Topic: Try to answer the difficult questions... - page 2. (Read 3208 times)

I don't think that Bitcoin would have prevented the previous financial crisis, nor will it prevent future ones.

If bitcoin were to become the global currency, i fully believe that the vast majority of people would store their coins at banks due to some combination of either not feeling comfortable/able to keep their coins secure themselves, and wanting the responsibility for keeping them safe to be vested in an insured institution that could make up any losses they might suffer, and due to the desire to put their money "to work"; i.e. interest bearing savings accounts.

A bitcoin denominated world won't be a world that doesn't desire credit, so there will be borrowers, be they individuals, corporatations or nations, that they're borrowing Bitcoin rather than dollars doesn't change things fundamentally. And borrowing from an institution who has made it their business to do so will always be far more efficient than trying to secure funding via peer-to-peer markets.

A bitcoin denominated world wouldn't have had an impact on detereorating underwriting standards.

Too often, people look to Bitcoin as a panacea, but it would only step in and replace the dollar at the fundamental level. The rest, the institutions and behaviors on top of the Dollar, Euro, etc, those would all be unchanged.

This is a very important point.  You cannot secure any thing on a block chain of which the market cap is much lower than the things you want to secure.  Indeed, the cost of the proof of work (or the proof of stake for that matter) is of the order of the market cap (or lower).  To attack the chain, you need, in the worst case, about to invest the whole market cap (you then redo all of the proof of work).  Now, for the currency itself, that would of course be ridiculous: spending more than the total market cap of all coins, to be able to attribute yourself some.  But if there are things in that chain that are worth much more than the market cap, then that might very well be worth the difficulty.

If the market cap of bitcoin is now estimated at, say, $ 4 billion, then that comes down to saying that with about $ 4 billion, you redo all the proof of work (if the mined coins were mined at the price they were worth).  That means that someone able to plonk down, say, $6 billion, can redo the entire bitcoin block chain.  Of course, that wouldn't be worth it.  But if that chain contains a contract worth $50 billion, then that changes things: if it is worth to you $50 billion to change that contract, then plonking down $6 billion is a good deal.

So the bitcoin block chain is not more secure than about its market cap. 

I think it is. Centralization leads to monopolies and it stifles innovation, because these central authorities don't need to innovate at all to survive. They will just get the money they need from the FED and form cartels to protect their own interests while they rig the markets and suck all the profits towards them and socialize their losses. This is not going to change if you introduce some kind of fiat blockchain.

A lot of people will say that the tokens themselves should be immensley valuable, as you need to incent the miners to keep the chain secure. Others, like Buffett, say that a Bitcoin is akin to a check, with not much value on its own.

I think Bitcoin isn't bound to undermine fiat currencies but as an adjunct, a means of transferring value in a low cost manner that doesn't depend on banks or governments. In that situation, coins don't need to have tremendous value, only need to be valuable enough to accommodate the amount of funds that will be in transfer at any given time.

It's the reducing mining awards that would stand to push the price up. Right now, mining is profitable for the operators due the 25 btc block award. As that declines, the value of Bitcoin will have to go up or else fees will have to skyrocket, taking away the "low cost" advantage of Bitcoin. Will the rest of the world buy into that? That the value of previously existing coins should double simply because the rate of issuance declined? Or that they need to pay greater fees because of that?

Right now, bitcoins are cheap to transfer because the cost to do so is subsidized by new coins. When those decline, fees will have to increase, maybe even substantially, and that could undermine the low cost argument that's put forward constantly.

So could someone put forward a block chaim sans Bitcoin? They could, it'd be quite centralized though. But since the advent of asics, mining has already become a more and more centralized affair. A single company or a duopoly controlling the block chajn would obviously be mocked by the community, but might just be good enough for the rest of the world.

I agree with you in that nothing totally decentralised will become huge, nor is it a necessary feature.
But I think bitcoin brings parcial decentralisation - sure, governments WILL find ways to control it, and for sure they'll explore the lack of anonymity that the bitcoin protocol has (which I actually think is a good thing). But we'd be back to the gold-pattern kind of economy - one in which you know that the money (in this case bitcoins) you own won't lose their value from day to night just because the government decides to inject millions daily.

I think of it this way. How will the world be without centralized fiat currencies? I mean, if we didn't have bitcoin, or other "improved" currencies.

I don't think I can be better off without fiat. I think it'd be a lot worse, and no, I'm not a beneficiary of the banks. Thus, fiat works.

