Crypto-cancer fade out end of civilization for Fermi paradox?

[russ_watters]

- it also kind of proves that the main driving force is not actual use: it's mining for the sake of mining (profit).

You're not actually saying it, but I think you probably agree that that's a problem for cryptocurrency. The contradiction between "investment" and "currency" has been discussed here before, but whatever the ultimate utility is as a currency, most of its value is driven by investment Ponzi scheming. So one way or another, it's got to collapse/the problem the OP describes does not exist.

 

[Vanadium 50]

I wouldn't call cryptocurrencies a Ponzi scheme. That's reserved for a particular kind of financial monkey business. Bitcoin and its friends represent a different kind of financial monkey business.

Fundamentally, the transaction is BTC for USD (or your favorite currency). "Mining" is simply a way to get a discount by paying for the electricity, computing etc. yourself instead of paying somebody for having done this work in the past. That simplifies things.

So, why would anyone want BTC over USDs? Two reasons:

1. You can buy illegal things with it
2. It's increasing in price, so one can sell it later for more.

#2 is more of a pump and dump than a Ponzi scheme, but I would call it a plain old bubble, just like we've had over the past 400 or so years. As in all such bubbles, the people who got early do well at the expense of those who came in later. Who might those people be in this case? I'd look at Reason #1.

 

[Rive]

whatever the ultimate utility is as a currency, most of its value is driven by investment Ponzi scheming.

Well, about that I'm not sure. Traditionally, currencies emerged from the need of smooth value comparison between various goods. Unless the basis is badly shaken this function persists, thus giving some kind of sense of 'value' for the currency, apart from its cross-quotes to other currencies.
For bitcoin, this step never existed to start with. It's artificial 'value' is a very different can of worms, by my opinion.

 

[jack action]

I wouldn't call cryptocurrencies a Ponzi scheme.

They're not Ponzi schemes, but they are currencies for which some malicious people can play some tricks to alter their values - like any other currency.

The cryptocurrencies, used as intended, seem legit to me. There is a group of people that makes sure the transactions are done properly and they are paid for doing the job. Not more different than paying people to print money and making sure only those bills are in circulation.

 

[256bits]

Why is it called crypto "currency" anyways?
Why not cryptonumber, since that is all it is in the digital world.

The price of a bitcoin is only related to the demand ( and the limited supply ), much like art, of which there seems, or had been, a push to some sort of digital art that people could invest in.

Why did people started buying bitcoin, to start with?

For the fun it it at the beginning, as it was something new that didn't at all cost that much, and you could start mining with minimal investment, even on your home computer. Now there are farms cranking out numbers as they are staying in it for the long haul, and using energy resources for little gain to society.

As the OP says, widespread use, if it ever becomes that, can end up draining the economy. It doesn't have to reach the consumption of 100% of resources, maybe even just 10% would be enough to slow growth to a standstill.
Scenario - Consider, if a government wants to print money right now the actual 'paper printing' cost is somewhat minimal ( baring no rampant inflation crisis ) in addition the what other agencies do charge to get the money out there. If a bank wants to lend you some money, a surcharge is put on the loan as interest. If they have to add in the cost of mining the cryptocurrency, then the price of the load will reflect that incurred cost, being passed on to the consumer of the loan. A 5% load in normal times would have an 'inflated' interest rate, perhaps up to 25%, 50% depending. Investment drops in the economy due to the high price of money, no one can work hard enough to service a loan, stagnation and eventual and collapse of civilization for the middle class, possibly all of civilization.
I would consider the OP premise is based on something more than shear fantasy.

 

[jack action]

If they have to add in the cost of mining the cryptocurrency, then the price of the load will reflect that incurred cost, being passed on to the consumer of the loan. A 5% load in normal times would have an 'inflated' interest rate, perhaps up to 25%, 50% depending. Investment drops in the economy due to the high price of money,

"... fewer transactions are required, less money to be made in cryptocurrency, people move to a more efficient way of making transactions."

It seems more probable than people working themselves until they - or the whole system - collapse.

 

[BWV]

This whole thing is assuming that if someone used all the world's energy to print 10x to as many bitcoins as exist already, they would now be worth 10 trillion dollars. I think the price of Bitcoin would just collapse when they tried to actually use it as money (or even earlier since this event if public).

There are also only a finite number of bitcoins that can be created, so you can't actually do this. Right now you can only get to about 15% of all bitcoins, then there are literally no more left to mine. Other currencies might effectively avoid this problem, I'm not sure.

