I'm sure a lot of bitcoin wallets are permanently dormant/inaccessible due to lost keys, lost hardware, etc. Hacked coins also tend to stay unused. Although there are 16 million coins in circulation, a good chunk of those will probably never be sold ever.
I mined these ~1500 ether in the first few days of their going live. Then I killed all my AWS instances, inadvertently making this account inaccessible as a result. It's "fun" to watch it go up in value. It was under $1K at one point.
I don't feel too bad, though, as I would have sold at 2x rather than 500x anyway …
It seems really disingenuous to talk about market caps in cryptocurrencies. The US dollar doesn't have a market cap. No currency does. Market cap is the markets valuation of a company. The term is used to contrast it against their actual valuation. The use in crypto is just a mechanism to dress them up like stocks.
If you call these currencies, then you need to recognize that they are extremely deflationary and will never be used as fiat currencies are. If you call them speculative investments, you need to realize they're not backed by any actual value.
I haven't done a deep dive on Ethereum yet, so this is mostly addressing Bitcoin and all its derivatives.
Ethereum is BTC with an even greater wealth transfer to early adopters built-in in the form of the switch from proof-of-work to proof-of-stake. What's the acceptable stake? Ether. How do you get Ether? You're going to have to buy it off the early adopters who mined it.
IOW, the Ether guys thought that Satoshi was a chump who left too much value on the table.
In the bitcointalk forums they have a special name for these sort of coins... 'pre-mined shitcoins'
The whole PoS swap makes that even more apparent in Ether's case. I mean hell they hardforked because some rich friends on the dev team got 'hacked' by a poorly written smart contract.
Proof of stake mints new coins based on who already has coins (they have a stake in the platform's success). This is opposed to solving arbitrary math problems to mint new coins, which is called "proof of work". At some point in the future the Ethereum client will have the proof of work algo swapped out with the proof of stake algo.
The other side of the coin is that Ethereum has a well-funded foundation behind its software and business development, making it easier for established companies to interface with on various levels...
This is a valid point, one counter point is that currently the law treats cryptocurrencies like assets, and we usually track our assets in terms of dollars.
I think it is still a more useful metric than price. If you consider a cryptocurrency with a price of $1/unit, it still matters a lot whether there are 1 million or 1 billion units in circulation. Multiplying price with the number of units takes this into account.
I agree that "market cap" is a bit misleading. What would be a better name?
> If you call these currencies, then you need to recognize
> that they are extremely deflationary and will never be used as
> fiat currencies are.
For me, one of the best things about bitcoin is that it is actually going allow a lot of arrogant economic dogma to finally be put to the test, including that:
- currencies must be inflationary or the universe will explode and people will save so aggressively that they will die of hunger
- printing free money and giving it to rich banks is a good thing and doesn't totally fuck the little guy
- monetary stimulus smooths out economic cycles, and totally isn't part of the cause of the ridiculous boom-bust cycles we are having now
Are you going to provide any reasoning for your 'woke' economic views? It's well understood that a deflationary currency decreases investment incentives.
You need some semblance of stability though. No one is going to agree to pay me 1 BTC per week if they're implicitly giving me a 30% raise in week 2. Just the same, I would not be happy to get paid in an extremely inflationary currency that meant I was taking a pay cut week over week.
It has not shattered any belief in traditional currencies or governments for me. In fact, it has made me realize their value. People are just using it for speculation which makes it feel a lot more like a multi-level marketing scheme than a currency.
First, I should clear up some terms. I say speculation as a contrast to investing. Investing is when you have an understanding of something underlying value (or expected value) based on some financial fact (e.g. past profits). Speculation is when you purchase something and hope for it to go up in value.
I see cryptocurrency prices largely driven by speculation. There is no underlying value that justifies the price. This means that the people purchasing cryptocurrencies today are relying on someone else purchasing it at a higher price tomorrow in order to make a profit. I might have used the term MLM incorrectly when what I meant was pyramid scheme.
