining are both capital to acquire the equipment and replace it when it is obsolete... and energy. It’s not just energy. Recently that capital cost is about %50 of OpEx, but of course it varies. We cannot predict the future cost of electricity, but we can predict that technology will get cheaper, more generic and thus more ubiquitous. This is what I meant by “cheaper”.

I expect it will be cheap the way wifi is cheap on a raspberry pi. They just include it because you may use it and it’s cheaper to include it than to make both a version with and a version without the WiFi module. (If you inly use WIFI, then the sane argument goes for the redundant-to-you ethernet port.)

You are right about difficulty factor, but that just adjusts how fast blocks are won based on past 2 weeks.

Even when price of BRC has crashed, hash power doesn’t instantly go away.

Also an attack lets you re-organize recent blocks only. Increased depth gets more expensive pretty quick.

If mining chips are cheap and ubiquitous, then an attack us very hard, because you have to beat all the existing honest chips with your attack.

If mining is cheap to attack, the rewards of such an attack will be low.

If bitcoin is valuable, it will be expensive to attack.

> To answer that question you gave to make assumptions about the cost if mining, the cost if attacks and the cost of hash power at a point 117 years from now.

I'm not convinced that you actually do have to make too many assumptions. The claim I'm making here is that bitcoin has had a steady and predictable increase in mining demand as the currency has grown, but that iff bitcoin becomes solely a low-volume high-value settlement platform (instead of a buy-coffee high-volume low-value blockchain), there will be a demand shock once the block rewards go to zero. You can reason about this while keeping the hashrates and cost of achieving that hashrate abstract.

If volume grows, this argument is moot because there will be plenty of transaction fees to gobble.

Not sure how you measure an increase in mining demand, but given that we have had three halvenings now, doesn't that imply mining isn’t going away? They are getting less bitcoin, yet still mining. I don't think it will be a shock by then. Put another way, the shock in 2012, 2016 and 2020 have all made mining very profitable in the following years resulting in mining booms in 2013, 2017 & 2021 (so far.)

Transaction volumes over time have risen as well. If bitcoin has amy value to society in 113 years, people will pay to transact it. Whether that is one expensive transaction a month or a million every block I don’t know— but I think the latter is more likely.

> Also remember if you have wealth in bitcoin you would mine at a loss merely to secure your own bitcoin.

You could also send null transactions which do nothing but pay a transaction fee

If you're freely giving away money (either in the form of null transactions or putting money into mining) just to secure value that you're holding, you've clearly mispriced the asset you're trying to secure!

If you put money in a savings account with interest below inflation, just to secure the value that you're holding, did you misprice the value? Or for example if you buy gold and then pay someone to watch it for you, does that mean you mispriced it?

Both of those examples (holding money in savings account, holding paper PMs) are ultimately about liquidity, I don't see how bitcoin relates.

Null transactions require mining. The question is if nobody wants to mine who will mine? Old mining chips are already so cheap they cost less than a cheap bitcoin transaction. It would not cost much to mine just to preserve the value of your holdings.

The point of submitting the transaction would be to incentivize mining by posting a bounty for it, in the form of a transaction fee. It would be just like paying other people to mine at a loss on your behalf.

Ah,I misunderstood your point because I read another reply.

You make an excellent point!

This idea is a big one behind the development of modern crypto currencies. Ideas like "Layer 2", "Zero Knowledge Rollups", and "Parachains" are all built on the idea that not everything that happens needs to be on the main blockchain.

Personally I suspect that eventually a more modern blockchain will become the base level of record, or more likely that we may never settle on a single one, but indeed with proper layering it could all be BTC in the end.

Good takeaway.

Sounds like something straight out of The Bitcoin Standard [1].

[1]: https://www.goodreads.com/book/show/36448501-the-bitcoin-sta...

And down the rabbit hole we fall.

>Bitcoin is onto something

What if it "was"?

The "hate" people express against bitcoin especially here on HN is often towards the implementation. People clearly see the flaw in PoW if they are not emotionally attached to it because they have no money at stake. You should not misinterpret that as hate because they missed the train to richness.

Objectively PoW does not scale. Objectively we have DLTs (blockchains) with Federated Byzantine Agreement (FBA) instead of PoW/PoS that can do everything Bitcoin can and more without the most severe downsides that come with PoW/PoS. The future will probably bring even better tech and if we learned something from the past then its that better solution always take over the old worse solutions. Bitcoin ultimately has to fail because its not a system that could be upgraded. Its most fundamental core properties are intentionally not changeable.

As an engineer with twenty years experience in this space and nearly as long studying the economics of it, I have yet to see a replacement for PoW that solves the problem that PoW solves.

Proof of Work is trustless decentralization.

Proof of stake is trusting the dudes who premined the coin and sold you a “fix for bitcoins inherent problem” to hype their ICO.

If you were right, after 10 years one of those PoS currencies would be winning. Can you even remember the proof of stake currencies from 2011?

Why did they fail? After all they had a huge economic advantage over bitcoin mining as they cost effectively zero electricity.

Can you answer that question?

There hasn't been a secure decentralized PoS protocol. Mostly they rely on one or more trusted validators. Cardano's Ouroboros is apparently the first secure decentralized PoS, that is mathematically proven to be as secure as Bitcoin. I don't know if that's true, but that's what they say.[0]

[0] Ouroboros - A Provably Secure Proof-of-Stake Blockchain Protocol https://eprint.iacr.org/2016/889.pdf

I looked into the “mathematical proof” a couple years ago, all I could find was hand waving and sleight of hand. This convinced me it was a scam.

I can't really understand their papers, but they've been published in peer-reviewed journals, so they're at least somewhat legit. And if it's a scam then someone should be able to attack it.

Its right in the message above. FBA is the result of researching how to make a bitcoin like system without PoW. PoS however is based on the ideas of PoW, it just moves the flaws, its not a solution.

FBA was "invented/discovered" before PoS coins even existed.

Essentially FBA is a distributed voting solution. Instead of let the person who has solved the PoW write the Tx in a block, everyone just votes on Tx order. The threshold is rather arbitrary. Most systems use something around 80%. In practice every valid Tx has near 100% votes anyway because no one listens to dishonest nodes. But nodes can go offline or Tx propagation can be delayed so a Tx could have only reached part of the network and thus not reach 100% Not a big deal even if a Tx has less than 80%. Nodes just re-vote for the Tx for the next round. Double spend is solved by the ordering alone. If one Tx is first the second that moves the same funds somewhere else, breaks a fundamental Tx rule so nodes wont vote to include the second. Which one came first is irrelevant. Each node just votes for the one he got first and in a possible second round it votes for what the majority of other nodes said came first. So the distributes system can not reach a state where a Tx is stuck.

This is all very very very much simplified ofc but you can easily lookup systems and dig into details if you are interested. There are real "blocklchains" running with FBA since many many years so it without any doubt works. Although like I said in my original post it can allays be improved.

What you described doesn't even address the reason PoW exists. So, I’m sorry but it sounds like you are repeating something you heard without understanding the issues at hand. I suggest you read “There’s nothing cheaper than proof of work” by Paul Storzc

Enlighten us please? Suggesting to read a book of which the title already suggests some completely irrelevant content about "cost" or PoW surely does not convince me or anyone. I dont care about the energy/cost or the fact that bitcoins may speed up the destruction of this planet by a incredible tiny tiny fraction that has zero effect on my life. I couldn't care less, and it wasn't part of my argument at all.

People can have an argument about that, its fine but mine wasn't so you cant debunk it by telling me to read a book that seems 100% irrelevant.

PoW was simply used to solve the double spending problem in a decentral way. Which is exactly what FBA solutions do without it. Solving the double spending in a decentral way is the key "invention" of bitcoin NOT PoW. PoW existed way way before, it was just used to create the solution to the problem it was not invested/discovered for bitcoin nor was it the key element.

People came up with different solutions solving the same double spending problem in a decentral way but without using PoW. Some solutions are objectively better regardless of energy consumption and other secondary properties. They are objectively better because they scale to high throughput, allow short block times, have a proper and path forward to improve these properties over time with very limited "risk" of causing forks for every proposed change.

"This space" didn't exist 20 years ago.

Yes it did. It has been going on for ~50 years, and bitcoin is the culmination of work spanning that period.

Bitcoin was not the first cryptocurrency. It was the first good one, though.

Why would it be the last is the question? Clearly something better has to come or already came. After a large step forward there is usually a tremendous amount of innovation coming. Why would you assume 10 years passed and bitcoin is still the first AND the only good one.

>People clearly see the flaw in PoW if they are not emotionally attached to it because they have no money at stake. You should not misinterpret that as hate because they missed the train to richness.

The vitriol that Bitcoin evokes from HN commenters can really only be explained by jealousy, the environmental concern is just a cover for covetousness.

> The vitriol that Bitcoin evokes from HN commenters can really only be explained by jealousy, the environmental concern is just a cover for covetousness.

Obviously some people are jealous that they didn’t hold Bitcoin earlier and make a lot of money.

But equally, people who hold Bitcoin now are incentivized to dismiss any critique of Bitcoin, since they stand to profit directly from Bitcoin’s reputation.

Therefore the motivations of all participants must be borne in mind, and no ad hominem carries any special weight since all participants have incentives for motivated reasoning.

This is true, because the vitriol was there prior to anyone complaining about Bitcoin's power usage (i.e. when it was too small to matter).

