"It is based on faith" TDS on Bitcoin and cryptocurrencies

It’s really wasteful, and it’s wasteful by design—participants compete to expend as much energy as they can, and the system eats as much power as it’s given without producing any more value

These are not so much “currencies” as platforms for automated gambling

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It doesn’t cost the equivalent of a third world nation’s GNP to print paper money, for yet another huge difference.

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I went and wasted some time looking at couple cryptocoins and their computation.

The description of Monero really stinks up the place with bafflegab.

This isn’t the primary source, but really, it’s fair more smug than it should be. There were a lot of things that set off smoke detectors, and finally it failed on this one:

Devices with 32-bit CPU cannot exploit the algorithm correctly.

That’s just not true, especially if it’s running inside a byte code virtual machine. Now, they could have qualified that by saying that without direct CPU access to over 2G ram, it could be impractical, but it’s not my job to be their muppet whisperer. If their algorithm won’t run mathematically correct on a Turing Machine, then it’s broken. (Finding a long enough chain, I leave as an exercise…)

I guess it’s important to remember that the work calculation part is more mathematical masturbation than real cryptography.

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The difference is that my Government insists I pay my taxes in £. That’s 70m people who require £, and therefore are willing to accept payment in it.

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In an effort to be concise, my razor cut some corners. I am fully aware of crypto’s failings and I am not a supporter. So my point was not to defend it but to challenge the assumption that fiat currencies are more “real” than other forms of value and transfer: all of these systems depend on an huge element of perception, belief and faith.

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The faith-based nature extends to gold, which doesn’t have any magical property of value or scarcity compared to other commodity metals.

Lately I’ve noticed a lot of TV ads pushing the “specialness” and “timelessness” of gold as an investment vehicle. This is no doubt in response to the large amounts money being shoved into promoting the crypto exchanges that traffic in the Libertarian crypto-bros’ attempt to re-construct what Keynes called the “barbarous relic” via digital means.

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Not especially huge element of faith - I pay my taxes in £ or go to jail.

Fiat currency’s value is 100% that the state requires it for settling debts to the state. The state can pay my doctor in £ [1] because they can go to a shop and buy groceries in £, because the grocer owes sales tax to the state in £.


  1. that it creates by spending them into existence ↩︎

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a summary maybe of that would be that currency is policy more so than just tokens we move around. crypto doesn’t have those policies, no regulation, or governmental backing. it’s just tokens.

some people see that as a win, other people see that - and the horrific climate impact - as a loss.

for me: much like i love food safety standards, im glad im not paid in bitcoins

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Investing in gold generally isn’t a good idea, and there are plenty of hucksters trying to get rich from dealing it, but unlike many forms of crypto gold is not and likely will never be completely worthless. It has real-world utility with good properties like high conductivity and extreme corrosion-resistance. If it were as cheap and plentiful as copper we’d see much more widespread use of it on everyday items like electronic components, protective coatings, medical implants, fishing weights, etc.

Plenty of potential for it to eventually lose the vast majority of its value though.

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Those are some damn big ‘corners,’ yo.

The point is crypto is even less sustainable than any other form of currency, on top of being bad for the environment.

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With any fiat currency, there is a well-regulated system to issue, exchange, and trade via central banks. Crypto was designed to circumvent regulations and laws, allowing it to be used to pay for and fund all sorts of shady stuff.

Anyone with fiat currency can walk into any legitimate institution in the world and use it to purchase. You’re limited to crypto exchanges to turn cryptocurrencies into fiat currencies, and to do so requires paying a substantial percentage of value, unless of course you’re one of the early adopters of crypto, which in that case you get special treatment and simply collect the percentage from the rubes newer crypto investors.

All the hype about using crypto to purchase is just that. It was a marketing ploy to get merchants to advertise they accept crypto when in reality hardly any of them know how to process a payment using crypto.

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I kind of wonder the relative importance of the two, and just how much more useful gold might be if people didn’t treat it as valuable.

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Gold is about 70% as conductive as copper so copper would probably still be the main conductor of choice, but if it were cheap to gold plate it for corrosion resistance I would think that would be far more common than it is today.

