Comment by duskwuff
4 years ago
> Is there a there there without an underlying token that's gone up XX% in the last N months and everyone hopes will still go up XX% in the next N months?
Alternatively, even simpler: where is the money coming from? A bunch of people playing a game are a closed system, and no value is created by playing the game. If the only reason why players are earning money from this game is because more people are continually buying into the game and entering that system, that sounds more like a pyramid scheme than anything.
This is what people don't seem to understand about BitCoin. It is cashflow negative, Money has to keep coming in to keep the price up due to paying miners. It is totally fine if you think BTC is better than the USD or Gold for whatever reason. But Bitcoin is still cashflow negative. You have to keep pumping money into it to keep up its value. Where is that money going to come from? Is it coming from Tether? Is it coming from people looking to make quick money? And when BTC hits 1M/coin, then what? You still need more money coming in to keep it above 1M.
Bitcoin has a use case for money laundering, tax evasion, evading China's exchange controls, and drugs. That market turned out to be larger than expected.
Interesting it’s like meta money laundering. It allows regular folks to make money off the illegal economy.
In some ways this was the extra profits banks made off illegal activities but that was largely held within the bank, not available to normies.
2 replies →
Gold has a usecase for jewelry, manufacturing electronics, dentistry and glassmaking. Yet not even the sum of these applications can justify its market cap of $11.73T, so the difference must come from speculation. I suspect the same is true for Bitcoin.
8 replies →
Now that Monero exists, not really.
2 replies →
It must be safe to do tax evasion, money laundering, and drugs with a system that is transparent and traceable till the beginning of its existence.
2 replies →
This is the only correct answer.
21 replies →
Isn't the same true of gold?
The gold supply is inflating at about the same rate as bitcoin right now, but has enough incoming cash flows to keep the priced propped up enough to maintain a $10 trillion market cap. Obviously some of that incoming cash flow is for actually generative industrial use cases, but it's a minority, https://www.statista.com/statistics/299609/gold-demand-by-in.... The lion's share of incoming money flow is for jewelry, long term savings/investment, and central bank holdings, and you could argue that most of the jewelry use case only exists because it's a good store of value, since we can easily make jewelry that looks as pretty for much cheaper than the real thing.
So, since most of the cashflows into gold are just people holding long term with the expectation that there will still be people wanting to buy it for investment purposes in the future, and this scheme has worked incredibly well for 5000 years, why couldn't the same be true of bitcoin?
You need to pay the miners just to be able to transact with Bitcoin. Gold on the contrary, you can just hand it over to someone else.
2 replies →
Bitcoin is unlikely to have a 5,000 year lifespan because unlike gold it can be obsoleted.
4 replies →
How is that different at all from fiat currencies? Every electronic transaction you make, like credit card or money transfers, has fees. Central banks have to keep pumping money into the economy so we can have the same nominal amount of cash in the system(albeit with lower value, because inflation).
So, my question is, is fiat currency cashflow positive? How?
No money doesn't have positive cashflow, that is why it is a stupid investment.
We devalue currency by 2% per year so people have an incentive to work = keep pumping. That work creates goods and services in the process.
The problem with Bitcoin is that if it goes up in value the additional time spent mining is ultimately a waste of time.
1 reply →
I use ACH and Venmo all the time for no fees. Do you mean the tiny electricity fee that they pay on my behalf of maybe $0.01? Sure seems like a great deal compared to the multiple dollars (sometimes over $50) charged by Bitcoin and friends
You aren't talking about the intrinsic value of Bitcoin. You are talking about it's value relative to USD. These are completely different things.
Bitcoin has intrinsic value outside of the fiat system. It can be used entirely independent of fiat. Whether that will become common is another matter, but the value of Bitcoin does not have to depend solely on it's value relative to USD.
As long as miners can't pay the power company with their mining rewards, bitcoin can't exist outside the fiat system. The mining reward denominated in the currency the miner has to pay their electricity bill in MUST be higher than the electricity cost to mine the reward, otherwise the miners go bankrupt.
13 replies →
> Bitcoin has intrinsic value outside of the fiat system.
Not really, because even though the number of Bitcoins is limited, the number of cryptocurrencies is not. In any application that uses Bitcoin, you can substitute Litecoin, Dogecoin, or most other altcoins/shitcoins in existence, and there would be zero difference.