It's kind of like I have a tree stump that I sit on. You, on the other hand, invented a chair that massages your body while you sit on it which is really comfortable, relaxing, and good for your health. That doesn't mean my tree stump "doesn't work", though. So yeah, I think bitcoin has the potential to revolutionize finance, but I'm not sure decentralization is a necessary component of that revolution.

Well as long as the general population doesn't mind to serve as collateral for the too big to fail financial institutions I guess it's kind of working. But this will fail eventually even if it takes a long time, and it has failed many times already in recorded history. These things just happen over several generations so most people don't notice it or think it's normal and part of human life.

On the contrary, it has worked well for centuries, and continues to work well for the vast majority of the world.

That said, can it be better? Most definitely. There are many things that can be improved with the current financial system. I'm just not sure decentralization is one of them.

Your argument is akin to saying "Well, cars have proven that they don't work, since traffic accidents happen everyday. That's why we need to replace round wheels with triangular wheels."

Well, you managed to identify a problem, but you didn't identify correctly the cause of the problem, thus you can't provide the correct solution.

Again, I'm a bitcoin bull, but I'm not a fiat-government-centralization hater.

IMHO centralised finance works just fine, but for example money doesn't move as quickly and cheaply as information (yet) and some processes could be more automated so it might use some of the crypto technologies like distributed ledgers to achieve that. The contribution of crypto to the world should end pretty much right there.
Expecting that a currency like bitcoin will replace fiat is not just optimistic, it's delusional and undesirable.
It would bring only more problems, if anything.

Looks like a bitcoin core developer agrees on "centralised finance is more efficient"
https://twitter.com/petertoddbtc/status/513195104023359488

100% decentralisation = ideology.
You might agree with it or not, but don't expect it to conquer the world.

The current centralized financial system has kinda proven already that it doesn't work, this is entirely the reason why Bitcoin was invented in the first place. You may want to cling on to a failing system and a ship that's slowly sinking, but I think we need to improve and do better than that. It's called innovation and progress, not magical utopia.

EXACTLY! I tried to get this point across so many times, to no avail. Everyone on this forum seems to think that decentralization will bring about some magical utopia, and that a government/centralized crypto cannot work because it's not decentralized. I think they need a reality check.

Well even if we don't have today a network that works fine without a native token doesn't mean that it won't be built in the future.

But actually, these technologies are starting to appear.

Eris industries claim that they can build blockchains to be used for smart contracts without any cryptotoken at all and that anybody can use them  today, right now.
https://erisindustries.com/

Then we have Ripple and Ethereum where the tokens "are there" but more as a anti-spam mechanism, meaning that the network is not dependent  on the token (token is not necessary to be used by participants, is not the main point, and its price can be whatever, as opposed to bitcoin in the bitcoin blockchain).

So the trend seems to be cryptocurrencies -> distributed ledgers.
Where the tokens (the cryptocurrencies) are less and less relevant and necessary, until they are not even needed at all.


You say that you haven't found a proposal that doesn't violate the constraints "decentralised, cheap, secure".

Ok for "secure" or "cheap", but regarding "decentralised": Why does the network have to be 100% decentralised?
VCs, banks or whatever are interested in bitcoin and crypto not because it's decentralised, but because it allows fast, global, cheap payments (at least that's what they think, because it's not that simple...) and allows applications like smart contracts and all that. Decentralisation is only one way to get there.
If some components of the network are centralised, it's not a problem, and it might even be preferred by them.
In the end it all comes down to what the world will find more useful and what it will actually adopt.


100% decentralisation has more to do with ideology than actual usefulness IMHO.

The function of native tokens is not just to incentivise miners, but also to prevent spamming blockchain with infinite-loop transactions/contracts (afaik).

Blockchain is sure great invention but decentralisation of money is lot bigger than that in my opinion and it guaranties Bitcoin succes in long run.

Some people say Bitcoin may become the next gold standard, not necessarly replacing national currencies. In any case, Bitcoin is 100% guaranteed going to be increasingly relevant and valuable in the future.

Not going to take personal offense at your question like some others do but:




... is the answer already to your own question. Of all the proposals anyone ever came up with (to my knowledge), you can satisfy two of the following three conditions, but not all three of them at the same time: secure, decentralized, for free^*.

There's maybe a discussion to be had if PoW is the final correct choice for the main player in crypto (Note: I still think it is, roughly, because of hardware cost binding miners to the blockchain, and only one blockchain at a time), but that's more specific already than the objection to your idea:

Describe please how a decentralized ledger without a native token incentivizes participation?

