mfioretti: cryptocurrency*

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  1. Karl Wüst and Arthur Gervais neatly summed up the point of a blockchain more elegantly than I ever could in Do you need a blockchain?:

    Blockchains allow » mutually mistrusting entities to exchange financial value and interact without relying on a trusted third party.

    If you’re considering building a blockchain-based app or investing in a blockchain-based startup, first ask yourself, does the problem being solved require interactions or exchanges of financial value between mutually mistrusting entities? “Mistrusting” is meant both in the sense that you’re unable to establish another entity’s identity and also that you don’t trust that entity with your data. If not, then guess what: you don’t need a blockchain!

    Look at the following flow chart from the same article, summarizing the process that you should follow for deciding whether blockchains are appropriate for your solution:
    Choose your own adventure, “how to get VC money in 2018” edition (taken from Do you need a blockchain?)

    Some translations:

    “State” here means data
    “Writer” effectively means a user
    “TTP” means “trusted third party” (e.g., an individual, corporation, government) who can be trusted with your data
    Example: when you use Facebook, the state includes your feed and posts, the writer is you and the TTP is Facebook

    The vast majority of apps end at step two or three of the flowchart. Meaning that you don’t need a blockchain.
    Voting 0
  2. The entire point of money is that it allows parties to transact without having to barter. But for money to have value, and to generate economies of scale, only so many currencies can operate at the same time.

    In the US, the reason we do not use euros or yen in addition to dollars is obvious: doing so would be pointless, and it would make the economy far less efficient. The idea that hundreds of cryptocurrencies could viably operate together not only contradicts the very concept of money; it is utterly idiotic.

    But so, too, is the idea that even a single cryptocurrency could substitute for fiat money. Cryptocurrencies have no intrinsic value, whereas fiat currencies certainly do, because they can be used to pay taxes. Fiat currencies are also protected from value debasement by central banks committed to price stability; and if a fiat currency loses credibility, as in some weak monetary systems with high inflation, it will be swapped out for more stable foreign fiat currencies or real assets.

    As it happens, Bitcoin’s supposed advantage is also its Achilles’s heel, because even if it actually did have a steady-state supply of 21 million units, that would disqualify it as a viable currency. Unless the supply of a currency tracks potential nominal GDP, prices will undergo deflation.

    That means if a steady-state supply of Bitcoin really did gradually replace a fiat currency, the price index of all goods and services would continuously fall. By extension, any nominal debt contract denominated in Bitcoin would rise in real value over time, leading to the kind of debt deflation that economist Irving Fisher believed precipitated the Great Depression. At the same time, nominal wages in Bitcoin would increase forever in real terms, regardless of productivity growth, adding further to the likelihood of an economic disaster.
    Voting 0
  3. Nobody has created the cryptocurrency we actually need just yet.

    You see, Satoshi understood the first part of the maxim, the power to print money. What he missed was the power to distribute that money.

    The second part is actually the most crucial part of the puzzle. Missing it created a critical flaw in the Bitcoin ecosystem. Instead of distributing the money far and wide, it traded central bankers for an un-elected group of miners.

    These miners play havoc with the system, holding back much needed software upgrades like SegWit for years and threatening pointless hard forks in order to drive down the price with FUD and scoop up more coins at a depressed price.

    But what if there was a different way?

    What if you could design a system that would completely alter the economic landscape of the world forever?

    The key is how you distribute the money at the moment of creation.

    And the first group to recognize this opportunity and put it into action will change the world.

    The problem with all of the plans before now, from UBI to socialism (high taxes on the rich to spread the wealth across the game) is that to redistribute the money after it’s already been distributed is nearly impossible. The people with that money rightfully resist its redistribution. And as Margret Thatcher said “The trouble with Socialism is that eventually you run out of other people’s money.”

    But what if the money is NOT already distributed?

    What if we don’t have to take it from anyone at all?
    Voting 0

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