I remember when I first heard of Bitcoin. I quite frankly found it technically intimidating. It was a totally new concept. I didn't get it. I took my own discomfort as a sort of signal that it was really important; something totally new. So I studied it. I had to put time and effort to read the books, play with the code... Eventually I got it and found it to be one of the most elegant pieces of technology and sociology of my lifetime.

I think a lot of geeks never made that first push past the intimidation. As the value has gone up, the sour grapes have as well. This is a group of people that should have been first on the wagon, but instead many of us found out the hard way we weren't on the cutting edge as much as we liked to think. Myself included, I have some Bitcoin but I'm not a BTC millionaire, like I would have been had I pushed harder through my intimidation faster.

If you do the same kinda research about FBA you will "get it" too and you will know that PoW is useless. You probably wont make money form that but still I hope you dig into it. I myself saw "the beauty" in bitcoin once and later saw it in FBA again. After all it solves the same problem just in a very different way.

> You probably wont make money form that but still I hope you dig into it

There is something to say for incentives. The positive incentive loop is what drives adoption, innovation, security etc.

There are FBA coins out there so people who want can trow money at something an maybe make profit if they gain value. But its not new so who knows how early people who join now really are. Can't compare it with buying bitcoin at a few bucks that's for sure.

The problem is that there could easily be flaws in Bitcoin that have been there all along. We’ll know the answer to this if it eventually fails.

I too wish I’d made more effort to buy it earlier. Presumably that sentiment applies to the majority of humans on earth, whether you are now a Bitcoin millionaire or not.

Counterexample: when I recently read about its energy consumption (per byte stored), I sold my bitcoins in disgust, at roughly today's prices. I've held almost continuously since 2011, although I trimmed my position a few times.

If I come across something that works without PoW, is safe against quantum computers and somehow eliminates the threat of forks (seems impossible), I'll invest in that.

This will likely be dismissed as shilling of a shitcoin, but on the off-chance anyone is actually willing to take a look, this cryptocurrency meets your criteria (which is exactly why I bought it): https://www.algorand.com/.

The pedigree of the team behind it is ridiculous, most notably its creator: Silvio Micali - one of the co-inventors of zero-knowledge proofs as well as other cryptographic primitives.

EDIT: it's not quantum-safe yet, but that's a problem they're actively researching, and given the team they seemed credibly positioned to solve it.

See: https://www.algorand.com/resources/blog/chris_peikert_joins_... and https://www.algorand.com/resources/blog/algorand-contributes...

Can you explain how this prevents forks? An example of a fork would be someone creating a new client that rejects transactions from old clients.

What exactly is the "threat" of forks? Being able to fork the network is often seen as a feature, not a issue. If you're building a decentralized network, you sometimes have to have consensus when doing upgrades globally. This is in reality a fork but everyone agrees to keep with one of them. Those who don't agree, can continue running the other one if they feel like it.

unwanted/unplanned forking is a "threat" in the sense that it causes uncertainty. Idk about this specific project and how they handle this but for example the XRPL has amendments which come with software update but are not enabled they are open to votes. Each amendment must constantly get over 80% positive votes for 2 weeks to be accepted. The validator nodes who voted against it are overruled by this they must install the latest version to be able to vote on the amendment therefore they do have the code and if the consensus is to enable the new code their node will do so. This prevents forking.

Intentional forking as a feature is ofc still possible. Validators owner who disagree with an amendment to the point that if it is accepted they would want to stay on the "old chain" and thus fork it, can simply remove the "yes" votes from their validator list essentially ignoring their votes and thus separate from each other. By the time one cluster enabled an amendment and the separated cluster does not, a fork happens*. This requires some kind of coordination and is unlikely to happen unexpected. A largely unpopular amendment would simply not reach the 80%. And one that reached 80% is unlikely to be consider so bad by the remaining 20% that they would want to fork. But the possibility is there it just never happened in the 8+ years its running.

*ofc it would also go the other way around. An amendment that wont reach 80% could also cause a cluster to intentionally separate and enable it there which would also case a fork.

First you bring up something that is neither a cryptocurrency or properly decentralized (XRP and the XRP Ledger [Ripple]) then you simply miss the question as a whole.

The question was: "What exactly is the "threat" of forks?"

Your answer seems to be the answer to the question "How can we prevent forks?"

"Uncertainty" is certainly getting at some sort of answer, but falls short as you're not really explaining what kind of uncertainty and why it's bad in the first place.

>The question was: "What exactly is the "threat" of forks?"

Yes uncertainty was the answer. If a fork happens you dont know which side is going to die or if both keep going on. You dont know which sides coin someone wants if he wants to be paid in the coin named prior to the fork. You may not even know there is a fork because it happen on accident and is only discovered after it happened.

I would say this is the "threat" the "bad part" and it is bad because it is unwanted by most users of the system but that's just my opinion. There is now way to proof its unwanted by most user nor does that mean its bad for everyone. So this goes nowhere. If you think its good I'm happy to agree that this is purely an opinion.

A controlled/planed intentional fork seems to be what I assume most people would want but that again is "good" solely because its my opinion.

Hence my message pointed out the fact that we can have the "good" part about forks without the "bad" part about forks if the system prevents the "bad kind" of forks to happen. Your message already pointed out the benefit of forking and preventing unintentional forking would not affect these benefits.

Now to the other part which was really just an example how another system managed to prevent unintentional forking without preventing forking itself. I'm sure there are tons of other solutions so the fact that you don't seem to like this one is kinda irrelevant, it was just the example that I know best and was probably the first around.

Still gonna "fact check" this because why not^^ You seem to be confusing stuff. I wont go any further into a discussion about that tho because quite frankly its all out there to read for anyone who cares. It not my goal to shill stuff or prevent people from reading and believing whatever FUD they choose. Everything can be verified, no need to trust what I tell you, its all public since many many years.

First, the XRPL is not a cryptocurrency and I never said it is, its a distributed ledger. XRP is a cryptocurrency/digital asset/token whatever you wanna call it. There is no consent over the definition for these words so its not really debatable.

The XRPL is however definitely "properly decentralized" regardless of what FUD you may have read about it. Decentralization is rather well defined and whether something is or isn't can be objectively "measured". Although I ofc dont know what _your personal_ definition for "properly decentralized" may be, its decentralized as in no single point of failure or control exists in the system. If you use another definition then it may or may not fit. But this is the most common simplified definition.

For a system that has to "decentralized" reach 80% agreement this means at least 3 independent entities are necessary to make it de-facto decentral. However, 2 colluding would break this already so obviously more than 3 is wanted. 3 would be the theoretical minimum. How many _you personally_ want to have to make it "properly decentralized" _for you_ isn't really a debatable topic, its an opinion. More is objectively better and less than 3 is objectively not decentral anymore.

The XRPL currently has about 30 _legally independent_ validator operators. There is no means to measure independents however. And no means to evaluate what would be needed to make 80% collude. BUT its important to know that colluding would not give them any financial benefit, in fact it would just stop the XRPL from working, which they all voluntary choose to support so that does not make much sense.

There is no double spending or the like possible if someone gains control over 80% of the validators. It could be turned off or they could push an amendment though that does whatever they want but its all public. No honest node can be tricked into breaking its own rules and add any kind of invalid transaction, reverse something or allow double spend. No amount of control can change the code that runs on the other validators. Assuming you dont trust anyone, you have to run your own node and then you can only be fooled if someone takes over your node at which point there is no way to prevent you from being fooled anyway.

If a collusion or take over would happen is would be a situation where a fork would be unavoidable and ofc wanted. Every honest participant would obviously choose the side that didn't push some amendment trough that somehow benefits someone. So there would be a fork with everyone who doesn't wanna play by the rules and the "main chain". This immediately renders the whole collusion useless as they have full control now but only on their own chain that no one cares about and are excluded from voting on the "main chain".

But overall its a purely theoretical scenario. There is no incentive to gain control if you cant do anything useful with it as the honest participants would just fork and exclude the compromised parties. Same if they would turn it off. It would just be a matter of time before the non-compromised parties ignore the offline ones so they can reach 80% consent again.

>(XRP and the XRP Ledger [Ripple])

That makes no sense

- XRP is the token in the XRP Ledger

- The XRPL is the whole system, the "blockchain", the DLT

- rippled is the name of the C++ implementation of the XRPL

- Ripple is a company that currently maintains the source code of XRPL reference implementation (rippled), which is open for anyone including for contribution. They are not controlling the XRPL. They are not controlling the code. Just like controlling the bitcoin GitHub repo does not control bitcoins code or the network.

Ripple also runs validators and in the early days they ran all of them so it was not decentralized according to the definition above. Over time more and more validators joined so Ripple no longer has any special power.

So far exactly 1 amendment was accepted with over 80% quorum without ripples positive votes. That means Ripple could not prevent that amendment from being enabled - they got overruled/over-voted.

Ripple also holds a lot of XRPs that however gives them no special rights or control over the XRPL. Most of these XRPs are in a time escrows.

Hope that clarifies some stuff you may have head. There is always XRPL.org for more in detail information. And like I said its not the only system that prevents unintentional forking.

> when I recently read about its energy consumption (per byte stored), I sold my bitcoins in disgust

You fell for the meme...

Energy consumption as compared to what? What energy sources? This line of argumentation feels very misleading to me and always has because it is presented with a very specific framing. Here's an alternative framing for example:

https://unchained-capital.com/blog/bitcoin-does-not-waste-en...

At least you sold high, so good on you!

As per my original message you should look into FBA. Its not a coin but some coins do use it. Whether you want to buy such coins and which one is none of my business, but the tech is there and works since years.

Good. I hope you git rid of your hair dryer as well.