In fact, Bitcoin's only advantage over those coins is extrinsic--it has more longevity, better brand recognition, and a lot of large players interested in making it seem (relatively) legitimate.
Contrast this to when people talk about gold having an intrinsic value, as you can't just replace gold with silver or copper when e.g. manufacturing electronics.
2 replies →
Bitcoin itself does not because its low transaction speed makes it unusable for real world applications. Second, why use something in a financial transaction whose value can fluctuate 10-20% a day? That's not a stable currency.
So for all intents and purposes, Bitcoin is an unstable investment product.
Money doesn't have an intrinsic value. Money is just an accounting system, it is a balance sheet. People used physical gold as tokens or entries in that balance sheet.
Ultimately you are depending on another human who is actually doing work. This is why the credit theory of money is so appealing.
Money has value indirectly because someone obligated himself to give you value equal to the money created. When you add up debts and credits then you end up with nothing because money is just an agreement and not a commodity.
1 reply →
> This is what people don't seem to understand about BitCoin. It is cashflow negative, Money has to keep coming in
Pretty sure a sizable portion of Bitcoin holders understand and know that. They don't hold Bitcoin as a form of bespoke investment to be exchanged for money at some point in the future. They hold it because they believe it is sound and incorruptible money.
And as long as they (not any additional people!) continue to believe that, it will hold value.
It is to be seen if they are right or wrong, but they know how cash flow works.
Is this Peter Pan? If you just believe in the power of BTC it will never go down in value?
3 replies →
I must admit I don't understand why it is "cashflow negative". I'm not invested in any crypto, but I have thought about it, and my casual thoughts have come to the opposite conclusion. The higher the price of a cryptocurrency, the greater the interest in mining and investing. It seems like a positive feedback loop to me. Why is it not?
For Proof-of-Work coins, the miners need significant amounts of electricity. Electricity is not free, so maintaining the network costs a significant amount of money. This money is "reimbursed" to them through mining rewards, but since electricity companies typically can't be paid in cryptocurrencies the miners will need to sell (a part of) their mining reward to pay the power bill. This means that there is always a money outflow proportional to the hashrate, which somehow has to be made up from money inflows from users.
A cryptocurrency without users putting in "new" money will slowly bleed out through electricity costs. This will become even more "fun" in the future as all coins will eventually be mined and the ginormous electricity bill will need to be paid through transaction fees alone. This is one of the main reasons Proof-of-Stake is getting so much research btw, since it should use way less electricity.
(The above is true for most currencies btw, even dollars and euros bleed out money because they have to pay mints and central bankers. The difference with those is that there will always be demand for (say) dollars because US citizens MUST pay their taxes in dollars. If they don't, a number of measures up to and including prison can be taken against them. Bitcoin has no such backstop since nobody ever NEEDS a bitcoin to pay off someone. Ransomware is a rare exception)
2 replies →
Imagine if you had the option of buying a piece of gold or a piece of land with good irrigation and good soil. You can plant vegetables on the land and sell those vegetables for other people to eat. Therefor your investment is generating profit and "cashflow". Gold on the other hand just sits there, and you may want to keep it in a safe at a bank and the bank will charge you a fee for storage making it negative cashflow.
The price of gold or land or BTC can go UP or Down, but that depends on market demand of that asset. The nice thing about owning the farm is that even if the value of land goes down you can still sell your vegetables or eat them to stay alive.
4 replies →
Where’s the value added coming from though, and how far are you from there? If crypto enables someone to dodge taxes, sell drugs, or wire remittances with less overhead, that’s a potential value add [arguably, with externalities]. For how many of such activities do we need byzantine consensus, i.e. can they stay competitive in the long term with solutions built on tradfi & SQL? How much of these gains can be captured from sidelines by, essentially, exchange rate traders? Positive feedback loops without a sustainable value proposition will pop sooner or later.
This negates the idea that bitcoin or it's ilk could replace USD.
Crypto technologies are interesting to me because of their great potential for good (defi) and bad (dystopian black mirror gold farms, dyson sphere fueling crpto mine, etc).
Someone building a Dyson Sphere just to power a crypto mining rig is an awesome concept for a short story or sci-fi RPG adventure (such as Traveller).
This is addressed in the original white paper. In a world where BTC is valued at 1M USD/coin you’d also expect a decent amount of day to day usage. Miners could still make decent profits based on transaction fees just from confirming blocks even once the Coinbase rewards stop. I’m not saying that’s currently the case, but that is the design. Also if miners are making a profit off let’s say $40k/coin and the price goes down to 30, yet there’s still a profit for some miners, how exactly does that become unsustainable?
