Ask HN: What similarities might the crypto market have with the dot com bubble?
I was too young to remember the dot com bubble when it happened.
All I know is that a friend's dad almost lost their house when Cisco's price collapsed.
But I have been following the crypto markets very closely over the past few years.
We saw a very strange move about a week ago where almost every single coin across the board increased substantially in it's USD valuation.
And I have no idea what to make of it. Surely every single coin across the board did not increase in value overnight.
Are there any similarities at all between the dot com bubble and the crypto bubble that you can see?
65 comments
[ 5.1 ms ] story [ 136 ms ] threadFrom wikipedia: "A Ponzi scheme (/ˈpɒn.zi/; also a Ponzi game)[1] is a fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors, rather than from legitimate business activities or profit of financial trading."
Bitcoin's only real value is that of the chance of being adopted as currency. For it to become a currency people have to start buying bitcoins, as it is the only realistic way to get hold of them. So the only way to make value for the current holders(older invenstors) is more people buying into it(revenue paid by new investors).
Anyone can do their own research and come to conclusions about the future valuation of Bitcoin.
I prefer to think of Bitcoin as a pyramid scheme, if we look at the definition of that:
"A pyramid scheme is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products or services."
That's all Bitcoin has become, you buy in, then spend your time convincing others to do the same to increase your investment. If a technical flaw is found in Bitcoin the whole thing will collapse like a house of cards (or just collapse from the weight of ever increasing transaction fees).
As a currency, I have little hope for bitcoin in its current form. This is an area where it remains possible in my mind for an upstart coin to displace it. Some people seem to care about this; I've looked at a few niche coins that seem to care about this concept and focus on transaction speed, but none have made great progress yet.
Bitcoin has mathematical properties that can be 100% cloned. The only thing that makes bitcoin unique from some random bitcoin clone is that it has the backing of a big mining networks.
I firmly believe that whatever value bitcoin has is tied to the size of the mining network, and by extension to the energy burned to transact bitcoins. This simply isn't close to being permanent in the same way gold is. It could potentially work like a social thing, and go the way of, eg, MySpace. I don't see how that can hold its value for a generation; the risk of current prices being a blip is still very high.
The mining network behind it, the developer ecosystem working on wallets/libraries/services, etc. is the hard part to copy. It's worth the most, therefore it attracts the most time and attention, which helps to maintain its value. It may not be the best from a technical standpoint, but the size of it ensures a healthy financial incentive to improve upon it, which we're seeing now with layered scaling efforts (lightning network).
Ponzi schemes are a charade behind a curtain; pump-and-dump schemes are out in the open, but illegible unless you’re looking with a cynical eye to find them.
* No middle man
* Nearly instant transfer at low cost
* Non-geographically bound
* Non-governmentally bound
* Potentially untraceable depending on how you use it
* Incorruptible
* Uncensorable
* No central point of failure
* Transparent and open (as in source and freedom)
* Programmable and automatable
* It is the first system to solve the byzantine generals problem.
My point though is that anyone who has been paying at least even slight attention would know that there is a purpose and value to the design of and usage of bitcoin and other cryptocurrencies and to claim otherwise is an embarrassing display of ignorance.
If bitcoin attracts regulations, the technical aspects will lose to the social aspects. Overwhelming majorities of people obey financial law - see also, the tax system; people aren't in that voluntarily. These are not proven positive values. Yet.
"Nearly instant transfer at low cost" it is no longer instant or low cost. Confirmation times[1] have now skyrocketed and as I showed above as have costs. This is why Valve's Steam no longer accepts it.
"No central point of failure" like Mt. Gox[2]? And the recent currency split[3]?
[0] https://bitinfocharts.com/comparison/bitcoin-transactionfees...
[1] https://blockchain.info/charts/avg-confirmation-time
[2] https://en.wikipedia.org/wiki/Mt._Gox
[3] https://en.wikipedia.org/wiki/Bitcoin_Cash
Mt. Gox is not Bitcoin. It was an exchange. It has nothing to do with whether Bitcoin has a central point of failure or not.
It's looking like the dev team behind bitcoin is the central point of failure given recent political fights.
> No middle man
If the lightning network becomes a thing then bitcoin will have lots of middle men. Coinbase already is one in practice.
> Nearly instant transfer at low cost
People have already pointed out that this is totally false.
> Incorruptible
In what sense? How can any financial instrument by corrupted? There's definitely corruption at bitcoin-related institutions.
