Topic: cryptocurrencies are not just stores of value, they are networks (Read 1773 times)

Yes, but that is not a currency usage.  People don't hodl bitcoin because they bought some stash of coins to spend them on the internet, buying stuff.  They hodl bitcoin because they want to see the price rise.  Actually, I must be one of the few who bought a modest stash of bitcoin to buy stuff on the internet (VPN and VPS services essentially) - but its value increases so much that I put them aside, and I'm not using them any more as a currency, but also as a greater-fool betting stash.

I mean: one could buy, say, 10 BTC at a certain point, because one has foreseen to spend about 10 BTC in the next few months on things on the internet: then we are in your case, of holding times of currency being long.  But one could also buy 10 BTC because it could rise in value, and one doesn't want to "miss the train to the moon".  Then one is speculating in a greater-fool game.  I think that most "long held coins" are of the last category, and are not "just a practical measure of buying a heap of coins to spend them over the next few months".


Almost all of these systems have fundamental problems, which make that they cannot go mainstream for the usage they claim ; on the other hand, they all have a clear, and unlimited, already active, usage: pure speculation.  I don't believe in any of the announced dreams of crypto, whether it is "replacing fiat", or "replacing justice/contracts", or whatever on a mainstream scale.  But they are ALREADY doing what they do best: being the BACKING of IOU on exchanges, to gamble on in a speculative game, like the entire financial market of derivatives.  THIS is the real invention of crypto: a new kind of speculative derivatives market.  The real trading is not on chain (nobody cares about that chain), but is with IOU on clearing houses (exchanges).  The chain only backs the IOU of the clearing houses, and allows the transfer between financial institutions, and clearing houses.  THAT's crypto.  The announced applications of the block chain don't matter (payments with bitcoin, contracts with eth, world computer with golem, ....).  Only big transfers between big financial players and clearing houses matters, and EVERY block chain can do that.

We are indeed witnessing a revolution, but one in the financial speculative sector.  Instead of betting on the production of rice or the sales of cars, one has now invented a totally new market of financial speculative products: crypto IOU on exchanges.  THAT is what has been invented.  Not "currencies", "smart contracts", "distributed storage", "pay-for social networks", or whatever these chains CLAIM.  Just tokens on which to speculate on exchanges.

There's about 10 times the world's economy in "speculative assets" (the derivatives market).  There's a great thirst for these things.  This is why crypto will catch on: it will be the unregulated gamblings' feast of the financial world.

That said, the crypto ecosystem is in full experimental mode, and maybe some day something useful comes out of it that can go mainstream.  This will most probably NOT be a "mainstream freedom thing", but some kind of authorities-endorsed stuff on one hand, and niche applications on the other.

Crypto is much more fragile than one thinks.  The naive "single block chain" flow with cryptographic protection is too naive a picture.  Hell, Satoshi didn't even think that alt coins would see the daylight.  As a state, one cannot allow the whole economy to depend on obscure cartels that can decide, and are under unknown influence.  Bitcoin can never be allowed to become a replacement for a national (or international) currency - first of all, bitcoin's design isn't made to do this, contrary to claims of the opposite by its creator - but it would put a country's economy at the whims of unknown entities under the unverifiable influence of foreign powers.  For instance, imagine that Europe would have a de facto replacement of the Euro by bitcoin.  Then Europe's economy would even be much more dependent on what happens in China.  There would be huge incentives on the Chinese side to control the mining cartels over there, and they wouldn't miss out on it.  Unless Europe would engage in a "mining war" with China, war it cannot win, and which would transform 3/4 of the economy in "mining producing assets", China would dictate the European monetary policy (by modifying of course bitcoin's emission protocol they would hold firmly in their hands).  The only solution for Europe would be to fork off bitcoin, and make a kind of proof of central bank coin, where blocks are signed off by a central authority or something.

*this* is the kind of crypto that may one day see the light: centralized transparent crypto.  Authorities would dream of being able to see all its citizens/victims transactions.  People would also see authorities' transactions, which would be the "democratic concession" in order to have total financial control over the people.

This is what keeps the money and network what do you think?

You are right, but on the other hand, there are entities that are holding Bitcoins much longer than they would hold cash and bank account balances - the "hodlers" and "long time investors", and afaik also exchanges and payment processors are holding a large part of their holdings ("cold storage") for several weeks or months. At least exchanges have only a low volatility risk if they don't run a fractional reserve.


Totally right. As you correctly mention later - the altcoin speculation is fueled by hopes that some of these coins will be some day "the next Bitcoin" and so the speculation is related to at least a "dream" of future usage.

But if this is pure delusion or not is not so clear for me. It's obvious that a Bitcoin clone without any new feature or only a new algorithm, like most of the lower positions, will have only a very limted usage (except perhaps for some niche-oriented coins, e.g. those targeting a specific video game community). But myself I think there is a possibility for a scenario where cryptocurrencies are much more used than today and the market is more fragmented, with 7 or 10 big players that are doing really well (and not only on Coinmarketcap).

they can adopt Blockchain (so Bitcoin base network) ... but they must pay the fees even if they only use the 100 000 000 satoshis as a marker (or timeline) in 1 BTC.

that's why i love bitcoin and the fees strategies.