The proof of work scales with the value of BTC, not the quantity. If hypothetically all the BTC is mined, miners will still need to be compensated for supplying computer power to the network, otherwise miners will just quit and the whole thing will crash

 

[Office_Shredder]

The proof of work scales with the value of BTC, not the quantity. If hypothetically all the BTC is mined, miners will still need to be compensated for supplying computer power to the network, otherwise miners will just quit and the whole thing will crash

But that demand is strictly bounded by what people actually want to spend the do Bitcoin transactions

 

[BWV]

But that demand is strictly bounded by what people actually want to spend the do Bitcoin transactions

Absolutely, which is why I think the whole enterprise is a pyramid scheme that will eventually collapse

 

[Vanadium 50]

a pyramid scheme that will eventually collapse

I would say an asset bubble. Where is the pyramid?

It also doesn't have to collapse. It could gradually approach an asymptote. And where might this asymptote be? The US money supply (M2) is about $21T. Even if BTC doesn't appreciate, it's still useful for buying illegal products and services. I will use the Steven Brust "Jhereg" approximation and estimate crime as 1/17 of the economy. So $1.25T would be the necessary total value of BTC. Divide that by the 21 million bitcoins, and the asymptotic value should be around $60,000.

That's not too far off from its peak value.

 

[phinds]

The proof of work scales with the value of BTC, not the quantity. If hypothetically all the BTC is mined, miners will still need to be compensated for supplying computer power to the network, otherwise miners will just quit and the whole thing will crash

Huh? If all the bitcoins are mined, there ARE no "miners" any more. The people who were miners are now just people who are stuck with some expensive computer kit for which they may or may not have made an acceptable ROI but other than them, who cares? What does that have to do with the ongoing value of BTC and what is it that you think crashes?

 

[russ_watters]

I wouldn't call cryptocurrencies a Ponzi scheme. That's reserved for a particular kind of financial monkey business. Bitcoin and its friends represent a different kind of financial monkey business.

I would say an asset bubble. Where is the pyramid?

Yeah, the OP introduced the Ponzi scheme idea, but I agree it is more of an asset bubble. The differences, though, aren't necessarily that big. To me the key difference is transparency/fraud. In a Ponzi scheme the investors believe(are told) there is real value and growth, when in reality it is just plain a lie. In an asset bubble the value is transparent: it's basically zero (or just a random, small fraction), but at least it isn't a lie! The commonality is that in both cases the health of the scheme relies on investor confidence and a constant influx of money.

It also doesn't have to collapse. It could gradually approach an asymptote.

Bubbles have to pop. Bitcoin may have utility as a currency and that may have value, so it doesn't necessarily need to go to zero, but I don't see how that could be an asymptote. The current valuation doesn't necessarily have anything to do with the ultimate value.

I will use the Steven Brust "Jhereg" approximation and estimate crime as 1/17 of the economy. So $1.25T would be the necessary total value of BTC. Divide that by the 21 million bitcoins, and the asymptotic value should be around $60,000.

That's not too far off from its peak value.

I don't see why that should have anything to do with anything. First off, I think you used the US GDP ($21T) instead of the world GDP($65T) there, but more directly, so what? Why does annual GDP have anything to do with the value of money in circulation? Surely it's the holding not the circulation rate that matters there?

...though this may get deeper into money policy/theory than I'm familiar with. I don't know what the sum of USD held electronically in banks is...or, again, why that has anything to do with anything.

 

[russ_watters]

A few things to point out here:
1. Bitcoin is an absolutely terrible currency, based on efficiency (energy per transaction). Other cryptocurrencies could do better though.
2. As pointed out previously, cryptocurrency values are currently based on bubble/pyramid perceptions, not utility. The value/utility is different if 99% are circulated weekly vs if 99% are held long term and 1% circulate weekly.
3. Because cryptocurrencies are all viewed as equal(ly pointless), their values tend to track each other in the short term, though separate based on popularity in the long term. But ultimately if one gets adopted/endorsed by major banks/countries, the value of the others should rapidly go to zero. The fad value -- the "potential" is ethereal, and once the "potential" becomes real for one, it ceases to exist for the rest.
4. In order to be adopted, a cryptocurrency needs to be stable, which contradicts the appreciating bubble/fad valuation. That conflict/contradiction is why I don't see potential for an asymptote.

 

[BWV]

Huh? If all the bitcoins are mined, there ARE no "miner" any more. The people who were miners are now just people who are stuck with some expensive computer kit for which they may or may not have made an acceptable ROI but other than them, who cares? What does that have to do with the ongoing value of BTC and what is it that you think crashes?

