> "Cryptocurrencies are essentially neither money nor a financial product, but an example of what Nobel laureate Robert Shiller calls a 'contagious narrative': a contagious story in which people believe because other people believe in it."
Which is exactly what money is, to begin with.
Like the stop sign bubble. Those stop signs dont actually stop cars, they just work because of the contagious narrative
This is so deep I can't tell if you're joking or not.
There are rural towns that have a completely different concept for a stop sign... backed by a lack of enforcement from officers.
It's actually a secret reference to the buddhist idea of "conventional reality", things that exist only by convention or agreement among people: political office, property ownership, money, diplomas, marriage, borders, ... most of modern life
Don’t try to stop completely at each stop sign, that’s impossible.
Instead, only try to realize the truth... there are no stop signs.
I actually HATE crypto discussions on HN, and clicked on this link before thinking -- and wow this is a great comment. It is very deep! I'm very glad I clicked. Well done.
Come to Florida where all road signs are merely suggestions /s. However, this is the strongest argument I've seen for why money is money, crypto is crypto, stop signs stop cars, and "DO NOT CROSS" keeps people out.
Traffic Control Protocol is known to be a best-effort.
well, there's also the force of law behind stop signs.
A contagious narrative backed by guns indicates weakness of narrative
Anecdote: I’ve seen a dozen people roll through stop signs today.
That tax bill I get every year payable only in dollars isn't imaginary.
You only believe you need to pay it because others believe you need to pay it.
Money is a contagious story plus guns.
I need to acquire USD to pay my tax bill, otherwise men with guns come and take away my house and put me in jail. That establishes a baseline value for USD.
If none of the services and goods trade in USD, the goverment will soon collect taxes in something else than USD
The people selling the goods and services need to pay taxes too, so they will have to trade in USD.
No, money has value because the government makes it law that debt is payable with it; that's what gives a government's currency legitimacy. If the government made a law that debt could be paid with bitcoin, it would no longer fit Shiller's description.
We can pay local taxes in Bitcoin in Zug, Switzerland.
There's plenty of valid criticisms against crypto, I feel like they've picked some of the weakest ones.
> cryptocurrencies are used because people think they will one day replace traditional money
Maybe a tiny minority, sounds like a strawman.
> a contagious story in which people believe because other people believe in it
Isn't fiat the same? Money only has value because people believe it has value / will have value in the future / trust whoever prints it.
Fiat is backed by weapons. The same weapons that defend your house from other countries and force you to give up half your salary.
My main criticism to cryptocurrencies is that they're mostly unbacked. The ones that are backed by Fiat have similar problems to Fiat currency (why would I need that?), the ones that are backed by physical assets are much more interesting - but they don't seem to be the mainstream ones, probably because you can't speculate on it.
This makes me think cryptocurrencies are mainly about speculation more than rebelling against governments and central banks.
> Fiat is backed by weapons. The same weapons that defend your house from other countries and force you to give up half your salary
This is a very American view of fiat (and governmental role in general). It's a logic that only works if you're talking about the strongest military and associated country out of all alternatives, and at this point it falls apart. How do weapons protect the value of the Angolan kwanza or the Singaporean dollar? Neither of these countries could do anything militarily if a sizeable number of countries did not support their value.
Do Angola and Singapore not have police that enforce that their residents pay their tax bills?
> Neither of these countries could do anything militarily if a sizeable number of countries did not support their value.
That kwanza exchange graph looks like it has nothing backing it.
If you doubt his point go look at Ukrainian hryvnia exchange rates graph, try to guess at which point Crimea thing happened.
Any government that only accepts payment for taxes or other obligations in their own currency is backing their currency with the force of law and creating real demand for it.
They don't need sizeable number of countries. Only one major one.
> Fiat is backed by weapons.
What does this mean? It's the currency of a country that has weapons. If someone steals my USD, will US use their weapons to get it back for me? If the value of their currency drops substantially, will they go to war with some unknown power that's causing this drop and reverse the change? Countries also change currencies, often during times of inflation.
This is an effectively meaningless statement
> If the value of their currency drops substantially, will they go to war with some unknown power that's causing this drop and reverse the change?
They might - that’s essentially what the U.S. has done (or, at least, did for a while) when other nations tried to break the petrodollar system.
The answer to both your specific questions is yes. Although a war won't necessarily restore the value of a currency.
> What does this mean?
I have found that viewing money as a regular good eases the thought process.
The price of money is regulated by demand and supply. Most of the demand comes because government requires taxes to be paid in the fiat money. Also because businesses are required to accept fiat as payment.
The weapons are for using against their own residents.
US residents need to pay taxes in USD. If they don't, weapons will be used to force them to pay (most pay voluntarily, but if they escalate far enough, the weapons will come out).