Well, the reason for that is essentially that most merchants convert almost directly received bitcoins into fiat.  If that would be the only difference between fiat behaviour and bitcoin behaviour, it would already multiply velocity by 2 (the "holding time to spend" of merchants being essentially zero, instead of being the usual delays between them receiving money, and paying their providers).  But also buyers of bitcoin are, if they only use bitcoin as a currency, usually only acquiring coins relatively quickly before spending them, which would make me think that there too, there's a speed-up as compared to people receiving fiat (their salary) and holding it until they spend it.  But I agree that this is just guess work.  The real conclusion is that the market cap and the price of bitcoin is essentially speculative, and that the value of it that comes from the demand to be used as a currency, is a negligible fraction of the market price.

Now, in how much this speculative value is only market's best guess at its *future* currency usage, or in how much this speculative value is essentially "purely speculative", unrelated to its "Fisher value" due to demand as a usage of a currency, is open ; however, my own guess is that indeed, it is essentially purely speculative. 

The reason for that is that we see that too with other crypto currencies (alt coins).  There, the relationship between market price and "Fisher utility price" is even much much more distorted.  Now, I know the statement of bitcoin maximalists that there is only one "real" crypto, that's bitcoin, and all the rest is shit, but that's not realistic.  Alt coins are just as well crypto as bitcoin is.  Given that alt coins are visibly entirely "purely speculative", there's no reason to assume that bitcoin's price is ALSO not "purely speculative".

This is why I think that the "real world economic value" (for a currency, that's exactly Fisher's price calculation) has really nothing to do with the market price.

Now, of course, both explanations meet in the "delusionally story about the future".  You can say that alts, just as well as bitcoin, have the potential to have one day a HUGE real-world economic value, if ever they "replace fiat", or "they replace contracts", or "they replace finance" or whatever delusional story ; so the market is only guessing at this huge potential.
If you see it that way, the market is making a rational guess about the future real-world value.  If you think these stories are delusional (which I think they are), then this is just a cheap justification of pure speculation without any fundamentals behind it.

I agree. But the price - and so the "estimation of future fundamental value" - has changed in 2017 heavily to the upside, while the fundamentals (e.g. transaction count/volume) have not changed significantly since the end of 2016, when Bitcoin's price was 30%-40% of today's price ($2500). It's true that it's somewhat "capped" because of the 1MB blocksize limit, but if you take the pure number of transaction added to the mempool the growth since December 2016 seems not to justify the price increase. And there are some negative fundamental news, too, like the possibility for a chain split or a "flippening" (=losing the leadership as most valued - not most used! - cryptocurrency).

For me, that is a "bubblish" (sounds like bullish but is actually bearish) sign, not an indicator of a growing network. There seems to be much newbie speculation in countries like Japan, Bolivia and Nigeria, for example.


I doubt a bit if you should multiply velocity by five respect to fiat currencies. But even if you take a "normal" velocity of 10 then the "fair price" would be below $200, so BTC would be at least 10x overvalued.

A perfect understanding of bitcoin shows that its not only a form of currency or an asset to be stored but also an infrastructure and that is why the news we are reading that banks are adopting bitcoin does not necessarily means adopting bitcoin as a currency but blockchain technology for their process. The same thing for Etherum to the best of my understanding which is combination of several computers or softwares that can be developed for several uses.

Agreed fully. I think that bitcoin's true value will never be discovered until fiats around the world collapses.

Fiats will eventually collapse, there is absolutely no doubt about it. There has never been a surviving fiat currency even from 200 years ago.

The thing is that bitcoin is going to thrive when there is a financial crisis - unlike the other investment tools like stocks and property. Property prices are in a frenzy, everyone is taking out loans to finance their new home. When fiat becomes worthless, the best alternative will be btc.

Well, unless of course you see the actual price as a market prediction for the future "fundamental" value.  However, bitcoin is probably by far the most "useful" thing as a currency, and if we make a quick estimation, its coin value (its "fundamental" as a currency) should be of the order of a few tens of dollars.  How can we know ?

If we take bitpay as an indicator for "merchant currency usage", we are (end of 2016) at a volume of less than 300 million per month, which brings us to about 3 billion per year.  Let us say that bitpay has 1/5 of the market share of "merchant usage", that would bring us to a volume of 15 billion a year.  
Now, a normal fiat currency M1 has a velocity of the order of 10, but things like bitcoin circulate normally more quickly, because they are bought and sold more quickly.  So let us give it a velocity of 50.

The market cap of bitcoin should then be 15 billion / 50 = 300 million dollars.

That's the "fundamental" of bitcoin at this moment, as a "merchant currency".  It would put the price of a coin around $20-$30.
This is the true economic value of bitcoin, its true merchant value.

And that is exactly why bitcoin (or most other alts) cannot be a true currency.  One of the main functions of a true currency is to be a "unit of account" which has a *predictable* value (not necessarily a *stable* value).   This is why Nash defines ideal money as one that has stable value, and an asymptotic ideal money, as one that has a predictable inflation/deflation ; so even if it is not stable in itself, one can account (in time-dependent contracts such as a loan) for the change.