> I might have used the term MLM incorrectly when what I meant was pyramid scheme.
You are now using the term 'pyramid scheme' incorrectly.
Out of curiosity, do you consider other objects of speculation, including stocks, bonds, futures, derivatives, commodities and real estate, to be 'pyramid schemes'?
People are using it for a lot more than speculation, including skirting capital controls imposed by crony bureacrats, buying goods and services that are "morally unacceptable" to puritanical politicians, and as a means of savings in countries where confiscating bank deposits is matter of course.
A currency which has gone from not existing 10 years ago to potentially being a world reserve currency is alway going to be ridiculously volatile as that transformation occurs.
Volatility is reducing however. As the scale increases and the exact role that a currency will end up playing in the world becomes clear, so does its market cap. Amazon or google will never rapidly grow 100x in a few years again, and whichever crypto becomes the world reserve will have the same reduction in volatility as it scales.
It has not shattered any belief in traditional currencies YET -- give it a few more decades and a few more financial crises caused by incessant money printing and fake credit expansion and I suspect things will look quite different.
> currencies must be inflationary or the universe will explode and people will save so aggressively that they will die of hunger
That's not the (primary) problem with deflationary currencies. Say you're a typical citizen with at most a median income ($56,516, according to [1]). With that level of income, important purchases such as a (used) car, a post-secondary education, an unfortunate medical emergency, or any other large expense is usually going to require taking more than a trivial amount of debt[2].
Debt denominated in a deflating currency is effectively has a rising interest rate. Ideas about "aggressive saving" only make sense if have the ability to save. Since 3/4 (75%) of workers live paycheck to paycheck and 71% of those workers are in debt[4], a deflationary would directly increase most people's debt and effectively be a type of institutionalized usury.
> printing free money and giving it to rich banks is a good thing and doesn't totally fuck the little guy
Of course that's bad. Giving money to banks is one of the worst ways to run a "bailout". If you simply handed the money to citizens, a vast majority (that live paycheck to paycheck[4]) would spend it as normal players in the economy. The money would at least get a trip through the economy doing useful things before it ended up back in usual places money accumulates.
> monetary stimulus smooths out economic cycles ...
As for why any bailout might be necessary, in a perfect world it shouldn't be. However, in our imperfect reality we occasionally run into the fallacy of composition. Austerity tactics are often rational at the individual level, but we all do it at the same time we call it a slowing economy and a smaller GDP. A bailout is a workaround to fix that deadlock; it's bad, but it's probably better than a crashing GDP and a failing economy. The real fix would be some sort of policy or regulation that prevented the deadlock. Good luck on that part; it's a particularly difficult problem with a a lot of noise, complexity, and it's full of occasionally-rational participants - some of which are malicious.
> arrogant economic dogma
The arrogant dogma in economics is the notion that it is reducible to math[5][6].
[2] The current gap between real incomes and productivity[3] - and the increased availability and use of debt to (poorly) make up the difference - has the dual effect of making the use of debt much more likely and the size of the debt larger. However, the need for debt will still be common for most people regardless of our current situation.
Market capitalization is simply units * price. It has nothing to do with companies (or stocks), specifically: market cap is a simple formula that provides the total valuation of a commodity.
Frankly, it's a misnomer to refer to Ethereum (and certain others) as being currencies in the first place. The newer, functional cryptos have much more in common with barrels of oil or bushels of wheat than with traditional money
Taxes, primarily. Everyone needs to pay taxes and they need to pay taxes in their national currency (see: Modern Monetary Theory). This makes everyone seek out their national currency. Additionally, countries have a very different goal when creating money than miners do. Miners are profit driven and countries are interested in continuity and stability. You could also consider the GDP of a country as a backing for its currency, this demonstrates the currency is being used and the backing entity will remain solvent. The only thing cryptocurrencies are used for is speculation and buying drugs online, in all other cases they simply act as a pass-through for transactions in fiat.
The "solvency" of a government (that issues its own currency and only issues debt in that currency) is the same thing as its credibility. Or to tie it to what you said, a government is exactly as solvent as its ability to collect taxes.
