this post was submitted on 13 Nov 2024
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Blockchain is a solution in search of a problem. A way to establish trust while not trusting any party is a cool concept, but in the real world it's far easier to establish a source of trust.
It is a bad solution though, because it revolves around wasting tons of energy in solving made up problems no one actually needs the solution to. I know there's alternative cryptocurrency that use better methods or solve actual problems but 90% of it is bitcoin.
Congratulations, now your trust relies on your subject never becoming important enough that someone bothers to run 50%+1 of the nodes in your network which means only very, very large subjects (or ones where trust wasn't very important in the first place) ever even have a chance of that not happening. What do you say? Your technology doesn't scale to very, very large subjects because of abysmal transaction rates?
Yup. Very well said. People don't realize the extent of wealth inequality (and how ridiculously resource intensive blockchain tech is). If anything important were to be decide by a blockchain, the top 1% would control the network.
More on wealth inequality here.
Today's inequality was created by the Cantillon effect.
What happened in 1972?
I have a friend who works at a major bank and they use Blockchain technology to keep track of something or other internally, though I don't remember exactly what. In this case at keast we can bet that it has found a problem wirth using it to sokve. Banks are nothing if not efficient.
I find it funny that it was touted as an alternative to the current banking system and ended up being absorved into it though
I envy your trust in the efficiency of banks
Banks are businesses made up of people. If a manager thought he could get a promotion by supporting a blockchain project at the height of blockchain mania, that's what he would do. Whether if fails or not is of no consequence, the manager is already on another project.
My experience working in banking is that they're extremely conservative. They don't take big risks on new technologies or processes and don't modernize their technology too quickly to be certain that everything works as expected and doesn't surprise anyone
If it's used internally, then I question whether it made sense to use blockchain. At the end of the day, it's probably the trust in the bank that matters and not blockchain.
Idk I think centralised trust is a problem in and of itself but you can just look to history and world events that created bank runs and financial crashes like y'know - 2008, a year later the bitcoin ledger began.
Yes but it also comes with problems as mentioned above. Blockchain tech being used for scams if anything is evidence of it being a mature and functional technology for finance because under capitalism it's all inherently a scam of some sort.
That said we shouldn't let perfect be the enemy of good, I'm glad the technology exists even if I don't think it achieved what it set out to do quite as well as one would've hoped, if for no other reason than the fact we can all just buy any drugs online now with one day delivery instead of being stabbed on the street after calling some number like barbarians in the olden days.
The blockchain doesn't prevent a run on the "banks." If everyone decides to cash out at the same time out of fear of a crash then the currency crashes and there isn't enough money to liquidate everything (until it has no value). It isn't an improvement for that. If anything, it's a negative. Banks can implement policies to prevent it, but you can't really do so with crypto.
It would be useful for things like deeds and contracts. Instead of having a bank hold it and provide proof you could store it on the blockchain. There are a handful of good uses for it, but it's generally not useful for the stuff most people think it would be.
Well, you can't do fractional-reserve banking with bitcoin (or any other coin I know of), so in that way, a "run" on a bitcoin can only ever exhaust the supply. lending out more than you have requires trust, and that's not available in a blockchain structure.
On the other hand, fractional reserve banking is the foundation of all modern financial systems, so it's not really a thing we're going to scrap.
Well, yes but no.
There's a lot of problems with blockchain deeds, and one of the big ones is confirming the first owner. What's to prevent me from minting a smart-contract that says I own your house? Or that I own a house that doesn't even exist? In the real world, we've solved those problems (and MANY more) with notaries and central registration systems. At the interchange of digital-ownership and real-world, physical assets, you're always going to need a trusted party to verify that the two match. And at that point, you don't need the blockchain at all.
Sure the currency itself isn't resistant to a run on itself but having some wealth in the currency will cushion a run on the real IRL banks for fiat currency.
Except that it's so incredibly volatile that from one months to the next you literally don't know if your crypto wealth will be worth twice as much or half as much.
If what you're trying to protect yourself from is runs on banks, you'de be better of with gold, works of art, even stocks (which are less volatile than crypto) or, even simpler, spread your money over several banks, ideally in more than one country.