Sure, participation (of miners) could be funded by outside capital, but then the question becomes, how to distribute it? How to see which outside actor has which share of the funding? Such a system sounds a lot like political party funding in the US, and I would describe that as 'partisan' and 'toxic' long before I would use the term 'decentralized'.

In the end, any proposal I've heard or can come up with myself either violates the decentralization constraint, or it becomes so complex that it essentially recreates the native token system of the blockchain. But that one exists already





^* I know, the point can be made (and would be correct) that e.g. a centralized system like Visa is anything but cheap. The point is, in principle, if security rests on one entity with absolute power, this removes the broader system of financial incentives you need for a decentralized setup like crypto.

I think just the gold and money 2.0 properties are enough for Bitcoin to remain valuable, even if it's stripped of all other potential use cases. But I'm doubtful a distributed ledger system will actually work without an underlying token of value like Bitcoin, could you explain how you think that would work?

Ok, that's the "Bitcoin will be the new gold 2.0 store of value" scenario. I might have doubts about gold bugs switching to bitcoin or adding it to their portfolio but fair enough.
The problem with this idea is that a lot of people that are bullish on bitcoin long term are arguing that bitcoin or cryptocurrencies are great because they can be used for remittances, to cut billions in fees, to allow the unbanked to have access to financial services, smart contracts etc.
The problem with that is that if a distributed ledger system that works without a cryptocurrency exists, these native tokens are not needed, and that would deplete the value of any crypto.

So a lot or reasons why your cryptocurrency should be valuable suddenly disappear.

You are referring to its "monetary fundamentals", so about the "gold 2.0" scenario I was talking about. I personally don't agree with it, but as I said, fair enough.

Correct me if I'm wrong but Ethereum and Ripple and not dependent on their native cryptotokens for their network to work. The price of their tokens (ether and XRP) could be a fraction of a cent and the distributed ledgers/blockchains would remain intact. They are not even necessary to be effectively used in order to benefit from the respective networks ledgers to move fiat currencies around/smart contracts.
With bitcoin this is not the case.

Also, recently Eris industries is going ballistic on twitter talking about how they try to get away with the problem of needing a native token for a blockchain.

https://twitter.com/Eris_Ltd
https://twitter.com/prestonjbyrne/status/576456037466767360
https://twitter.com/eris_ltd/status/577235397891219456

I'm not necessarily a proponent of these technologies yet, I'm just saying that they are being built.

The point of my original question is that technology advances pretty fast and the possibility of the existence of an alternative blockchain/consensus ledger where a cryptotoken is not needed NEEDS to be considered, because that scenario would severely deplete any cryptocurrency of its possible inherent value/utility (or would it? that was my question).

But why? A cryptocurrency is inherently volatile. Something that starts at a few million/billion marketcap and it's supposed to be a global currency is NOT gonna get stable anytime soon. For decades and decades it would still be too volatile and unusable as a currency.  

Why a cryptocurrency? Why do we need another currency?
Are you using bitcoin as a currency yourself or just to hodl it to dump it higher?  

Good post, agreed.
The PR thing is the other side of the "decentralization" coin I guess  

I can give an example of what the OP is talking about.  Think of a colored coin or Counterparty asset that represents USD.  It is built on top of the Bitcoin blockchain, and can transfer USD$1,000,000 as a 0.0001 BTC token.  The only problem, and this may be a big one, is in securing this transaction.  The Bitcoin network sees this as the sending of 0.0001 BTC, nothing more.  It's the colored coin or Counterparty layer on top of Bitcoin that interprets it as something more.  So any security features that rely on amount of Bitcoin being sent, such as how many confirmations to wait for, will be rendered unsafe.  Your seemingly small 0.0001 BTC transfer may have needed only 0 or 1 confirmations, but the fact that it actually represents USD$1,000,000 means it would be well worth the effort to perform a double spend with so few confirmations.

To summarize, you run the risk of having less security when you override the meaning of a BTC transaction.

OP - I see your point, and I believe it is possible that it would deplete the value of bitcoin. I'm guessing this would be due to less exposure for bitcoin (less participants), less transactions through bitcoin network, and less people holding the currency for it's use in these blockchain based products.

I'm sure other incentive based decentralised asset transfer systems can exist in the future, whether they get used or not can all depend on how they are developed and marketed.

The thing with bitcoin is that there is not central PR company with all the money and the clout to get things moving. Advertising etc...

When Joe B discovers a cool and easy way to send stuff online with a slick and secure looking front end, he won't care if it's bitcoin or some other mechanism if they are doing the same job.