Well, its certainly a common belief that the requirement to pay taxes in the national currency gives a national currency its value, but the hyperinflationary events in Zimbabwe and the Weimar Republic (and the subsequent worthlessness of those national currencies) demonstrate that this requirement is insufficient to give currencies their value.
In fact, the only thing that gives currencies their value is people's belief that they have value (much like gold before national currencies).
I'd also like to add that "countries" dont have goals, countries are made up of people, and only people have goals -- and all people are self-interested. The people in control of monetary policy are just as self-interested as the miners are, instead of receiving profit directly like the miners they inflate currencies to the benefit of major banks in their countries (and subsequently get highly paid jobs at those banks or elsewhere in the finance industry).
I invested a small (hundreds) into Ethereum and a few other coins earlier this year. They've since doubled in value. I can imagine if you were a very high risk investor and believed in crypto's right now you could be making a lot of money.
Inflation, manipulation by the federal reserve, civil asset forfeiture, bank account seizures. The purchasing power of the US dollar has consistently declined over time. Only a fool would place complete trust in the US government.
NEO is interesting if for no reason other than it doesn't even exist yet, and the market price has risen so quickly. One can easily imagine a scheme with any of the premined networks where the price is manipulated by only releasing a small percentage of the total supply and than buying up what's available on the exchanges with BTC to pump the price and than as rubes buy in, slowly selling off at the inflated prices.
The 50,000,000 units were arbitrary distributed to unknown parties within China.
One thing that I rarely hear about crypto-currencies is the environmental impact. I am a bit surprised to see the environment-friendly silicon valley getting excited by such an energy-wasting protocol. If we have to burn CPUs reversing hashes every time someone makes a payment, we should start building new coal and nuclear power plants now.
The utility of the service is disproportionately minuscule in relation to the insane amount of resources in energy and hardware currently used for BTC or ETH.
For a database, with 3-4 transactions per second [1], and each transaction consuming the equivalent amount of energy to power 1.6 houses for a day [2] it begs the question of if and when a viable alternative arises that is more efficient at offering an improved service with less waste.
This is one of the reasons that Vitalik wants to move towards Proof of Stake[1], which addresses the environmental impact of mining by not forcing computers to do complex crypto math to make the system work.
Ethereum is planning a switch from Proof of Work (burning CPU/GPU/ASIC cycles to secure the chain), to Delegated (?) Proof of Stake - people lock away some of their ETH holdings, some of those people are random selected to validate a block. They attest which transactions are valid, and put them in a block. If they're judged to be honest/correct they're rewarded with ETH in proportion to their stake. If they're found to have broken the rules their stake is not returned, or only partially returned.
PoS has detractors/claimed flaws, but it is definitely much less energy intensive than PoW.
Ethereum's planned PoS is not delegated PoS. Instead, it is actually byzantine fault tolerant (and validators/stakers get punished for acting badly).
For example, if a current validator signs two blocks that conflict in any way (aka, creating two conflicting forks), they lose their deposit.
Also, many of the issues with PoS have effectively been addressed at this point (nothing at stake, stake grinding, etc). This comes with a compromise of weak subjectivity - namely, that when a user syncs a client for the first time, they have to start with a valid hash from w/in the past couple months that they trust.
After this initial starting point, as long as they sync their client every-so-often, no further trust is required.
There was an article about this recently - it basically said that your average ore mine(not even coal mine) uses as much energy per day as the entire bitcoin mining does for the whole year.
Yea, even more so that mining is being dominated in countries with the cheapest electricity which are usually the worst in terms of environmentally friendly energy generation. Enjoy that Bitcoin, it contributed to the awful air quality in China.
Is there some meta-miner project you can use to mine a few of every not-obviously-garbage new coin, then stop, just in case they turn out to be worth something?
I don't mean to say that all coins are valuable. But it does ressemble another gold rush. Do some remember the domain name craze 20 years ago? Any kid smart enough to have bought generic domain names back then made lots of money.