It’s not too late, you can get back in, though you will have a tax bill. Maybe it can be a wash trade.

But if FUD that’s dishonest about bitcoin mining scared you off then you haven’t learned enough about bitcoin yet.

This us how bitcoin seeks the strongest hands. HFSP

The hair dryer, unlike a blockchain, is not a technology for durable, immutable and highly available storage, so I wouldn't judge it based on energy per byte second.

That us not the purpose of bitcoin. (There is no “blockchain technology”)

While bitcoin is a record of transactions, and as such a database, it was not created to be a database.

Did you read the OP article?

That seems inflammatory (covetousness?).

My take is HN commenters try to typically reason through articles with thought and an open mind. I would wager there are so many bitcoin bros who hype ad nausea that beckons the skepticism you see here.

Funny how there was no "environment" argument in the whole message but someone came alone an made sure to devaluate it anyway.

The argument was that PoW can not not scale. Its an obvious objectively verifiable fact and its completely irrelevant what kind of environmental side effects bitoin has or will have in the future. For all we know it could run on fusion reactors and biodegradable ASICS only and it still would not scale.

I don’t understand the recent preference for taking assertions and declaring them “obviously objectively verifiable fact”.... but that is a good indicator they are false.

Bitcoin can and has scaled. And that is a fact, from Segwit and Taproot to Lightning the capacity and cost have improved dramatically.

Last time I checked block time was 10 min just like 10 years ago. (obviously objectively verifiable fact) Last time I checked max TPS was like 7 or something so it has like what doubled in the last years? (obviously objectively verifiable fact) LN is forever beta (obviously objectively verifiable fact) and does not even address bitcoins scalability problem. It just off loads Tx to reduce on-chain Tx. (obviously objectively verifiable fact) That does not make bitcoin any better. (obviously objectively verifiable fact) Just like Wrapped Bitcoin does not make bitcoin any better but it did reduce load on the chain so thanks to WBTC the chain inst as much fu**ed as in 2017 yet. (obviously objectively verifiable fact)

Compared to FBA solutions with block times in the single digit seconds and TPS way over 1000 These improvements are as irrelevant as its gets. There is no proposed way to make bitcoin scale to any level that would make it useful on a global scale. And the fun part is, even a proposal that could do this would not go trough. It would just lead to another fork.

The energy wastage argument isn't "environmental concern". If bitcoin were to scale up enough to combat Visa, it would twice as much energy as all the generators in the world put together can produce, just to do what Visa already does, but without fraud detection, ID verification, or reversibility.

I'm not confident that it would. There doesn't seem to be a clear connection between the transaction rate and the power use. That's not to say that the power use is or isn't "worth it" or whatever.

But, I think that one way the "energy per transaction" framing is misleading, is for exactly the "if you scaled up the transactions, the power use would scale proportionally" idea. First, it isn't clear to me that it is even possible to scale up the transaction rate without either making the security worse or substantially modifying the design (or possibly both), but if you did manage increase the transaction rate, it isn't clear to me that this would impact the total energy use rate at all.

Well, ok, it might influence the power used by influencing the price or the issuance rate. But, aside from that, I expect that the power use would be determined by whether someone profits by increasing the amount that they spend on power in order to mine bitcoin. This doesn't depend on the transaction rate. Err, ok, I suppose technically if the transaction rate were higher, miners might get more transaction fees, and really the relevant thing is issuance rate + transaction fee rate, but I suspect that the average transaction fee would decrease if the number of transactions were increased, so that impact should be small I think, because those two should largely cancel out.

Hm, ok, so if the transaction fees are determined essentially as an auction, what is the effect on the average fee per transaction, of multiplying the number of items (slots in the block) available per amount of time? I think this depends on the demand curve for transactions. I don't know what that curve looks like. If we pretend that it is linear (just pulling that out of a hat. Though I guess if we zoom in far enough it should look locally linear, unless we zoom in too far and then it will look piecewise constant due to discrete numbers of people... whatever.), then, --- I should get back to work, shouldn't be doing this calculation right now.

But did you really include Lightning Network in your mental calculations? If so, care to elaborate on what exactly would stop it from working? (I mean it already works now, there is nothing technical that is going to stop it from scaling)?

Exactly. Lightning was anticipated from the very first email group conversation on Bitcoin. It is not ready for primetime usage, but it is rapidly approaching that point as Lightning improves.

The "killer app" of Bitcoin is the shared CPU power / consensus, not necessarily the plain layer-1 transactions.

No clue where you got that from but satoshi expressed in his emails that he was under the impression that bitcoin would scale on its own in the early days. Just like he tough that millions of people would us their desktop to mine and therefore decentralization would only ever increase over time.

> No clue where you got that from

"Most transactions cancel out at the account level. The binks demand bitcoins of each other only because they don't want to hold account money for too long. So a relatively small amount of bitcoins infrequently transacted can support a somewhat larger amount of account money frequently transacted."

https://satoshi.nakamotoinstitute.org/emails/cryptography/th...

> satoshi expressed in his emails that he was under the impression that bitcoin would scale on its own in the early days

And it did. I don't think today still classifies as "early". See above for people already thinking far ahead for longterm solutions to scaling.

This is simply not possible on bitcoin unless you have wallets holding money from many people. At which point you no longer own your wallet.

There is no way Tx of average humans would significantly cancel out within the time of a block. Thats why LN just makes the time to settlement "infinite" and that's why it partially increases centralization again to cancel out more Tx. If that was the goal it could have been implemented in layer 1.

Anyway all that aside, lets just assume LN would work as perfectly as the devs hope it will do one day. Its sill way worse than existing FBA solutions that can handle most of this on layer 1 directly and already have fully working second layer (payment channels) implemented. Even if bitcoin and LN could eventually provide a similar good solution, whats the point if it already exists and why would anyone assume the existing solutions stop evolving while bitcoin and LN slowly catches up? If we assume LN has reached all its goals in 10 years it also means the goals are outdated by 10 years.

We can arguing about what LN may be capable of doing one day but its never gonna be a valid argument against solution that deliver today.

Lightning network is just a brand name for the cryptography that was needed to make Satoshi’s payment channels work.

So, while Satoshi’s opinion isnt really relevant to bitcoin’s future, since you brought it up, Satoshi clearly didn't think layer one was the inly way yo go.

That right, its not relevant. He was wrong on many tings and right on many others. Still what LN may or may not be able to deliver is also not relevant as an argument against existing solutions that deliver today.

LN fundamentally changes nothing. Its still uses bitcoin Tx it just combines many Tx and does the on-chain settlement at a later point thus reducing the number of on-chain Tx increases speed and reduces fees. But if we reduce Tx on the chain we dont solve scalability we just bump into the limits a little later. LN on a global scale would still need orders or magnitude more on-chain Tx then possible.

And if LN would actually reduce on chain Tx to a level where we would no longer need to worry about on-chain limits then we rendered bitcoin useless because we literally reduced the need for Tx to basically zero. Whos gonna pay for mining if block rewards vanish and LN makes on-chain Tx vanish as well?

Bitcoins "goal" is that on-chain Tx should always be near the max so the fee per Tx is the lowest possible and reward are the highest While LNs "goal" would be to reduce the on-chain Tx to near zero because every on-chain Tx is extremely expensive.

It probably meets somewhere in the middle. which means its still gets worse and worse the more Tx are made even if they are made over LN. Thats the definition of "not scaling well".

LN and bitcoin are supposed to by a symbiosis but LN is the parasite that works best when it almost kills is own host. You can see it though the actions of large miners. They are not supporting LN. They could pour millions in the development and advertisement of LN but they dont want it, it reduces their profit.

Its just very very deeply flawed overly complex system that only exist because some people would not accept that the layer 1 has deep flaws. Is rather obvious that building on top is not the right way forward. An since changing layer 1 is not possible in any meaningful way the only way forward is to abandon it. Which wont happen as long as people make money with it.

>what exactly would stop it from working?

The absolute end state is that hashrate drops or stops increasing due to the fact that it isn't profitable anymore which leads to double spend and essentially destroys any trust in the system and renders it useless.

No one know at which point hashing will no longer be profitable for a long enough time to cause this cascading effect. But once it started the price crashes > pushes more miners out of businesses > further reducing hash rate > panic > price drop more > repeat

All while mining hardware becomes cheap because demand goes to zero and supply increases, which makes a double spending attack cheaper. Then once a double spend has been observed its game over. There inst even a theoretical plan how to move on at that point. In simple words it would move the requirement for block conformations to infinite so there is no point in doing any Tx anymore. Everyone just has to wait which further reduces any rewards for miners.

“ LN fundamentally changes nothing. Its still uses bitcoin Tx it just combines many Tx and does the on-chain settlement at a later point thus reducing the number of on-chain Tx increases speed and reduces fees.”

That’s changing everything.

Ever other system could (and does) use this as well to boost throughput by reducing speed. Or like LN does by looking up funds in advance to increase speed again. Its always gonna be way less efficient than having order of magnitude faster layer 1. and only offload micro Tx to the second layer.

Also increases cost because you add additional parties in the system who wants to get paid for providing the service and liquidity. It simply can not provide a better service in the end.

The difficulty can adjust down over time if interest goes down, and that's pretty much fine as long as no one gets over 50% of the hashrate.

The difficulty adjusts yes, but the total hashrate has to increase forever. It can decrease for a while but long term it has to increase or the risk for double spend increases too. The difficultly adjusting does not prevent the network form attacks at all.

If 80% of miners go out of business someone can buy the hardware from them wait for the 80% difficulty adjustment and then start the attack. He could mine blocks faster than anyone else so even if someone mines a block his chain will eventually be longer. There is no know way to recover from something like that.