Bitcoin miners are getting paid an annual run rate of around $9B or around 1.4% of BTC market cap(https://ycharts.com/indicators/bitcoin_miners_revenue_per_day).

so how do the people who provide the computing power to the blockchain continue to get paid once all the bitcoins are mined? The miners provide the entire computing power to process transactions and maintain the blockchain. The only reason it functions now is the 1-2% annual dilution from new bitcoin earned by the miners. For the network to function, the people providing the computing power will need to continue to be paid a comparable amount

 

[russ_watters]

The miners provide the entire computing power to process transactions and maintain the blockchain. The only reason it functions now is the 1-2% annual dilution from new bitcoin earned by the miners. For the network to function, the people providing the computing power will need to continue to be paid a comparable amount

This has confused me as well. If the miners are maintaining the currency/transaction record, does that mean when the mining stops the currently can't function anymore? Maybe other cryptocurrencies don't have this problem, but it feels like Bitcoin is a time bomb.

 

[Rive]

so how do the people who provide the computing power to the blockchain continue to get paid once all the bitcoins are mined?

The transaction fee is supposed to cover that. But mining is continuously slowing, so 'the end of mining' is still supposed to be a century (or so) away.

 

[BWV]

This has confused me as well. If the miners are maintaining the currency/transaction record, does that mean when the mining stops the currently can't function anymore? Maybe other cryptocurrencies don't have this problem, but it feels like Bitcoin is a time bomb.

yes, one bitcoin transaction consumes upwards of 1,000 kwh - transaction processing and updating the blockchain is the work miners do - its not a separate activity

https://www.statista.com/statistics/881541/bitcoin-energy-consumption-transaction-comparison-visa/

 

[BWV]

The transaction fee is supposed to cover that. But mining is continuously slowing, so 'the end of mining' is still supposed to be a century (or so) away.

Yes, my point is the transaction fees would have to annualize to 1-2% of BTC market cap maintain the infrastructure of the network

 

[Vanadium 50]

If all the bitcoins are mined, there ARE no "miner" any more.

I believe that this will never happen, by design. Mining gets more and more expensive over time, but even though the maximum number of BTC is fixed, there never is a time when there is nothing left to mine. We have already reached the point where it is too expensive to mine "in your parents' basement".

 

[BWV]

I bet the creators of the scheme just needed to set the date the final bitcoin is mined far enough away (2140) so the discussion would forever remain academic

 

[jack action]

https://www.statista.com/statistics/881541/bitcoin-energy-consumption-transaction-comparison-visa/

I'm not sure this is a fair comparison if they only talk about the electricity cost of the credit card transaction. You have to include the cost of managing the clients' accounts, the fraud task forces, marketing, etc. The bitcoin cost is final and covers everything that is needed for the currency to exist and the transactions to be done. And credit cards are not currencies. Currencies must already exist and have costs of their own (think of the justice system cost for counterfeit money crimes).

If bitcoin mining takes 1-2% on every transaction, I doubt it is that much less using fiat money, especially when involving tier parties like credit cards.

And even if it's less, despite all security measures, counterfeit money still exists and I never heard of counterfeit bitcoins.

 

[BWV]

I'm not sure this is a fair comparison if they only talk about the electricity cost of the credit card transaction. You have to include the cost of managing the clients' accounts, the fraud task forces, marketing, etc. The bitcoin cost is final and covers everything that is needed for the currency to exist and the transactions to be done. And credit cards are not currencies. Currencies must already exist and have costs of their own (think of the justice system cost for counterfeit money crimes).

If bitcoin mining takes 1-2% on every transaction, I doubt it is that much less using fiat money, especially when involving tier parties like credit cards.

And even if it's less, despite all security measures, counterfeit money still exists and I never heard of counterfeit bitcoins.

'Fiat' money will exist as long as governments demand taxes be paid in their own currency. No one, even the Twitter Bitcoin bros really believe anymore that BTC will ever replace fiat (and of course BTC is as much 'fiat' as any real currency. Its the fundamental conceit of crypto to believe that monetary transactions which exist within a long established legal and regulatory framework can somehow be accomplished with automated software.

The 1-2% to maintain the network is only part of the cost - this supposes you are sophisticated (or stupid) enough to keep your own wallet and store the key yourself. Normal people would need a custodian like Coinbase which adds the layer of fees more directly comparable to Visa or your bank.