67 comments
[ 444 ms ] story [ 2507 ms ] threadI mined these ~1500 ether in the first few days of their going live. Then I killed all my AWS instances, inadvertently making this account inaccessible as a result. It's "fun" to watch it go up in value. It was under $1K at one point.
I don't feel too bad, though, as I would have sold at 2x rather than 500x anyway …
If you call these currencies, then you need to recognize that they are extremely deflationary and will never be used as fiat currencies are. If you call them speculative investments, you need to realize they're not backed by any actual value.
I haven't done a deep dive on Ethereum yet, so this is mostly addressing Bitcoin and all its derivatives.
IOW, the Ether guys thought that Satoshi was a chump who left too much value on the table.
The whole PoS swap makes that even more apparent in Ether's case. I mean hell they hardforked because some rich friends on the dev team got 'hacked' by a poorly written smart contract.
I agree that "market cap" is a bit misleading. What would be a better name?
For me, one of the best things about bitcoin is that it is actually going allow a lot of arrogant economic dogma to finally be put to the test, including that:
- currencies must be inflationary or the universe will explode and people will save so aggressively that they will die of hunger
- printing free money and giving it to rich banks is a good thing and doesn't totally fuck the little guy
- monetary stimulus smooths out economic cycles, and totally isn't part of the cause of the ridiculous boom-bust cycles we are having now
Let's not forget this one:
- regulating the exchanges aids in price discovery
It has not shattered any belief in traditional currencies or governments for me. In fact, it has made me realize their value. People are just using it for speculation which makes it feel a lot more like a multi-level marketing scheme than a currency.
I see cryptocurrency prices largely driven by speculation. There is no underlying value that justifies the price. This means that the people purchasing cryptocurrencies today are relying on someone else purchasing it at a higher price tomorrow in order to make a profit. I might have used the term MLM incorrectly when what I meant was pyramid scheme.
(Obviously people are also using them for speculation, but that doesn't mean that's the ONLY current use case.)
You are now using the term 'pyramid scheme' incorrectly.
Out of curiosity, do you consider other objects of speculation, including stocks, bonds, futures, derivatives, commodities and real estate, to be 'pyramid schemes'?
Volatility is reducing however. As the scale increases and the exact role that a currency will end up playing in the world becomes clear, so does its market cap. Amazon or google will never rapidly grow 100x in a few years again, and whichever crypto becomes the world reserve will have the same reduction in volatility as it scales.
That's not the (primary) problem with deflationary currencies. Say you're a typical citizen with at most a median income ($56,516, according to [1]). With that level of income, important purchases such as a (used) car, a post-secondary education, an unfortunate medical emergency, or any other large expense is usually going to require taking more than a trivial amount of debt[2].
Debt denominated in a deflating currency is effectively has a rising interest rate. Ideas about "aggressive saving" only make sense if have the ability to save. Since 3/4 (75%) of workers live paycheck to paycheck and 71% of those workers are in debt[4], a deflationary would directly increase most people's debt and effectively be a type of institutionalized usury.
> printing free money and giving it to rich banks is a good thing and doesn't totally fuck the little guy
Of course that's bad. Giving money to banks is one of the worst ways to run a "bailout". If you simply handed the money to citizens, a vast majority (that live paycheck to paycheck[4]) would spend it as normal players in the economy. The money would at least get a trip through the economy doing useful things before it ended up back in usual places money accumulates.
> monetary stimulus smooths out economic cycles ...
As for why any bailout might be necessary, in a perfect world it shouldn't be. However, in our imperfect reality we occasionally run into the fallacy of composition. Austerity tactics are often rational at the individual level, but we all do it at the same time we call it a slowing economy and a smaller GDP. A bailout is a workaround to fix that deadlock; it's bad, but it's probably better than a crashing GDP and a failing economy. The real fix would be some sort of policy or regulation that prevented the deadlock. Good luck on that part; it's a particularly difficult problem with a a lot of noise, complexity, and it's full of occasionally-rational participants - some of which are malicious.