Miners could make a profit at $1/coin. The issue is that profit comes from somewhere. And that somewhere is new money being put into BTC. Hence, BTC is negative cashflow.
5 replies →
> In a world where BTC is valued at 1M USD/coin you’d also expect a decent amount of day to day usage.
Citation needed.
(I don’t see why this should be true at all. If anything I’d intuitively think the opposite: If gold were $1MM/oz I don’t think people would be using it to buy groceries… Unless you’re directly talking about hyperinflation where $1MM isn’t worth a loaf of bread any more.)
is the day to day usage of bitcoin currently increasing in proportion to coin price? it seems entirely possible that the price could get very high solely as a speculative investment. in which case, you would still need additional investment money coming in
Just about every project is cashflow negative. Most projects start Worthing $0 and rises to another number later on
> Money has to keep coming in to keep the price up due to paying miners
This is incoherent. It's hard to refute this because it's not even on the right page.
Demand for Bitcoin comes from demand for money (to transact, to store wealth, etc.).
It sounds like you're trying to model it using some idea of how equity pricing works - is that accurate?
All assets ( BTC, Stocks, Gold ) are priced on supply and demand. If demand goes down for BTC the price will go down.
It doesn't matter if the fed prints money or not BTC needs a constant infusion of new investment to keep the price up. Unlike a company with positive cash flow who could buyback shares and never get any new investors and still keep the price up.
4 replies →
This is the most crucial question about everything crypto-related.
Because it turns out every crypto market is a negative-sum game. If you invest, you are guaranteed to lose on average. If you do happen to win, your gains are coming out of the pocket of someone else who lost even more.
The price of the token in question doesn't enter into this at all. It can rise, fall, anything. It is still a negative-sum game, but some people have not yet realised that they lost.
>It is still a negative-sum game, but some people have not yet realised that they lost.
And some people have not lost at all. As a lifelong poker player, the calculus is very much the same. A poker game where rake is taken out is a negative-sum game. But that doesn't mean that every player loses, even if they play forever. There will be more net losses than net wins, but these are not evenly distributed.
That's a pyramid scheme and/or gambling. You're relying on many marks to lose money to make money.
There's a reason we regulate or ban that.
Yeah, that's gambler thinking.
In reality, you're going to lose money.
1 reply →
> Because it turns out every crypto market is a negative-sum game.
[Citation needed]
You can't just hand wave and assume this to be true. If the world's major investors decide that crypto represents a store of value, then that's a positive-sum game for crypto. If stablecoins transacted on smart contract chains generate demand for Ethereum to pay for the network transaction fees, then that's a positive-sum game for crypto. If new enterprises start raising capital through DeFi and DAOs instead of traditional capital markets, that's a positive-sum game.
What major investors decide has no bearing on it. Mathematically, it is now, has always been, and will always remain a negative-sum game. This cannot change, it is part of what bitcoin is and how it functions economically.
It is a negative-sum game, no matter how hard you wished it were not.
If crypto is a store of value and its value goes up who exactly is working longer hours to create that additional value?
If the game were actually fun, there could be money coming in from players who value the fun more than making money. Axie may have an element to this, but I hear it's not fun. The term for these players is "whales." They are willing to spend a lot for fast progression and domination. A game which pays Filipinos may have money coming in from a well-off player in China. There could be schemes where whales hire Filipinos to grind for loot and gold. However, it's hard to see a situation where a game could pay for development and support thousands of grinders. It would be interesting to see how big the MMORPG grinding economy is. That might give us an idea of how many people these games might support.
One day a trillionaire will build a blockchain game built around proof of humanity. You will have to spend 1 hour solving a problem that can only be solved by humans but verified by a machine to earn $4 an hour. World hunger solved :)
Where the money was coming from when Facebook, Google, Youtube, Twitter etc were really good places that were free to use? They all were working to "make the world a better place" and not making money as they were burning billions each year, challenging the traditional and profitable companies. With Amazon prices were amazing, you had unlimited rights and not only buying but also selling was great. Bezos was worth quite a much but his company never made any profit up until a few years back.
The news business was destroyed in the process, just as the retail and once the establishment lost its ground the money began poring in. From 90's up to late 2000's the internet was amazing as everything was paid by people who were about to reap their investment back a decade later.