> Sour grapes syndrome is a result of pride, I think.

Or maybe it comes from people who have read an Econo101 textbook and who have spent a lot of time trying to explain a crowd of Bitcoin enthusiasts why their reasoning is wrong but no one has been listening to them so far so they are bored.

Back in the time I used to spend my days on a forum about Economics. Every other week there was a random guy who signed up just to explain us his grand new theory about money. It seems that tech has enabled a grand new theory about money to be implemented.

That does not make it less true that money does not have magical properties and bitcoin will not create a new world order.

Would you care to share your Econo101 knowledge?

I'm not an economist, but nothing has convinced me yet that bitcoin is not the best form of money.

Um transaction costs alone make it not the best use of money. It isn't widely used for goods that you would want to use on a day to day basis / the transaction costs of using it / energy use for bitcoin are some of the low hanging counters to why it isn't the best form of widely used currency.

Are those things that can change over time? Certainly - but it hasn't happened yet.

These low hanging counters have been discussed over a lot.

Transaction cost is pretty low in multiple views:

- You can globally settle billions of dollars worth of bitcoin for less than 10$ [0]

- FIAT Settlements between banks is a complicated and non-auditable process, which is internationally speaking also very slow

- You can build layers on top of bitcoin, i.e. the Lightning Network or liquid, which reduces transaction costs and time by a lot (sub cent range in the lightning network)

Energy usage is not tied to transaction throughput. It is vital to be very high in the future, as it secures this global and auditable settlement network. Mining is a very competitive business. Renewable and unused energy IS the cheapest energy available (without govt. subsidies), thus the most competitive miners will use them. Mining also "subsidizes" research in cheap energy, as it gives you a competitive advantage.

[0] https://twitter.com/CoreFeeHelper/status/1366787351985287168

Im answering his question why bitcoin is not the best use of money:

(1) Most people don't settle on large volumes (thats typically banks/states/institutionals) so small volumes have a high cost percentage making it not a good daily driver. The fact that there is any transaction cost makes it challenging to work with as a daily money vehicle for consumers.

(2) It requires energy to exist and keep a ledger, it also requires energy to mine. Your comment on renewable energy isn't accurate sadly and unused energy works only if you can get access to it which isn't universally available. In some jurisdictions renewable energy beats on price but this is largely on huge projects that are bid into utility grids (At least in North America). It will get there but still needs more time.

I don't see how mining subsidizes research in cheap energy.

Understand they have been debated ad nasueum and the reason is that they haven't really passed muster for the use case we are talking about.

Don't equate my arguments as saying bitcoin is bad - it doesn't have a good universal use case for money and it does have negative environmental benefits associated with it.

(1) I think people assume that just because bitcoin exists banks will vanish. Bitcoin is the protocol that banks can use, but individuals as well. Also, micropayments on Bitcoin exist today. I encourage you to download a lightning network wallet (e.g. Breez Wallet: non-custodial and open source) and send me a "lightning-invoice" I can pay you in the sub-cent range.

(2) It requires real world resources to be spend and uses the most globally available resource, energy. I see it as a feature not a bug.

Renewable energy is the cheapest though[0] and thus the one that competitive miners need to use. Non-competitive miners get driven out very fast thanks to the difficulty adjustment.

Any percentage of optimization you can get in your energy production you can use to outperform other miners, thus get more of the block subsidy and drive out inefficient miners.

Bitcoin mining de-risks investments in energy producing facilities. You always have a buyer for your energy, which is a problem especially in renewables. [1]

[0] https://en.wikipedia.org/wiki/Cost_of_electricity_by_source [1] https://www.sciencedirect.com/science/article/abs/pii/S13640...

> It requires real world resources to be spend and uses the most globally available resource, energy. I see it as a feature not a bug.

Such a horrific, unproductive use of energy is definitely a bug from a scientific perspective, maybe not for a financier.

Proponents of Bitcoin are rarely financiers. It's clear to me that they don't understand finance.

I think from a scientific view, allowing and observing the experiment bitcoin is extremely interesting. Nothing like it has challenged economic thinking in the last decades.

It is very productive for a large population of the world.[0]

Not everyone gets paid in a stable currency or has easy access to it.

[0] https://www.youtube.com/watch?v=xLYYh4aPXAM

How it is challenging economic thinking? There is a near-zero chance cryptocurrencies replace an actual currency as the global reserve, so it's going to continue to be a novelty until people move on to something shinier.

> Not everyone gets paid in a stable currency or has easy access to it.

Bitcoin doesn't appear to solve this issue at all. How is private manipulation of Bitcoin any different than an authoritarian manipulating the local currency? If I was in a country with unstable currency, I'd want Euro or US Dollars, not bitcoin.

I think that the chairmen of the fed and ecb arguing about bitcoin is a strong signal of a challenge.

As I and the video mentioned Euro and USD is not easily accessible in those countries, Bitcoin doesn't need permission though.

What you refer to as private manipulation is called supply and demand, maybe try reading Econo101 :)

> What you refer to as private manipulation is called supply and demand, maybe try reading Econo101 :)

Does Econ 101 cover asset bubbles or financial manipulation? It's been so long, that I can't remember, but I promise you that prices can reflect things other than supply and demand once you manage to get past that first class.

> Bitcoin doesn't need permission though

No authoritarian would EVER cut off or filter the internet in their country. Nope, has never happened, will never happen.

> No authoritarian would EVER cut off or filter the internet in their country. Nope, has never happened, will never happen.

You're right, Myanmar just did that! Scary to think of it. Fortunately Bitcoin works over more communication protocols, but no internet is certainly not in any way easily defendable today. But i still think that physical and banked usd, euros and gold are more easily seizable by a government. A no internet scenario is probably economic suicide by any government.

I really don't get what you mean by financial manipulation in regards to bitcoin.

Cutting off internet is virtually the first thing an authoritarian government does at the sign of unrest. I want to say there's been something like a dozen in the last decade. If you include incomplete internet shutdowns, that list would probably grow well over 100. Hell, it's not just limited to authoritarian governments: the UK requires ISPs to filter certain sites.

I would not bet that the government is incapable of cutting off access to bitcoin.

> I really don't get what you mean by financial manipulation in regards to bitcoin.

Bitcoin entered a speculative bubble in the middle of 2017.

And that is financial manipulation how?

The supply got less, while the demand didn't decrease. The intrinsic value increased because of the network and lindy effect, which is why institutional investors jumped in. Bitcoin entered a speculative bubble the moment the first block was created.

I would say we just don't know the price of bitcoin yet, hence the heavy volatility.

What would you price it at? Are you shorting it?

I wouldn't price it at all, because I don't see it as valuable, and I don't gamble, so I'm not going to short it. The supply got less because people bought bitcoin based on media hype. That's pretty classic manipulation.

I'm astonished that you have such a strong opinion, while not even trying to understand how pricing works. Good thing you're not gambling on that!

Media hype typically drives demand, not supply. Supply in bitcoin is a very fundamental concept and controversial topic, which is a function of proof of work, difficulty adjustment and block subsidy.

What exactly in supply and demand is manipulation? You can't just shout manipulation and argue with "media hype", which historically for bitcoin is very mixed[0] and affects any asset class?

[0]https://99bitcoins.com/bitcoin-obituaries/

Bitcoin has transitioned to "store of value", like gold, not "frequently transacted currency", like the dollar. There's plenty of other crypto currencies that fill that need.

Don't disagree - I am just correcting the OP comment about it being the best use case for money. It isn't the best use for money.

For Bitcoin specifically. You can use a different token backed up by Bitcoin, but the actual implementation has these issues.

Transaction rates - Artificially kept low to profit miners.

Privacy - Every Bitcoin transactions is on a public blockchain.

Transaction fees - Using Bitcoin for even one transaction a day gets expensive.

Online only - Unlike cash only works with network access.

Conformation Time - Failing to wait for conformation in effect allows double spend attacks. Think 10 people buying computer equipment from different stores at the same time.

Assuming the implementation was changed to support wider adoption, a fixed currency has significant economic issues. For example, making or taking a loan in a currency that’s gaining value quickly becomes untenable.

PS: Of course all of this could be changed, but acknowledging issues is the first step in selecting a new set of tradeoffs.

First off, thank you for making fair criticisms. Unfortunately some of your information is old.

You don’t need a bitcoin backed token, lightning does it.

Transaction rates are not artificially kept low. In fact most the vast majority of the time bitcoin has excess capacity.

Privacy- this is a legitimate concern but it is improving, slowly. Taoroot and Lightning are both privacy improvements.

So your daily transactions aren't meant for bitcoin. A distributed ledger that replicates all data globally for eternity is not an appropriate method for recording coffee purchases. Though I have done it. Bitcoin makes sense for settlement, and lightning is appropriate for coffee.

That said, I regularly clear bitcoin transactions for $1 or less in fees, and it is cheaper then every other form of payment in the world. You may think a SWIFT transaction is “free”, but its merely the cost is hidden. And don’t forget the inflation tax, that is a global wealth tax on any money held in an inflating currency. So compared to that, $1 to send $100 is cheap.

Online Only- I don’t think there is a solution to this criticism, but not sure what the issue is.

Lightning allows speed without double spend problems. Personally when moving large (for me) amounts of money I font mind waiting an hour for the confirmations. I certainly won’t trust a payment without them.

But bitcoin is voluntary, it doesn't have to be perfect in every regard.

"Online Only- I don’t think there is a solution to this criticism, but not sure what the issue is."