And the origin of that instability is that bitcoin (and most other alts) have a combination of two aspects:
- high initial seigniorage (that is, early adopters can get coins for low value)
- high inelasticity (falling debasement curve) or worse, a collectible (like bitcoin: maximum number of coins EVER).

That makes for a very, very speculative asset, and hence for a very, very bad currency (and even a bad store of value in the very long term, because it bubbles too much).

This is also why bitcoin and altcoins won't go away so easily: there's a lot of demand for speculative assets !   After all, that's what most of the financial world lives off.  But the problem is that pure speculation is actually economically a bad thing.  Speculation as a way to trade risk for gains is economically positive.  But *pure* speculation is a side effect that has only negative consequences, and the irony is that bitcoin was invented after the banking crash because of too much pure speculation by financial institutions (the banking crisis of 2007 had NOTHING to do with fiat but everything with uncontrolled speculation, blowing bubbles, and getting it blow in your face), and invented, itself, an even worse form of speculation that are PURE bubbles.  If ever big finance gets into crypto - and I don't see how they couldn't: if this stuff can multiply fortunes by serious factors, how could professional finance stay out of it ? - this will cause a far, far more severe financial crisis than we've ever seen before, simply because its bubble capacity is unlimited, and the floor is ZERO.  There's no economical "backing" of anything in crypto, so there is no floor.


True, but that's nothing else but a cryptographic invention.  Like "public key crypto", or like "hash functions".  It is not necessarily related to some "token".  It is a kind of cryptographically certified database.  One of its applications is "token transfers".

That is also worrying me. If all "poor users" can do is use a not-entirely-trustless off-chain mechanism like Lightning Network when they want to use Bitcoin, then BTC loses advantages to the fiat system. But more worrying - for Bitcoin Maximalists - is that this path isn't mandatory and there are other blockchain projects trying to fix it in a more sustainable way, e.g. with "sharding", "sidechain" or "child chain" concepts, where the "on-chain transaction paradigm" isn't preserved only for the rich.

If one of these competing approaches get really traction and it is cheaper and faster to do a transaction with them than with Bitcoin, network effect will slowly fade away and the chart the OP posted transforms simply into a wet dream.

(tl;dr: Bitcoin should introduce decentralized sidechains! There is only a **** opcode missing ...)



Good observation, I agree. Bubbles occur when the network (blockchain ecosystem) is smaller the "store of value" makes believe some people. And I think that is actually the case with Bitcoin, even if we may go higher in this bubble.

Then more and more people will accept crypto as currency, Or will they create their own "USDCOIN" and change it or create it into a technology block chain

referring to alts = Yes

More successful than BTC =
Several years ago the official Bitcoin Wiki labeled Litecoin as an example of a "Ponzi scheme" (does anyone know if that ever got edited/revised?)

I never took alts too seriously, they were fun to trade when everyone else was constantly panic selling.
Bitcoin still has a chance to remain dominant, but the trend towards "rich people only" is very disturbing. We had a chance to set common people free, and instead we are (in many ways) locked in a sick repeat of much of Human history.

This place used to be fun!

Are you referring to some of the many other altcoins that exist? Do you predict any of them being more successful?

This bus has two flat tires and charges way too much for a slow ride when compared to competing bus companies.
We must fix Bitcoin soon, or you will watch several other buses driving away.

The constant change of value of bitcoin, makes it so hard to predict. Yes, if some took a loan for a house, they'd definitely be in a bad place now. Just the thought of someone doing that makes me laugh a little bit.
But aside from all the crypto exchange casinos, and all of the pump and dump altcoin scams, the real potential is in blockchain. That is something that will never go away.

The former greater fools are now the early adopters, as long as there is fresh flesh flowing in.

the blockchain is the internet of money that carry the possibility to share information and storage, the real potential is the blockchain here

that graph show the true, while there were dump the pump in the end always come victorious, the average increase per year is moving upward, the absolute trend is a bull run

all those crash were done for acquiring more bitcoin, by the whales


eh i doubt it, because greater fools coming mean that early adopters sold their wealth, there is no farther adoption without better distribution

That sounds a lot like "we need fresh flesh, greater fools to come in (the minnows) to keep our early adopter wealth to grow".

In fact, not at all.  The fact that the value is decreasing slowly, but in a foreseeable way (slightly inflationary), is exactly what makes these currencies good currencies, close to "Ideal Money".  They are of course not good stores of value in the long term, but money is not supposed to be a store of value in the long term (investments are).  Money has to be such that it has a *predictable* value (stable in the short term, slightly inflationary or deflationary in the longer term).

Would you have dared to take a loan in bitcoin to buy a house ?

Hell, I know people who are in deep shit  because these idiots took a loan in Swiss Franc to buy a house and the Swiss Franc rose somewhat with respect to their income.  If they would have taken a loan in bitcoin in 2015, they would be entirely broke now and could never pay their loan back.