My point is, following the money is tricky. Maybe we are at the verge of another change where the costs are payed by crypto bros who will be splitting countries and starting wars once they are done growing the landscape.
> Where the money was coming from when Facebook, Google, Youtube, Twitter etc were really good places that were free to use?
I don’t think this is very mysterious. It’s coming from investors who are spending money in the expectation of future profits as the business scales and reaches greater efficiencies and increases monetization.
In the case of this cryptocurrency there’s no obvious point where these tokens suddenly become useful. People only buy them because somebody else will be willing to buy them later (which, of course, relies on ever-increasing amounts of money entering the system). With a stock you are at least theoretically anchored to real world value, since you can buy out a company with stocks and then liquidate the company’s assets.
All these coins and projects have a mission statement and high level overview on how they think it will be useful in the future. It's up to you to believe them but they do have a proposal.
The stocks are more opaque in that regard, they are required to publish some declaration and financial disclosure but explaining why you need to invest in that company stock often comes down to CEO's appearing in the press. Countless internet ventures died in the process.
1 reply →
> Where the money was coming from when Facebook, Google, Youtube, Twitter etc were really good places that were free to use? They all were working to "make the world a better place" and not making money as they were burning billions each year, challenging the traditional and profitable companies.
But they were visibly creating value. Seeing what my friends are up to and organising parties together is pleasant. Being able to find what you want on the internet in 1 second rather than 30 minutes is an obvious improvement to your life. So even if they weren't profitable in the short term, you could see that there was legitimate money to be made.
There are no closed systems, and players playing a game does create value. It's almost the only important aspect of software's value - users. Anyone can write some garbage software, or hire people to do it, not anyone can make things people will want to use.
> There are no closed systems
This single fact destroys most arguments about almost anything, but especially in economics
Money doesn't have to come from anywhere. Sometimes new value is created and the money is brand new. This is how GDP grows.
In the case of BTC, it's pretty clear that a huge portion of the market cap didn't come from anywhere. It's new capital. That doesn't mean it can't go to 0 and vanish overnight. But it does mean that play to earn games don't always need money coming in to pay out.
Fiat is created by banks - by originating loans. A bank does not actually need to have that money to create the loan - it is not transferred from somewhere else, it is just that the bank's balance sheet expands. There are rules on how much a bank is allowed to create, as you might imagine.
The BTC system does not create money - you can follow the creation of a coin system to its eventual destruction and discover that exactly the same amount of fiat went into it as came out (less mining). In fact, at any moment in time, the same also holds! If you buy $100 of BTC, somebody somewhere has just sold $100 BTC. No money is ever created or destroyed. Of course (if you were a lunatic), you could get a loan to buy BTC, and so money would be created, but by the banking system, not BTC, and it would go straight to whoever you bought BTC from.
As soon as people decide they don't want to put money in, then no money can come out. You will know this because the 'price' of BTC will be zero.
I completely agree with you, but I’m wondering if you could help me debate the counter argument: “The same is true of stocks, if people decide to stop putting money in, no money comes out”
It comes up whenever I make a point similar to yours above, and I haven’t had a good answer for it
4 replies →
Your description of banks is correct. Your description of BTC is wrong. You're missing an important fact. The price of BTC can, and does, change. When it changes, the market value of all BTC changes. If the value of all BTC goes up, new value (not money) has been created.
Also, lots of people take loans to buy BTC. This is called "leverage".
5 replies →
> You will know this because the 'price' of BTC will be zero.
To be exact in this scenario, the 'price' of BTC will still be the price of the last trade in cryto exchanges. The trading volume however, will be 0, and there will no demand on the bid/ask. Hence you're stuck with BTC you can't offload.
1 reply →
It's not just a closed system, it's zero sum. It's only possible to cash out for a profit if there are more people willing to buy in.
Some of the anti-bitcoin crowd tried to make the term "Nakomoto Scheme" a thing, and clearly failed. The basic idea is that things like Axie Infinity have some of the aspects of a ponzi scheme, without the central organization and coordination that makes an actual ponzi scheme illegal. While there isn't a central operator paying out old investors with new investors money, anyone currently invested can only cash out if new people join. This begins to look a bit like a decentralized ponzi, with everyone currently invested in it motivated to evangelize it and convert new people in order to ensure the fresh supply of new buyers to keep the price up and/or let them cash out.
Probably a Ponzi, not a pyramid, scheme, no?