The fact that I need to connect to some peer-to-peer network or third party service for every transaction is a limiting factor. It reduces the efficiency of the system and increases latency, and it adds additional points of failure.

In fact it can be solved for electronic transactions and there is a mountain of published research on the topic that dates back to the late 80s. Here is a recent research paper:

https://eprint.iacr.org/2017/1220.pdf

The idea is to ensure that users who attempt to double spend can be identified and penalized later (e.g. by being added to a blacklist; some systems actually ensure that all transactions in which the cheating user participated can be identified, so merchants who try to evade the blacklist can also be penalized). The money has to be issued by a bank under the security definition. If anonymity is not a requirement -- and presumably a Bitcoin enthusiast does not care about anonymity since Bitcoin is not anonymous -- this can be easily achieved by using ordinary digital signatures.

I think you are not understanding how bitcoin works, and this exact problem of double spending was better solved by bitcoin. You dont need to trust a third oarty or “online service”, you can dimply run a bitcoin node. If it is that important a raspberry pi and SSD is cheaper than your average credit card terminal.

The credit card network, by the way, is much worse in this regard.

...so you need to be online, connected to the rest of the Bitcoin peer-to-peer network, to engage in a transaction. I am talking about offline transactions, where I only need to communicate with the other party in the transaction. Again, you can just read the paper I gave a link to, which describes this scenario, or any of the other hundreds of papers published on the topic.

Unlike many great ideas, those in the paper you cite just haven't yet gathered enough acceptance.

The value of the US dollar as a reserve currency is a faith-based article, and yet it works well. The confidence in the Fed to not unduly dilute the value has reinforced the resolve of the participants to continue to accept it as currency.

Bitcoin's paid many years of dues in this regard as well, and its garnered the confidence of its market participants despite its deficiencies.

> Transaction rates are not artificially kept low.

You can look it up, larger blocks where allowed in the past, 1MB is a completely arbitrary size that was overkill at the time but hasn’t increased. Even 1$ transactions are quite expensive though they are often much higher.

The lighting network has it’s own separate set of issues. It’s Bitcoin backed but loses some of Bitcoins advantages: https://arxiv.org/pdf/2006.08513.pdf

> Online Only- I don’t think there is a solution to this criticism, but not sure what the issue is.

It’s simply a dependency. Shops may have issues accepting CC payments after a hurricane for example, but they can always take cash.

The block size is not a limiting factor in transactions. And it was quadrupled in 2017.

The biggest problem with bitcoin is that scammers spread FUD to justify their scam coins and too many people believe the FUD.

You are repeating FUD here and basing it in your non-understanding of how bitcoin works.

Generalized mesh networks should solve this problem quite nicely in the next decade.

Generalized mesh networks will solve power outages?

The same can be said for central bank money.

Transaction clearance - Artificially kept centralised to keep states control supply.

Privacy - Every bank transaction requires real names.

Artificial scarcity - If everyone tried to withdraw the money from their banking accounts at or around the same time, all the banknotes in circulation would be unable to cover all the demand.

Transaction clearance between customers at the same bank don’t involve any central authority. In fact banks are reporting their net transactions between each other aka if A has 100,000 transactions for 100$ each with B that sum to zero net transfer they don’t need to report anything.

This is needed as otherwise banks could claim to have unlimited funds.

Bank notes provide privacy and are created on demand. Having 1:1 bank notes to M1 money supply would simply be wasteful.

Aside from its transaction costs, which may be mitigated by the lightning network, Bitcoin is still a lousy currency. One important function of money is the creation of credit. If you have a large quantity of money that you don't want to spend in the short term, the money is better put to use by loaning it to a small business or couple purchasing their first house.

Without regulation or FDIC insurance, very few people would be willing to give their bitcoins to a bank so that it could be lent out to people who have a better use for it. Even if a Bitcoin bank could exist, an economic downturn could cause a liquidity crisis, where everyone tries to withdraw their Bitcoin at once. The banks would have no way of returning the Bitcoins to many of their customers. Because there is no central bank that can print out Bitcoin, the entire Bitcoin financial system would be in ruin following the crisis.

This[1] is an insightful article from an economist who has experienced the real world economics from very close quarters.

I don't have any opinion about Bitcoin one way or another, though through these fascinating arguments I gain new insight about the money and its relationship with geopolitics, human civilisation and other aspects.

[1] https://www.yanisvaroufakis.eu/2013/04/22/bitcoin-and-the-da...

"I have yet to have an economist explain to me why deflation us bad"

There are a few different issues. First, volatility is universally bad for a currency, because it makes all transactions in the currency more risky. Money should always be a medium of exchange first and foremost; there should be little to no room for speculating on the value of money and people should not have to factor in unexpected changes in the value of money when determining prices. In general people will switch from more volatile to less volatile currencies because less volatile currencies make trade more efficient.

Unexpected deflation is particularly bad, because in addition to the general problems with volatility, it also triggers defaults on loans (because money becomes more difficult to obtain). Too many defaults in too short a period of time will create a "contagion" effect by reducing the collateral held by lenders (who use loans as collateral for their own debts), which triggers even more defaults. Worse, as lenders see their collateral vanish, they will try to make up the difference with money, taking money out of circulation and causing even more deflation and thus more defaults. This is the "deflationary spiral" scenario.

Inflation is not some trick to hand money over to "Wall St." Rather, a low, predictable rate of inflation is targeted so that there will be some "breathing room" during an economic crisis. It does not hurt people on a fixed income because it can be planned for and the fixed income can be adjusted for inflation (e.g. someone could hold a portfolio of TIPS). It also has nothing to do with the price of computers, which have become cheaper because of economic growth (and in fact have become cheaper over decades of inflation). Inflation also encourages investment activity by discouraging the hoarding of money, which is a good thing for the economy.

OK, well, congratulations on your gains, you made a good bet, it paid off, and I hope you can put it to good use. It does not make anything I said false. You asked why deflation is bad, and I gave you a summary of the various reasons why.

As for what we should expect...why should the current situation be so surprising? The vast majority of merchants who "accept Bitcoin" use a third party payment processor that immediately converts Bitcoin into a fiat currency. The number of people who use Bitcoin as money, rather than as a system to communicate payments made in some other currency, is vanishingly small. The "technology industry" has mostly focused on non-monetary applications of blockchains and a lot of attention has been paid to "permissioned" blockchains because they are overwhelmingly more efficient.

> "I have yet to have an economist explain to me why deflation us bad"

1 bitcoin will always buy more and more and more and more. So you have zero incentive to spend your money today and you have all the incentive to wait as far as you possibly can before spending anything. The economy would grind to halt. Isn't this obvious?

Besides, rich people can sit on their money instead of re-investing. They will never have to work and neither will their descendants. You basically established some kind of stupid cyberpunk feudalism.

You are arguing that the kings if the past with lots if gold starved, simply because their gold could buy more food over time. People don’t forgo food for decades to put more money into index funds despite the broad market increasing in value consistently over time.

Computers get cheaper every year such that even inflated dollars can be held to get a better computer next year.

And yet the technology industry has not ground to a halt. Food is low tech, cell phones are high tech.

It is obvious- this argument in favor of government being able to debase the currency to fund wars and somehow that’s good for poor people is never going to hold water.

But here is another thought- no matter how much you call it stupid, or fuedalistic, leftists gave been making this argument fir over a decade now and Bitcoin has only gotten stronger.

You may even be able to make it “illegal” if you ignore the constitution and laws, but you cannot stop it.

Bitcoin will be the tool that liberates the people out from under your technocratic thumb.

Thats what I find most exciting.

Wow, I can't even make sense of what I read. It's like all the crazy conspiracy theories thrown into a blender and the outcome is: "Bitcoin liberates!".

I think you really have poor mental models of the world. I'm sorry but there's not even anything else I can say.

> computers getting cheaper is good

In the context of deflation goods getting 'cheaper' simply means that their nominal price falls, while real prices remain constant. If you thought that deflation makes people richer (or that inflation makes people poorer) then you were wrong.

Inly if you redefine “rich”. Increased purchasing power makes you richer, giving you a chance to build wealth. Inflation robs this from society and is oppression. I really don't care to be gaslit about economics.

Bitcoin fixes this.

Inflation only impacts actual cash. Land, stocks, gold, durable goods, even loans, and other forms of wealth are not directly impacted by steady state inflation.

Remember, if you have money in an interest generating account then you don’t have actual cash you have an IOU for cash with whatever institution you deposited that money with. Now, changes to the inflation rate or hyper inflation are another story, but consistent ~1.5% inflation is the goal.

> I have yet to have an economist explain to me why deflation us bad

At risk of being the "Let Me Google That For You" Guy, it's not too hard to find articles where economists give cases against deflation, e.g.:

https://www.brookings.edu/opinions/5-reasons-to-worry-about-...

https://www.economicshelp.org/blog/978/economics/definition-...

https://www.pbs.org/newshour/economy/why-is-deflation-bad

The basic argument is that in small amounts, both inflation and deflation can be fine, but either one can become a problem. The issues with too much inflation are fairly obvious; the issues with too much deflation is that downward price pressure falls on everything. If deflation is so reliable that prices are going to be meaningfully lower if I can put off a big purchase for as long as possible, I'm going to do that. If enough people follow my lead, that hurts sellers. Wages go down -- more than likely through layoffs rather than pay cuts. And anyone who's already in debt -- and this doesn't just include your Uncle Bob who routinely puts too much on his credit card, it includes companies using lines of credit -- can end up in real trouble.