> arrogant economic dogma
The arrogant dogma in economics is the notion that it is reducible to math[5][6].
[1] https://en.wikipedia.org/w/index.php?title=Household_income_...
[2] The current gap between real incomes and productivity[3] - and the increased availability and use of debt to (poorly) make up the difference - has the dual effect of making the use of debt much more likely and the size of the debt larger. However, the need for debt will still be common for most people regardless of our current situation.
[3] https://commons.wikimedia.org/w/index.php?title=File:Product...
[4] https://www.cnbc.com/2017/08/24/most-americans-live-paycheck...
[5] https://www.youtube.com/watch?v=hmWbkPezgtU
[6] https://www.youtube.com/watch?v=L5AUAIzciLE#t=1355
From your comment I assume you're already familiar with the Mises Institute and the Austrian Business Cycle Theory?
Frankly, it's a misnomer to refer to Ethereum (and certain others) as being currencies in the first place. The newer, functional cryptos have much more in common with barrels of oil or bushels of wheat than with traditional money
In fact, the only thing that gives currencies their value is people's belief that they have value (much like gold before national currencies).
I'd also like to add that "countries" dont have goals, countries are made up of people, and only people have goals -- and all people are self-interested. The people in control of monetary policy are just as self-interested as the miners are, instead of receiving profit directly like the miners they inflate currencies to the benefit of major banks in their countries (and subsequently get highly paid jobs at those banks or elsewhere in the finance industry).
Relevant Reddit thread: https://www.reddit.com/r/CryptoCurrency/comments/6wo4od/have...
Potentially the worst source one can provide. Cryptocurrency buzzwords aren't an argument against the USD
Some like NEO and Waves did that for me. It took me cycling through 25+ altcoins to reach that level.
The 50,000,000 units were arbitrary distributed to unknown parties within China.
If it were trivial to compute the next block, there's not much value in the network and the coins.
I don't see how Crypto using electricity is any more wasteful than Google searches using electricity.
Now compare PoW against SCP.
https://www.stellar.org/papers/stellar-consensus-protocol.pd...
https://www.stellar.org/blog/stellar-consensus-protocol-proo...
For a database, with 3-4 transactions per second [1], and each transaction consuming the equivalent amount of energy to power 1.6 houses for a day [2] it begs the question of if and when a viable alternative arises that is more efficient at offering an improved service with less waste.
[1] https://blockchain.info/charts/n-transactions
[2] https://motherboard.vice.com/en_us/article/aek3za/bitcoin-co...
https://motherboard.vice.com/en_us/article/ae3p7e/bitcoin-is...
[1] https://medium.com/@VitalikButerin/a-proof-of-stake-design-p...
PoS has detractors/claimed flaws, but it is definitely much less energy intensive than PoW.
See this FAQ for more details, it has the most up to date details on Ethereum's PoS progress:
https://github.com/ethereum/wiki/wiki/Proof-of-Stake-FAQ
For example, if a current validator signs two blocks that conflict in any way (aka, creating two conflicting forks), they lose their deposit.
Also, many of the issues with PoS have effectively been addressed at this point (nothing at stake, stake grinding, etc). This comes with a compromise of weak subjectivity - namely, that when a user syncs a client for the first time, they have to start with a valid hash from w/in the past couple months that they trust.
After this initial starting point, as long as they sync their client every-so-often, no further trust is required.
How many Crypto threads does this exact comment have to be posted in before it stops becoming "rare" to hear about?
That's funny, it seems to be raised in every single hn cryptocurrency thread.
One thing I rarely see is a proper attempt to quantify co2 output. Electricity consumption is fairly well estimated, but environmental impact is not.
Would be interested to find one large industrial scale miner who actually has a negative impact on the scale that some talk about.
All the biggest I know of are located next to hydro dams and are 100% renewable.
It's rather naive to simply talk about electrity usage, nor all electricity is created equal.