> It is the first system to solve the byzantine generals problem.
No?
> Non-governmentally bound
only if you are willing to break the law. which is true for lots of financial instruments.
A ponzi scheme implies the underlying "business" doesn't have value, or at least not worth the value which it claims to generate. Just to pick the low hanging fruit to keep things simple, Bitcoin proved it has value on the dark web. That alone doesn't show it has mainstream value, but it contradicts your definition of it being a ponzi scheme. Just to throw some mainstream value in the mix, what do you think of blockchain smart contracts and their position relative to mainstream financial institutions for escrow services?
I know many wealthy cryptos and they don’t have time for the noise here. Bitcoin could fall to $1000 and they are still rich, they don’t care about bubble talk.
I know I know, just because I profited on Bitcoin doesn't rule it out as a Ponzi scheme or whatever HN calls Bitcoin nowadays. I and many others genuinely believe that Bitcoin provides great value through its underlying technology and also has the potential to become something greater.
We are literally living in a Neil Stephenson novel and HN as a group is collectively sticking their fingers in their ears. It’s amazing the visceral reaction crypto gets here, the people who don’t like it can’t simply ignore the posts, they write 5000 word screeds and vote with hive mind to stop alternate opinions.
That's not to say Bitcoin doesn't have some usefulness on the fringes of the economy. It's like untraceable gambling. We already have that everywhere and society continues to function.
You seem to be placing a lot of your own emotional baggage onto other people's concerns. Most people talking about Bitcoin and similar just aren't that vested into it (either literally or figuratively). For example this:
> since bitcoin was $1 and missed out on the rise. So now they are actively rooting for it and all cryptos to fail, and ignore the benefits of the blockchain.
The fact you perceive anyone critical of Bitcoin and similar blockchain currencies as jealous is very much deflecting your own baggage.
I feel the need to write so strongly to counteract the vibe. I guarantee there will be 20 popular comments above mine (which will likely go negative) that all say variations of the same thing, so it’s good to get a different opinion out there.
Most people on HN understand the Blockchain can be described as a p2p distributed database. It has great use cases, like asset registries, but im still waiting for the killer applications.
Personally, I've only used cryptocurrency for buying drugs on darknet matkets. We were the people actually using btc. Until the transaction fees got crazy and people moved toward better coins.
My father taught me a great lesson along those lines growing up.
I used to collect baseball cards, and was thrilled when I realized that one of them was "worth $20" in some baseball card collecting book that I had.
I ran to my father and exclaimed with great joy that "I have a baseball card and it's worth $20!" (which was a lot of money for an 8 year old at the time...)
To which he said, "Not to me it's not. I wouldn't give you anything for it. Because I don't collect baseball cards."
That blew my 8 year old mind.
It said it was worth $20 in the book, but my dad wouldn't pay a penny for it.
(He probably should have! It's worth $100 today!)
But the lesson was sound and has stuck with me ever since.
I still collect the odd thing these days, but I don't pay too much attention to what some book says they're worth.
We can all point to examples where:
1) something was valued low,
2) then it was valued high, made the people who bought it low rich
3) crashed and lost the people who bought it high a lot of money
Mine is Isaac Newton's bankruptcy because he has some name recognition.
And further we can all point to examples where people did something stupid, got lucky and benefited from it. Hacker News is a reasonable place to ask, because it is a good crowd to assess bitcoin's technical aspects.
Fantastic argument!
Maybe crypto is simply a better way to transact for many use cases. If we all agree it has value, then it does, and it’s really as simple as that.
YC-type people don't benefit from the VC system; YC is a subversion of the VC system, an effort to organize promise founders against the interests of VCs. Ceteris paribus, every YC founder would rather raise 5MM in an ICO than to raise them in capped notes or (even worse) directly from a VC.
If ICOs actually mainstream, YC itself gets more valuable, not less, as they control essentially the only noteworthy credentialing system for startups. Not to mention, they'll be the locus of all the selling-picks-to-prospectors activity that will follow.
Meanwhile: "congratulations" if you made money by buying and "hodling" back when 1 BTC was $1. People made money on Pets.com, too. So did the banksters who made money reselling bogus AAA MBS's. Nobody doubts that you can win large sums of money gambling on the actions of the greater fool.