> computers getting cheaper is good

Sure, but -- even though I've seen this example trotted out before as a pro-deflation argument -- the prices of manufactured goods steadily fall due to continual improvements in manufacturing processes, economies of scale, and general technological progress. This has been particularly noticeable in computers over the last three decades, but Moore's Law isn't a supporting argument for the benefits of monetary deflation.

“This has been particularly noticeable in computers over the last three decades, but Moore's Law isn't a supporting argument for the benefits of monetary deflation.”

Asserting that an argument is not an argument is not a rebuttal.

The claim that people having more purchasing power will stop the economy is self serving for inflationists and never supported by evidence.

In fact the opposite has been the case time and time again.

As I proved in the example you simply ignored.

So, like I said, I have never seen an argument. Just these kinds of self serving assertions.

If you don't like the Fed throwing money at rich people, you should probably be rooting for inflation. The historically low inflation of the past decade has them handing out money like candy.

We have not had low monetary inflation since at least the Ford presidency.

You are confusing the consumer price index for “inflation”. It’s understandable, this lie is one of the earlier examples of fake news.

When the fed prints money it goes to wall street and politically connected people. (This is quite literally the definition of fascism- a private economy run by government)

Wall Street profits from the inflation, but the rest of the people get poorer.

No. Everyone profits (the world economy grows). Sure, some people will be left behind like blue collar americans but that’s mostly because of globalization.

Also people that put their money in the stock market for the long term will do much better than others. Even if they are poor, it doesn’t matter. Just buy SP500 with all the money you can spare.

At worst inflation is a tax on ignorance. If you keep buying crap you don’t need with your dollars instead of investing... it will suck for you.

What about those that are so poor that have zero money to spare in the first place? Well, that’s a situation that shouldn’t even exist. That’s why I live in European Social democracy where governments actually distribute wealth.

Besides the US can print as much dollars as they want because they have the largest economy and the largest military to keep the rest of us buying those dollars and inflating our own currencies in lockstep.

The US is not Zimbabwe. It’s not even comparable.

You can literally shove those dollars down the throat of the rest of the world for as long as the status quo is maintained.

If CPI doesn't do it for you—which is fair, it's certainly flawed—what's your preferred measure of inflation?

> and he is an inflationist

Is this going to be a new slur from the community?

Wasnt a slur, but a representation of his position. It should be a slur, though, as monetary inflation is a tax that hurts the poor the most.

No, inflation doesn’t hurt the poor the most! Have you even given this a minimal amount of thought?

Compare someone with a billion dollars and someone with 0 dollars today. Then huge inflation comes... who lost more purchasing power? Not the person with zero dollars, that’s for sure!

You really need to take a step back and start thinking because there are multiple people here spending their time and energy trying to explain something basic to you from first principles. Have some self doubt about your worldview. You are dismissing sound logic based on what? Most of the things you reply don’t even make sense.

> I'm not an economist, but nothing has convinced me yet that bitcoin is not the best form of money.

Contrary to the Bitcoin crow I don't spend my days thinking about it so my argument may seem weak. You mention bitcoin being 'the best form of money'. Assuming there is a hierarchy of forms of money, from what I understand the main advantage of Bitcoin is that Government can not manipulate its quantity. I wonder if a world where there is no possibility for governments to use monetary policy in times of trouble to stabilize the economy is desirable.

I would say that it shouldn't be the role of a government to govern over money.

The economy is very complicated. There are no models that can predict the output of changing its parameters. It wasn't possible before to have the properties in money that we have with bitcoin (a gold standard was easily removable by a powerful government). The current central banking system is an experiment as much as anything before it and anything that will follow.

I see it like this. I want my economic output to be measured in something that is:

- salabale over time (1 btc is always 1/21 million of the monetary base)

- salabale over space (i want to work remote)

- understandable and auditable (the bitcoin concept can be understood by everyone, the code is auditable by mid-level developers)

> (1 btc is always 1/21 million of the monetary base)

Why is that good? Why should I, if I have 1 bitcoin, always have ownership of a fixed proportion of the entire societal monetary base?

This seems like a great deal for someone who has a bitcoin, and a terrible situation for new workers and the economy as a whole. If the economy expands, your fixed proportion of the monetary base sees you profit off the backs of others for nothing more than sitting on currency. Not investing, not even speculating, just sitting on it.

As an employee I would rather have the lever in renegotiations. I also would like to be able to save without having to put my economic output at risk.

If you don't invest your bitcoin in productive assets you will be behind peers who do that, however they carry a risk.

Today you carry risk if you don't invest your savings. However with low-income you can't, as you need emergency funds.

What lever?

As an employee, in a growing economy denominated in bitcoin, you would see your pay drop frequently as the money supply gets stretched. There's no reason at all to think BTC-denominated salaries would be able to stay constant as the value of the money rises.

> I also would like to be able to save without having to put my economic output at risk.

That's not the same thing, a fixed proportion of the money supply does not guarantee that, nor is it a necessary precondition.

Further, this is not in the interest of wider society - work today should be valued more than work yesterday. If you want to grow your money, you make it work.

This is just a rehash of the problems with the gold standard now. But worse.

> As an employee, in a growing economy denominated in bitcoin, you would see your pay drop frequently as the money supply gets stretched. There's no reason at all to think BTC-denominated salaries would be able to stay constant as the value of the money rises.

Assuming the world productivity is denominated in 21 million bitcoin, if world productivity grows by 3% per year, my salary of 1 bitcoin gets more purchasing power. This is where you get a lever with your employer, he needs you to earn less, you don't have to negotiate to earn more (same applies to minimum wage, it needs to be adjusted upwards in a inflationary monetary system)

Every money is inherently more valuable yesterday than today, as you can divest it. I would argue that it is very much in the interest of the wider society to have their savings not inflated.

The best way to make your money work will always be to invest it in productivity, be it in educating yourself or investing it in companies. This investments need to be a lot more smarter and more sustainable than those of today, as the base money is not worth less every year.

I think wasteful spending is a property of an inflationary money, where smart spending would be a required property in a non-inflationary money.

There's no lever there. In a bitcoin economy there's no chance your contract gives you a fixed salary in the first place, it would be tied to some measure of inflation.

Like I said, most of the rest is just a rehash of gold standard stuff.

> Like I said, most of the rest is just a rehash of gold standard stuff.

Exactly, however bitcoin is infinitely better money than gold and makes the "gold standard" viable. Fortunately the gold standard has a lot of proponents globally, some of whom started embracing bitcoin.

I just hope that the experiment bitcoin keeps on going and I'm guessing we will see some form of resolution, maybe even in this decade. There is a lot to learn still.

Ah, I see, you haven't figured out why the gold standard was terrible either.

Tbh. my very basic knowledge comes from strongly opinionated austrian economics literature, which tends to confirm my bias, and from [0], which at least gives me some data points to refer to.

Do you mind giving me some of your arguments why it's terrible?

[0] https://wtfhappenedin1971.com/

I mean, for a start 'Austrian' economics is a joke.

There's plenty of literature out there about the end of gold standards in various countries. The upshot of it is that economies get warped by constrained currency supply and those who already have tend to get more, over those who produce or invest.

> I mean, for a start 'Austrian' economics is a bit of a joke.

More specifically, Austrian economics is overtly and proudly ideological rather than empirical; it is about advancing an agenda not describing reality.

It's worth taking seriously, but as a particular group’s body of theology and religious propaganda, not as science.

"It's terrible, it's a joke" isn't an argument. Neither is "there's lots of literature" (implying "go do your own research").

Your last sentence was decent; the rest of your post was... not very useful.

> "It's terrible, it's a joke" isn't an argument.

True, it's not so much an argument as a fact. As the other poster says, it's basically a set of idealogical positions.

> implying "go do your own research"

You're right, I shouldn't have left that to implication.

Calling a position a joke, and calling that a fact, is not very persuasive. I can't tell if you're a troll, or just a lousy debater, but you're trying to win the argument by default. You don't get to do that, at least not here. Either some evidence or some argument would strengthen your position; drive-by dismissive mockery just makes you look lazy and unwilling to actually engage in substantive conversation.

I am unwilling to engage in substantive conversation when it comes to Austrian economics. There's little point to it, those who are adherents are not going to change their minds, it's an idealogical, rather than empirical position to take.

I'm not trying to win a debate here, nor am I interested in debating the merits of a system that I don't think has any.

> if world productivity grows by 3% per year, my salary of 1 bitcoin gets more purchasing power.

but you are going to pay more for the same goods and services

if your bitcoin is 3% more valuable, when you use it to buy milk it's going to cost you 3% more

the game is working only because today if bitcoins increase their value you can exchange them for more fiat money

in a bitcoin economy one bitcoin is worth exactly one bitcoin, forever, whatever that buys

In a non-inflationary monetary system cost of goods decreases every year, thats how productivity growth works.

You seem to have it backwards, this is where the Econo101 book from the parent comment might help ;) /s

Inflation drives down the purchasing power, hence why milk gets more expensive every year, even though we get much more efficient at producing it. Remove inflation and 1 bitcoin buys you a liter today and 1.03 litres next year.

> In a non-inflationary monetary system cost of goods decreases every year

and so do salaries, they are a cost to someone ...

as long as your purchasing power stays the same salaries will go down as well.

it's simply natural.

you can't really believe that billions of people will get rich by sitting on the salary of a single year

BTW that liter of milk will generate 3% more profit to the seller. there is no incentive to lower the prices if hoarding is so rewarding

Salaries are negotiable and the renegotiation lever is skewed towards the employee. e.g. "i accept the pay cut of 3%, but will need 2 days of vaction more" vs "please employer pay me 3% more to combat inflation"

You won't get more rich by sitting on your salary, but you will also not get more poor like you do today.