But imagine some novel uses that we wouldn’t even consider at current prices:

  • Non-toxic fishing weights
  • Use as the positive electrode in novel new battery designs. (It has a very high electrical potential)
  • Environmentally friendly ammunition that’s not exclusively available to Bond villains. (ideally for things like buckshot and target practice, not necessarily just murdering people)
  • Denser, therefore more space-efficient dumbbells and other exercise weights.
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Real money is pretty esoteric: its value is based on faith too.

No, the value of “real” money is based on violence. You must pay your taxes in dollars. If you are stubborn enough about not paying your taxes, eventually men with guns will take you away and lock you in a small room for a long time. Therefore, you need dollars, and so does everyone else, and so people are willing to accept things in exchange for dollars.

it is no different than any other medium to hold and exchange value.

Despite the name, cryptocurrencies are not a medium of exchange in any meaningful sense. You can’t buy bread with them. No one uses them to buy anything (aside from a few super-rare, super-performative things like buying a Tesla). The high latency, transaction costs, and volatility will forever prevent cryptocurrencies from ever actually be used as currency.

Cryptocurrencies differ from other “mediums to hold value.” They differ from “solid” assets like gold and other shiny rocks in that (1) they’re intangible, and (2) they’re complex as fuck. They differ from “paper” assets like securities (i.e., stocks) in a couple key ways too: (1) Due to their intangibility and complexity and the opportunities for fraud they create, securities are very heavily regulated to protect investors. Cryptocurrencies are not. (Gee, I wonder why Wall Street loves them…) (2) The value of a share of stock is backed by the expected future profits of some productive business enterprise. Someday the business is going to declare a dividend, or do a stock buyback, or, in the worst case scenario, go belly-up and liquidate and distribute its assets. In each case, the shareholder can expect to get some “new money,” the ultimate source of which is the business’s future profits. By contrast, there is no “new money” in cryptocurrency. It’s strictly a zero-sum “bigger fool” scheme, in which you can only come out ahead by finding a bigger fool who is willing to pay even more than you did.

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People like to say this, but Sweden has 0.07% incarceration rate in total, and yet krona still have value. So it probably would make more sense to look at why people pay taxes other than being dragged to prison, rather than attributing something extremely common to something extremely rare.

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So what? You don’t have actually use violence if the threat of it is sufficient to get people to pay their taxes. Either that, or Sweden just might possibly be filled with people who believe taxes are a fair price to pay for civilization.

I must admit, though, I did oversimplify a little. Something works as a currency when a large fraction of people are willing to accept it as payment for their goods or services. And what makes them willing to do so? Generally, the belief that other people will also do so. Which is perfectly circular. Something has to get this cycle going in the first instance. And that, at least in every instance I’m aware of, is the threat of state violence if taxes aren’t paid in that currency. (Or, likely hypothetically, a populace willing to pay their taxes out of civic-mindedness and enlightened self-interest.) Once the cycle is going, it’s self-sustaining so long as the currency does a good job as a currency. So the threat of violence need not continually underpin a well-functioning currency on on ongoing basis.

In any event, cryptocurrencies have fallen very, very far short of getting that cycle going. This probably would have happened no matter what, since they suck as currencies. (High latency, high transaction costs, high volatility.) But it also suggests that there might not be many, or any, alternatives to violence potent enough for the job of getting the cycle started.

Couldn’t this be said about virtually anything? I mean, even commodities with actual utility (food, fuel, etc.) are assigned valuations based on faith to some extent. While it is commonly accepted that things do have value, the exact value of any given thing is difficult to quantity, and valuations are bound to vary from person to person.

But in any case, cryptocurrencies are not at all currencies; they are de facto commodities because no attempt is really made to use them as currencies. And this is because transactions using cryptocurrencies are too costly by design. When you pay for a candy bar with a dollar bill, the shop clerk does not receive 95 cents because a part of the dollar disappeared as processing fees.

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More specifically, it’s based (in part) on the issuing nation-state’s monopoly on violence. The question then becomes one of legitimacy.

Ideally, for example, a liberal-democratic state includes some public oversight and constraint on the exercise of that monopoly and the specific cases where it can be used. In turn, this means that most citizens see a real everyday use for the currency that doesn’t involve paying taxes.

Effectively a pyramid scheme, one with built-in deflation.

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