But: it looks to me like most of the concerns raised by Bitcoin critics have played out as expected. Decentralized? No. Bitcoin is controlled by a small, self-interested group of big-time players. Currency? No. Bitcoin is a speculative asset. Seamless way to transfer funds? What are transaction fees for Bitcoin now? Here's approximately the trajectory of Bitcoin: in 2012, you could buy a pizza with it in 1-2 cities. In 2017, you can't.
And, as predicted, tens of other organizations have come up with their own competing cryptocurrencies. Many of them are objectively more sound than Bitcoin. But we're all meant to pretend that somehow, 1 BTC is worth $15,000 because it really is worth that, and not because Bitcoin is a distributed pump-and-dump scam.
Plenty of crypto currencies exist other than bitcoin. This is only the beginning, and scaling is one of many issues that will be figured out. Even if you don’t buy coins, paying attention to the tech coming out can be beneficial and interesting.
I am by no means an economics or marketing expert, but I think it's worth considering Bitcoin's "brand" impact and its history. Humans are irrational and do a lot of questionable things even with ample evidence of better alternatives to our choices.
Tuur Demeester makes a comparison in this podcast (https://www.theinvestorspodcast.com/episodes/bitcoin-masterm...) to Bitcoin/altcoins vs Coca-Cola and its competitors, starting around 1:05:20. He says that Coke had countless competitors trying to overthrow it as the #1 cola brand, but it stuck around as a result of familiarity and being of quality (my takeaway, not his exact words). He goes on to say that if Bitcoin survives with the same core developers trying to make it better and better, the brand attacks become less and less of a threat.
I know full well what HN thinks of crypto currencies and technology in general, which is exactly why I asked the question here.
Aren’t REQ and QSP supported by YC.
The core development team behind Bitcoin doesn't seem to be interested in fixing these problems for the time being.
So the only similarity I see is irrational investment fueled by FOMO.
https://www.nytimes.com/2017/12/21/technology/bitcoin-blockc...
During the dot com bubble everyone was doing something similar.
In the crypto bubble, people are investing in Bitcoin, Ether, etc., but they think they're investing in cryptography.
</sarcasm>
I think in both cases there was tremendous real potential, but it's hard to pick out in the moment, even with a technical background -- there's more to winning than technology.
I'm not old enough to remember the dotcom bubble but I wonder if things like pets.com benefitted from people conflating its potential to that of ebay or amazon.
Being able to freely create a currency that has the necessary legitimacy to actually work while still being able to cleaning integrate with a larger organization is a powerful weapon against getting screwed by globalism and these massive multi-national corporations. Where I call home is a former mill town that got fucked. Having a solid local currency that all the local businesses will recognize will make home much stronger. For this to reach it's potential though, there needs to be massive investment and social change - just like tinder needed fb, websites, emails and fast internet connections to reach a point of maturity, these new digital currencies need a full ecosystem.
I don't buy or sell any of these currencies even though it would be ridiculously easy for me to do stuff that would be terribly illegal with stocks. It's because I think there will be a spectacular crash in the short run but in the long run the next FANGS will related to the blockchain and crypto technologies.
So hate at your expense.
People invest in a bubble, despite knowing it is a bubble, because they want to make money. And they are willing to take the risk to do so. Why not, when you can invest a small amount of your net worth and make 2-10x returns in a matter of months? The only problem is nobody knows when the bubble will burst.
Bitcoin like Boo.com, Pets.com, WebVan, etc. were first movers, had good branding and promised disruptive models. These all have value, but were overvalued because the main motivation was to make money. Just like how the main reason to buy Bitcoin now is to make money.
* Everybody just wants a piece of it no matter what. Check
* Companies that have nothing to do with cryptocurrencies are trying to associate themselves with it. Check
Calling bitcoin a scam or ponzi scheme is really not fair, it dismisses the underlying utility of blockchain. Look at the tech of Ripple, their performance characteristics are aiming at the VISA and AMEX of this world. Bitcoin is turning into the reserve currency of crypto-coins, there are lots of alternatives which better serve day to day transactions.
The real point I am trying to make is that right now it feels like we're in HTML 2.0 days and bitcoin is Netscape Navigator. New finance companies are going to spring up over the next few years, in about 5 years they'll start eating into traditional banks. Those banks and institutions will start panic buying. Nobody will know who the next Google/Facebook of the finance industry will be and thats the risk right now.
Regarding the price change, you have to be careful. It's not a fiat coin backed by a government, so it's value is purely based on what the guy next to you will pay for one coin. On that basis bitcoin is very risky because it's value to you is $16,000 but your car mechanic thinks it's worth $0.