If the milk seller doesn't lower his prices a competitor will do that, as he is able to do that with the bigger margin the better productivity brought.

Here in Italy I already have 28 days of paid vacation and can't be fired without motive and a judge can reinstate the worker if the motive was not valid

That's a political issue, it has nothing to do with how currencies work

If the milk seller is going to lower the prices to beat competitors, workers will compete on salaries as well

nothing different from what we have now, the only difference is that rich people could amass fortunes much more easily than today

they'll just need to keep their money in the bank (i.e. their gold reserve will keep appreciating by the virtue of existing)

That's great for you, honestly!

Rich get richer today by being closer to the money source. In the "bitcoin standard" non-rich people can even keep their money in the bank and don't lose purchasing power by not risking it.

Rich and non-rich will always want to take risk to increase their net worth, however the assets must perform much better to outperform the money. Unlike today where almost all investments appreciate when measured in fiat.

edit:

> That's a political issue, it has nothing to do with how currencies work

Would you agree that it would be a good thing if the base monetary layer would enable that? I only see that happening with a monetary policy that respects savings and is not alterable by a few elected and unelected officials

> can even keep their money in the bank and don't lose purchasing power by not risking it.

assuming they don't need the money to live and realise that 5 years ago they spent a today fortune on a liter of milk...

> my salary of 1 bitcoin gets more purchasing power

You assume your salary remains fixed. Why would it? As a portion of global productivity, your contribution shrinks.

Unfortunately my salary is fixed today as well and not only does it shrink as a portion of global productivity, but also as a portion of the monetary supply.

Why would or should your salary ever be a fixed proportion of either of those things?

Your labour certainly isn't.

>Bitcoin network only processes a small fraction of the number of transactions per day that Visa processes

Btc is not replacing visa. Btc is replacing central banks. The appropriate comparison here is what is the energy cost of the banking infrastructure of the incumbent system.

>Environmental concerns aside I am concerned that you are using electricity to power your computer, access the internet, and comment on HN. Are you the arbiter of "moral" energy use? Am I? Slippery slope, and an anti-human one at that.

>Energy prices are notoriously volatile; hence Bitcoin's value will also be volatile.

This is not how it works. There is an argument to be made for risk of on-grid miners sudden increase of electricity prices in the case of a power shortage. Miners don't like this type of risk, so they choose to locate at places with abundant supplies and stables prices of electricity. Miners sign long-term electricity agreements. Risk to off grid miners is another level removed from on grid miners.

>will eventually be abandoned entirely. According to how you feel? All signs point otherwise.

>the technical objections to Bitcoin outweigh the economic objections You are free to make your own fork, BIP, or new "crypto" and compete. Good luck. By the way, there are 7999 "crypto" coins competing and losing so far.

Western Union has a lower transaction rate than Visa, so does that make it necessarily less useful or valuable (either absolutely or per-kilowatt)?

Also, as you noted the energy usage is correlated with the value, not the transaction rate. Transaction rate limits could be changed arbitrarily without affecting the energy usage of the coin.

However you have the causal relationship backwards: The value of the coin determines what level of electricity spending is profitable for miners. The electricity spending of miners doesn't determine the value.

"Western Union has a lower transaction rate than Visa, so does that make it necessarily less useful or valuable (either absolutely or per-kilowatt)?"

The transaction rate is not what matters; what matters is the energy spent per transaction. Visa process many more transactions for much less energy than Bitcoin, and is therefore more efficient. I suspect Western Union's energy consumption is roughly in proportion to Visa's, but I have no data (the Visa example comes right out of their annual report, which covers both the number of transactions and amount of energy consumed).

"The electricity spending of miners doesn't determine the value."

The energy cost determines the transaction fees. Higher transaction fees make Bitcoin less valuable by imposing a greater burden on using the system. Yes, there are other factors that determine price of Bitcoin, but if nothing else changed ("all things being equal") then volatility in energy prices would trigger volatility in transaction fees and thus volatility in Bitcoin's overall value.

My point was that WU and Visa solve totally different problems which have different challenges. Why should it be expected they would have a similar cost per transaction?

> Higher transaction fees make Bitcoin less valuable by imposing a greater burden on using the system ... volatility in energy prices would trigger volatility in transaction fees and thus volatility in Bitcoin's overall value.

Good point, that is certainly a risk with Bitcoin.

EDIT: Actually thinking about it more I'm not sure why this would be true. Since the transaction rate is not related to the number of miners, volatility in energy prices might cause miners to enter/leave the system but I don't see why it would impact the coin prices.

Whichever miner mines the block that a transaction is included in must collect at least enough in transaction fees to cover the energy spent on mining. Since the block size (and thus number of transactions that can be recorded per block) is fixed, this implies that any increase in the global price of energy will raise Bitcoin transaction fees (all things being equal). This assumes that the transaction rate is always at the maximum possible; if the transaction rate is too low and blocks are not being filled, the effect is even more pronounced as there are fewer transactions over which the energy cost can be recuperated (last I checked, Bitcoin is already operating at its maximum transaction rate, but someone may want to correct me on that).

The reason it impacts coin prices is that higher transaction fees make Bitcoin less desirable as a medium of exchange and reduces demand. To put it another way, let's say I am paid in Bitcoin. If transaction fees increase, I will need to demand a higher nominal salary, at least enough to cover the transaction fees incurred when I spend my salary. Likewise, any merchants that accept Bitcoin payments will raise their prices, to cover the fees they will have to pay. Yet the same work is being done and the same goods are being sold; hence, inflation, or in other words, the value of Bitcoin has decreased.

If transaction demand stays equal, and the rate of transactions that can be processed stays equal, then why would the fees raise? If electricity costs go up, miners will be priced out of the market, and then difficulty will go down for other miners making it profitable again once the hash rate drops enough.

Miners can't choose the transaction fees, they will either process the most expensive transactions they see or just stop mining. If they stop mining, that doesn't impact the rate of transactions that can be processed.

The number of miners does not really matter. Whatever miner mined a given block must receive enough to cover the electricity cost, regardless of how many other miners are involved. There is also no particular incentive for a miner to reduce his own electricity consumption in response to the difficulty being reduced. The only reason miners will shut their equipment down is if they are unable to cover their electricity costs because e.g. nobody is willing to pay the higher transaction fees.

Obviously everything I described is a simplified model where energy costs change equally for all miners. The real world is not that simple, but there is some correlation in energy costs across different regions as there is a global market for typical fuels (coal, natural gas, uranium, etc.).

It is also important to remember that transaction fees are not in proportion to transaction sizes. People doing large Bitcoin transactions could absorb much higher fees, so in all likelihood nobody would be priced out of the market (and Bitcoin would be dominated by large transactions, which is more or less the case right now).

I am not suggesting miners will react to the difficulty change. The difficulty change reacts to the miners.

Miners will shut their equipment down as soon as the electricity costs become greater than the rewards. When some of the miners shut their equipment down, that causes a difficulty change which makes mining profitable again for the remaining miners, and also keeps the transaction rate the same. The miners have no way to impact what transaction fees are acceptable because they have no control over the transaction rate.

> That does not make it less true that money does not have magical properties and bitcoin will not create a new world order.

Is anyone really claiming that? The OP's post doesn't seem to be in this spirit anyway. It's more like "Bitcoin has true usefulness, it will keep some meaningful value for a long time, enable other use cases that didn't even exist before.". Nobody is saying that it is going to replace all other forms of money.

> Nobody is saying that it is going to replace all other forms of money.

To be a money it somehow has to. What is the value of a dollar ? The set of goods you can buy with a dollar. As long as the value of a bitcoin is expressed in another currency that is weird to call it a money.

There is a lot of conflation in btc threads between store of value, medium of exchange, and unit of account.

You are referring to unit of account.

https://nakamotoinstitute.org/mempool/bitcoin-as-a-store-of-...

The value of every currency is expressed in other currencies. How else would you do it? Are you saying there is nothing in existence which can really be considered "money" except maybe the US dollar?

If suddenly every land on Earth but the UK is flooded, £1 will still have a value : the set of goods you can buy with £1.

How is that different from Bitcoins? If suddenly every land on Earth but one is flooded, and some people there happen to use Bitcoins (in addition to their other assets, probably), Bitcoins will still have a value too. Same with gold and everything else besides the fiat currencies of the sank countries.

The value of a currency is expressed in purchasing power. Exchange rates are prices of currencies in terms of other currencies, they don't tell us anything about purchasing power.

Sure, the actual utility of the currency might be best measured with purchasing power and not exchange rates. Same with Bitcoin or anything else, though.

Do you really think it's feasible everyone else is simply missing some entry level economics knowledge? That's more likely than you missing something, or misunderstanding that very econ 101 knowledge?

I took more than 101, and not sure what you refer to there.

I'm close with a person holding a Ph.D. in economics (close as in she's my girlfriend), and she would absolutely enjoy arguing with you.

>Or maybe it comes from people who have read an Econo101 textbook and who have spent a lot of time trying to explain a crowd of Bitcoin enthusiasts why their reasoning is wrong

The market decides. Not an economics "expert", nor fitting btc to an arbitrary theoretical definition of money.

>It seems that tech has enabled a grand new theory about money to be implemented.

Are you aware of the Austrian school of economics?

The market is currently deciding that Bitcoin is almost entirely a vehicle of speculation, which is exactly what economists had predicted.