 

[Vanadium 50]

I never heard of counterfeit bitcoins.

The concept exists. It's a little different than with paper money - in this case "counterfeiting" is spending the same coin more than once.

It takes 15-30 minutes to process a transaction. In that time, someone could theoretically spend the same coin twice. This is obviously easier to do when buying a coffee than when buying a house.

 

[paradisePhysicist]

@OP

Solution is simple, focus on using pre-mined currencies with efficient technology that allows for fast data transfers on the p2p network.

The problem with Bitcoin is scalability. Bitcoin is already an obsolete technology, there are better cryptos that offer lightning fast transactions. The reason Bitcoin is popular is because it was the "first" currency and so its simply tradition and word of mouth holding in place. There are much better digital cryptocurrencies that are more scalable. You can maybe incentivize other currencies by reducing or giving no taxes to more energy-friendly type currencies.

 

[fluidistic]

I also don't really get why people claim that bitcoin sucks because you can buy illegal things with it. Surely, the same is true for any other currency, in particular the US dollar, no? On top of that, why would you do it with Bitcoin, where every transaction, and the balance of your wallet is public? There is no anonymity. If you want to convert your BTC to USD, then you have to go through an exchange, and guess what, they require an ID and other things to allow police and other interested people, to check who paid how much to whoever else.

"Real" bad people use Monero, or similar cryptocurrencies, real anonymous currencies, not bitcoins.

Edit: I have nothing against Monero, I think such a cryptocurrency is a must in any society.

 

[Vanadium 50]

I also don't really get why people claim that bitcoin sucks because you can buy illegal things with it.

Has anyone listed this as a detraction? It's a feature.

where every transaction, and the balance of your wallet is public?

I do not believe it is. If it worked as you describe, it would be impossible to steal Bitcoin, because the theft itself is a transaction (there's a reason bank robbers don't sign withdrawal slips when they knock over a bank). Further, the are simple ways to avoid this, like CoinJoin.

 

[Office_Shredder]

I also don't really get why people claim that bitcoin sucks because you can buy illegal things with it. Surely, the same is true for any other currency, in particular the US dollar, no? On top of that, why would you do it with Bitcoin, where every transaction, and the balance of your wallet is public? There is no anonymity.

There's a reason all the ransomware demands ask for the money in Bitcoin and not dollars.

 

[phinds]

I also don't really get why people claim that bitcoin sucks because you can buy illegal things with it. Surely, the same is true for any other currency, in particular the US dollar, no?

Do you seriously not get the difference? I think perhaps you don't understand how bitcoin works.

 

[fluidistic]

Has anyone listed this as a detraction? It's a feature.I do not believe it is. If it worked as you describe, it would be impossible to steal Bitcoin, because the theft itself is a transaction (there's a reason bank robbers don't sign withdrawal slips when they knock over a bank). Further, the are simple ways to avoid this, like CoinJoin.

I can check all the transactions and the balance of any address using the blockchain searcher website. I tried it for fun to see how much of donations scihub was getting, seems to work to me. Am I missing someting? Sure, they can possesses multiple addresses, but they're still all public, and any private one will not receieve money without making it public, as far as I understand, if dealing with Bitcoin.

There's a reason all the ransomware demands ask for the money in Bitcoin and not dollars.

I think it was over 40 percent in monero back in 2018 according to wikipeDia. Now probably higher, I suppose. But sure, there are plenty of noob hackers who would use bitcoin over annonymous currencies.

Do you seriously not get the difference? I think perhaps you don't understand how bitcoin works.

I really do not get it. Say I go to your home, bet play chess with you, lose and decide to pay you 8.23 bucks, we go to your faraday's cage and I pay cash. This transaction is anonymous. Now let's consider the same case except that I oay you in Bitcoins. I send you 8.32 bitcoins. This transaction is public and anyone who knows that your wallet is linked to your identity (i.e. any online services like binance, except apparently coinjoin, plus the f.b.i.) knows that you received 8.32 bitcoin, and they know from which wallet, hence person (with a little bit of work). With bitcoin you can also know the history of the coin you have, and eventually decide to sell it at a different price. All these features don't exist with,monero. You only get to know that the person had n transactions, but you don't know from which wallet, the amounts, etc.
El Salvador government will see with details the payments done by the people, since they apparently give the addresses to those people. There is a total loss of privacy for those poor people.

 

[Rive]

There is a total loss of privacy

There are circumstances when there supposed to be no/less privacy (for example in case of supposed criminal activity) in private matters. How does bitcoin provides this kind of functions?