Sure. Diversifying is good. There's no need for crypto for that. Gold or other assets would protect you equally as well.
If the advantage of crypto is something provided by many other things, without the disadvantages of crypto, then crypto shouldn't be desired.
Gold or other assets don't necessarily protect you when you own them through government and more broadly not-wholly-independent-from the-government-financial-institutions, unless you have gold bars at your house, and even then, it's not something you can transfer for payments easily.
On the other hand cryptocurrencies are wholly independent from any institution whatsoever - truly for people by the people - and ones like XMR are actively resistant to them altogether. I don't think Trump is going to be like Hitler, but if he were, I'd bet on something the government can't really easily seize like a distributed decentralised ledger rather than a house or gold that can't be liquidated quickly or transferred for another currency if I was e.g. a targeted minority.
Yeah, that's obviously what I meant; having them in your possession. Yeah, crypto has the advantage of being easy to transfer. That's the one advantage, with a ton of negatives.
I don't know if I'd say they're independent from other institutions. Sure, they technically aren't required, but the way they're liquidated is largely through a small handful of institutions, which is essentially the same as a bank. If those run out of money then you're largely fucked, just as with a fiat currency. There's also the issue these are for-profit companies with no regulations requiring them to pay you if you want to cash out. If they see the price crashing, they're just going to close their doors and keep their money.
Blockchain wouldn't have mattered for 2008, at least not the crash parts. Blockchain would help with who owned which loans which was also an issue. It wouldn't do anything for the crash parts as that was bad lending fundamentals of no verified income or unrealistic appraisal.
Blockchain scams are evidence of it's unreadiness and naivety. Crypto has speed ran the last 200-300 years of financial fraud. Pump and dumps, ponzi schemes, front running, market manipulation, rug pulls, and more.the fact the only viable use case is crime is also pretty telling, anyone that can safely involve a government entity would rather do that.
No it would not prevent the 2008 crash however if you had some money in a cryptocurrency you would be cushioned from some effects of the fallout. Not a replacement, just an addition. Having an alternative is the draw.
Hard disagree, it's evidence of its effectiveness and maturity. No primitive financial system would be capable of being used for:
Financial systems are primarily tools for fraud and zero-sum transactions, there's a line there for what is and isn't legal which is decided by the government, but it's ultimately all just taking money from one place to another and someone loses.
I had my money - which at the time include the proceedings of working a few years in Finance - spread over 3 bank accounts in 3 countries back then and came through it all with no loss whatsoever.
Further, crypto is so stupidly volatile that even stocks are better at protecting your wealth because you're actually less likely to see half its value gone in a week with stocks (incredibly unlikely, even, if you get a tracker fund on a major index).
And don't get me started on the ultimate most conservative (literally capable of surviving the collapse of modern civilization) wealth protection thing around - gold.
The point being that unless you expect the collapse of modern civilization (in which case you might try gold or, even better, tradeable essential needs like the kind of food that doesn't spoil easily such as dried pulses), the best way to safekeep your wealth is as usual Diversification, with a focus on things with a stable value, which crypto is definitely not.
This volatility isn't something inherent to all cryptocurrency - bitcoin and eth and pump and dump cryptos are just especially hot speculative assets for people who enjoy holding bags and pump and dump YouTube grifters.
Tradeable essential goods aren't a good basis for currency, they would be your best bet without the internet, but with the internet in such a collapse cryptocurrency could actually work.
Diversification is not a concept in opposition to cryptocurrency, the former is a viable financial principle for savings and investments, the latter is one type of asset (a currency) that someone can hold if they choose to if they believe that centralisation of financial institutions and growing connections between corporations and governments is a risk - for instance I would not expect S&P500 to survive a major climate or landemic catastrophy/incident, world war, especially with protectionism, and maybe I'm an alarmist prepper but while remote, these things are growing increasingly likely or if the oversight of the powers that be is undesired e.g. such as with buying drugs on the internet.
Ultimately it all comes down to that.