The Austrian school of economics is completely adverse to empirical data, which makes it functionally useless.

> Austrian school of economics

The only school of economic thought that is built upon the rejection of the scientific method.

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

Lazy people who don't read an article and comment becomes a proof point that Bitcoin is onto something? That's an extremely weak argument point.

And arguably there's a much larger mob of people who haven't critically thought through any of Bitcoin - who own Bitcoin - but that are financially incentivized to promote Bitcoin or are biased to want Bitcoin to become something.

Convincing yourself that someone commenting negatively about Bitcoin is simply jealous is also a common thing I've seen many Bitcoin owners use to justify ignoring legitimate counter-narratives of a lot of propaganda.

Bitcoin is nothing like gold. Gold has inherent value. If I buy 100% of the world's gold, gold would still be valuable. If I buy 100% of the world's bitcoin, it's the same as owning no Bitcoin. Gold would be immensely valued during an extreme global crisis (WWIII, massive solar flare, etc) whereas bitcoin would be entirely useless.

> If I buy 100% of the world's gold, gold would still be valuable

Sure, yes. It would be valuable in the way that a barrel of oil is valuable. It has a number of practical uses in electronics, medicine, etc. Valuable as a currency or means of transferring wealth? Not as much. It's cumbersome for that role.

Bitcoin's value is not "coins". It is valuable for what it does (transfer wealth). It's a ledger, not really "coins".

Did you read the original article? It's actually worth the read if you didn't yet.

The point of this comment was to debunk how Bitcoin is a good store of value. Gold is great in that aspect because the unique color, density, and stability make it trivial to identify, which gives it has immense strategic importance. This is why nations hold much more of it in reserve than they would need from industrial applications.

This comment of mine explains why I think Bitcoin is not a good form of money. Transferring wealth may be the most important function, but it's far from the only one. https://news.ycombinator.com/item?id=26319657

The article is certainly interesting. Unfortunately, the main source of inconsistencies with ledgers comes from human factors rather systemic ones. Fat finger errors, identity theft, credit card chargebacks, and fraud are all inconsistencies created by humans and can only be resolved through trusted centralized authorities.

There is nothing baseless in saying that using 0.1% of the entire world's energy in order to do 3 transactions per second is beyond ludicrous, and an environmental disaster of massive proportions.

Now do the gold mining industry, and then how USD is backed by armies. And then you can research Lightning Network on top of Bitcoin and how it can process an unlimited number of transactions.

Quite an amazing feat fitting all the ridiculous things Bitcoiners say about energy usage into such a short post.

1. The gold mining industry has nothing to do with bitcoin.

2. The gold mining industry has nothing to do with money.

3. The gold mining industry does not use anywhere near 0.1% of the entire energy production of the planet.

4. Just throwing the army in there for some reason, huh.

5. The lightning network does not "process an unlimited number of transactions".

6. The Lightning network does not scale.

7. Nobody knows how to make the Lightning network scale.

8. If the Lightning network worked, which it doesn't, it doesn't need to run on top of Bitcoin, so Bitcoin still does not need to burn 0.1% of the world's energy.

So you agree then that the USD is not fiat, but is in fact a plutonium based currency? How does this fact effect the bitcoin case?

"unlimited" surely you mean limited? theres rarely tech with no limits.

also the military/police/law/government defend you from being killed for your bitcoin.

Pretty close to unlimited, if you imagine a channel as slider or a bead on an abacus, as long as both nodes using the channel agree where it is, the position can be updated an infinite number of times without touching the blockchain. Timelocks let a transaction pivot through many of these.

This is just whataboutism. Gold isn't used as a currency. Seems a stretch to claim the armies exist solely for the USD. And until the Lightning Network is actually implemented it will remain theoretical.

Not sure where you get your news but LN is implemented and functional. There are wallets, services, software, etc, downloadable, functional, used every day. If what you mean to say "get all the marchants that support BTC to accept LN", then yes, there is still some progress needs to be done.

The LN is not functional. It does not have an implementation of routing that scales. Nobody knows how to make an implementation of routing that scales.

If LN ever sees anything more than toy usage, it will fall over instantly, and become unusable.

> there is still some progress needs to be done

That's an understatement. There are two restaurants within 100 miles of my home that accept BTC, let alone use LN.

Here me out. What if it was the only way to defund the US military? Would you be interested then? Why do we waste so much energy building killing machines? Why is there not a daily hackernews thread complaining about the energy consumption of the US military?

Because it’s a necessary to ensure you can buy and sell things when you want to.

If you think the US military or any military will go away because Bitcoin you’re delusional.

> Why is there not a daily hackernews thread complaining about the energy consumption of the US military?

People are willing to pay a high energy cost for safety. Bitcoin doesn’t provide me any safety and it doesn’t have the strongest military in the world claiming it’s worth anything.

If you think Bitcoin will topple governments be prepared for a long future of conflict and casualties. Maybe it will be worth it but I doubt it.

So all in all it’s a massive energy waste thought experiment.

Erm, there's a good portion of the world's population (I'd say over half) that doesn't think the US military's activities support it's safety.

Of course that’s true, I’m talking about US citizens not the world population.

What makes you think the US wouldn’t put it’s population in front of the rest of the world in a life or death war scenario?

Great, let's just let current trends continue for a few decades and we can live in a world where the most powerful military belongs to China. I'm sure we'll be much safer then.

I know the US military won't go away as long as USD is used as the world's currency. Getting off USD is a prerequisite to ending American imperialism, it's not the only thing that needs to be done by a long shot though.

Why do you think it is a prerequisite? Imperialism can certainly exist without having the reserve currency--consider the world situation on the outbreak of WWI, which was the height of imperialism and yet no country had a reserve currency (everyone being on the gold standard).

Taxes on USD are used to fund the military. I see long term value storage in Bitcoin with operational and privacy focused "cash" like crypto being pegged to BTC as a way to choke the input funds to the US military.

Why do you think it makes a difference whether Americans pay taxes in USD, JPY or wheat?

I'm saying it's much harder for the US government to collect taxes from crypto. It's much easier to work with a bank to directly pilfer your account than for them to force people to hand over their private keys. The latter doesn't scale nearly as well as the former.

I had originally figured that you believed that a government would forego its fiscal policies if a monetary crisis ensued, the general assumption for most aficionados of the gold standard (albeit one that is thoroughly disproven by history).

The way the government forces you to make good on your tax obligations is wage garnishment: they tell your employer not to pay you but pay the government instead because you're in arrears. In general, I think you overestimate the willingness of third parties to become criminals for your sake.

So you're saying that the only benefit of bitcoin is that is is useful for committing crimes. Gotcha.

Sure, and it's even harder to collect taxes from cash transactions. The thing is that with or without Bitcoin you still need financial institutions, so I'm not sure your tax evasion plan is as brilliant as you think it is.

Ending American imperialism is a massive war. It’s possible but it’s not going to happen without millions of casualties.

We can lessen those casualties by working hard to defund the military (which is a multi pronged endeavour).

For instance, I have no problem paying taxes for social services. I have a major ethical problem with my tax dollars being used to fund military action. Bitcoin is not the only piece of the crypto puzzle but if I could keep my assets out of the hands of the US government, I would do it for purely ethical reasons.

Ok, defund the US military now what? China or Russia has a stronger military and guess who is controlling our interests now.

What you’re proposing is that Bitcoin needs a massive shift in thought that overthrows all forms of militarized government. Possible? Maybe but highly unlikely without millions of people dying.

The new Bitcoin power would also need its own military to do this. So we’re back at square one or where we are today.

That is unless you think Bitcoin is also the answer to world peace which seems even more far fetched.

I do see the toppling of the US government having a domino effect on other powerful nations. If the systems are in place to end US imperialism, those same systems can be used by citizens of other oppressive regimes.

You’re proposing Bitcoin will bring world peace. Sorry, I don’t believe this.

Who controls the power grid, the land, the roads, the infrastructure? How is that power enforced? Physical force.

No one gives away power without a fight. If Bitcoin is the future people will need to die to make it so.

I will be very happy if the US lays down its arms- I can employ former soldiers as mercenaries to seize bitcoin wallets and mining complexes.

> What if it was the only way to defund the US military?

What if the moon were made of cheese?

I don't see any connection between the growth of BTC and the shrinking of military budgets or the reduction of warfare.

If that was the argument, I would ask in response: if it could do that, why would the combined vested interests of the US military-industrial lot allow Bitcoin to succeed? It’s not beyond the reach of governments to ban unwanted trade, and even though bans are not magic, even a half-arsed enforcement of such a ban is enough to prevent a currency becoming endemic.

> It’s not beyond the reach of governments to ban unwanted trade

Yeah, right, it worked so well for alcohol... It DOES (/s) work so well for drugs in the US right now... And hey imagine whether it's easier or harder to ban something that doesn't take any physical space in your suitcase and can be transacted with only internet connection.

On the contrary, bitcoin mining operations can be sniffed out by their impossibly outlandish power requirements, like pot growers used to be.

Increasingly, mining operations have to make special arrangements with entire power grids to suck up their energy and basically just burn it in arbitrary calculation. The scale at which this operates, and the increase over time, are both what makes up a lot of the problem, and what makes it impossible to hide.

If you'd prefer a world where people value bitcoin BECAUSE due to its unpopularity and externalities, governments resort to drone striking such operations when discovered, all I can say is: well, that solves the energy wastage issue, as blown-up ASIC farms aren't good at burning energy anymore. Maybe it solves the constant devaluation against energy cost issue, too! But I think you're missing the point and looking at only the end product of the industry.