Cryptos are inherently volatile because they're natural Ponzi-schemes with no oversight hence no crack-downs by the Law, and have low liquidity - they pull ill all manner of greedy types, suckers and swindlers and naturally end up with boom/hope-bust/fear cycles which have large movements due to the low liquidity of them as an asset. They're also far easier to manipulate with very little investment, especially the smaller ones (exactly the ones that you claim aren't as volatile).
The Tech per se doesn't make so, it's what it allows crossed with human nature that makes it so.
Tradeable essential goods are not supposed to be currency, they're supposed to be for consumption and bartering if shit really hits the fan. I was responding to your point on using cryptos for wealth protection and now you've moved the goalposts to "currency". Yeah. barteable goods aren't good currencies, which is why we have currencies for trading rather than bartering as was was done before currencies were created.
As for the S&P 500 dying, how do you expect crypto would survive a scenario that causes that outcome, considering that the companies that hold and maintain the Internet infrastructure, from consumer ISPs all the way up to LVL1 providers are almost all publicly traded companies? If the S&P 500 dies that means companies are going bust left and right and in that kind of situation the networks needed for crypto would simply stop working (plus a lot of other infrastructure too, but the most complex and interconnected stuff would go first) and people would be down to hard cash and bartering.
The Internet might have originally been designed as ARPANET, a network supposed to survive nuclear war, but the modern Internet is a completely different beast and even ARPANET wasn't capable of maintaining connectivity to consumer homes in the event of a catastrophe, it was only supposed to keep an small number of nodes connected.
Crypto is massively dependent on modern high-tech infrastructure and would collapse well before any currency that still has notes and coins.
As for the not quite so bad stuff, the worst crash of the S&P 500 ever had less price movement from top to bottom (which might take months or even years to fully play) than any normal month for Bitcoin.
Finally, indeed Diversification can include crypto, my point was that for wealth protection purposes you can simply diversify with traditional assets to create a robust wealth protection mechanism - just as I protected myself from the 2008 crash by merely spreading my assets across different banks in different countries - (unless, that is, you're trying to protect yourself from something so bad the S&P 500 dies, in which case as I explained above and in my previous post, it's down to stuff like hard cash, gold and bartering) and crypto won't actually add any security to a diversified wealth protection portfolio, quite the contrary since it's too infrastructure dependent to work in the worst situations and too volatile to maintain a steady value in normal times and mild to bad situations.
Compared to "traditional" Finance assets, crypto's wealth protection ability is somewhere between Stocks and Derivatives and the latter are generally not sold to customers who aren't considered sophisticated exactly because Derivatives can be very very risky (worse than Crypto, even, if we're talking about stuff like Futures).
There is absolutely nothing "natural Ponzi-scheme" about cryptos inherently. They're obviously used as pump and dumps all the time but this is not inherent to the technology.
Glad you're somewhat familiar with the history of trade.
Hence if currencies die again, cryptocurrency is a viable alternative as a currency, which barter goods are not an adequate replacement for.
Idk, satellites don't really require daily maintenance in a best case scenario, nor do undersea cables, I fully expect the internet to outlive humanity altogether.
I simply don't agree with any of this whatsoever. Again, gold and bartering won't make good currency, currency is currency - like cryptocurrency or fiat currency - diversifying so not all your currency is directly dependant on the government is pretty sound financial principle. You can invest into gold but in catastrophies your attempt to barter or otherwise liquidate these assets will be troublesome. It just makes sense to me, but I'm not econ or finance, I'm a compsci.
Nevertheless I appreciate your perspective, you've definitely given me some food for thought for hedging my bets in the future.
Interesting. Good to know. Thanks!
Blockchain is effectively a distributed database. Almost always a good centralized database functions better.
Is it easier to establish a source of trust? With blockchain trust lies in the protocol and in the node operators who make decisions about how to operate their nodes. Running a node isn't extremely difficult. Running a financial institution is difficult.
Well, sure, now you have a currency that doesn't rely on trust
...now what? How are you going to spend that currency if you don't trust anyone? How will you ensure you get what you bought? How will your property get protected? Hell, how do you get others to agree that your crypto is the one they should use?
It's trust all the way down. Removing it from one small part of the chain isn't going to fundamentally change things