That means US residents need to acquire USD and are willing to trade valuable assets to do so. That makes USD valuable to US residents.
US residents own many valuable non-fiat assets, so non-US residents know that they will be able to find a US resident who will trade them something valuable in exchange. That makes USD valuable to non-US residents.
The same thing is true of more or less every fiat currency that has a non-negligible value.
And not just any weapons but thousands of strategic and tactical nuclear weapons.
Stablecoins have opened up some interesting ideas about what it means to be backed/unbacked; even ones that are stablised/pegged algorithmically:
https://www.theancientbabylonians.com/what-is-terra-luna/ has a good summary
Fiat is slightly different in that the government can guarantee a certain level of demand for it by requiring taxes to be paid in it. If you you don't like jail and have a tax liability in US, you can't think dollars are worthless.
> Fiat is slightly different in that the government can guarantee a certain level of demand for it by requiring taxes to be paid in it
Until they switch currencies. For instance Brazil did this
> The cruzeiro (Portuguese pronunciation: [kɾuˈzejɾu]) was the currency of Brazil from 1942 to 1986 (two distinct currencies) and again between 1990 and 1993. In August 1993 it was replaced by the short-lived Cruzeiro Real, itself replaced less than a year aftwards by the Real.
India also demonitized a certain denomination of their currency
> On 8 November 2016, the Government of India announced the demonetisation of all ₹500 and ₹1,000 banknotes of the Mahatma Gandhi Series. It also announced the issuance of new ₹500 and ₹2,000 banknotes in exchange for the demonetised banknotes.
Declaring certain currency notes to be valueless doesn't change the demand for currency. It reduces supply.
But people still need it to pay taxes and the government will only pay for services with it.
In most developed nations, the government is responsible for 20%+ of the total GDP, so that's an inbuilt "floor" to the value of its currency.
So yes, the government can change the currency and the notes, but they control the supply and demand of whatever they deem to be the currency.
[Hi from Argentina!] I'm not sure about the details of the transitions in Brazil, but each time there is a change of money here the bank accounts are transformed instantly to the new denomination and the bills and coin coexist for some time, like 3 or 6 months. It's more a cosmetic change, to make the numbers no overflow in the bank system. It also has a psychological effect, because with the change the government pinky promise not to take stupid economic decisions and reduce the inflation.
If you owe taxes and don't have dollars, but have property, IRS will gladly take that. And I doubt they will look at what type of property it is - a house, a stock, a crypto.
Except in the last case, if you use your own keys, you have a choice of either going to jail and keeping the money, or giving it away in exchange for your freedom. In all other cases the only option to hold on to the property - is successfully physically fight with law enforcement to defend your rights to the property (which is quite futile for the most of us).
This guarantee surely helped quite a bit in Zimbabwe, Venezuela and hundreds more similar cases. /s
FYI I can pay my taxes in crypto in Switzerland.
Does the state accept them directly or does a third-party do a currency conversion so the state is receiving the value in Swiss francs?
That's a key difference because it's only in the latter case that taxation creates demand.
Are your taxes calculated in Swiss Francs or Bitcoin?
> Maybe a tiny minority
Wait, what? That’s like the main reason people give when pumping it - “Bitcoin will replace fiat and it’s a good hedge against normal money.”
When normal money has failed good luck finding a wall charger to get into your Bitcoin wallet. Or more precisely the thing that makes electricity and computer hardware cheap and which is a prerequisite for crypto is a functional economic system. It is unlikely that a functional economic system will stay a whilst there is at the same time a collapse in fiat and a subsequent rise in crypto. It feels like wishful thinking.
Currency collapses happen all the time without bringing down the electrical grid/internet.
This is exactly what I don’t understand about the doomsday crowd. How exactly do they plan on using crypto amidst worldwide pandemonium?
you’re thinking of “normal money” failing as a on/off switch. Things are going degrade over time and there needs to be mass adoption if crypto is going to replace fiat currency.
so in reality I think a transition to crypto is possible/likely if it’s indeed a transition and the incentives to do so will be aligned with what the people in power want.
For quite a while the prevailing sentiment has been that bitcoin is a store of value and more akin to gold not dollars.
At any rate, there's plenty of crypto with much different aims.
Only by people with no understanding of economics.
The demand for Gold is primarily functional and is generally larger that the speculative demand. This puts a floor on on its value.
Cryptocurrency is almost pure speculation and thus has no floor to its value.
Personally, I don't know anyone that believes that..
I mostly see it as an adjunct - like credit cards. Another option..
What the heck does that mean? Credit cards in the US are a dollar based instrument, and they extend credit to consumers and simplify payments for merchants and consumers both.
Crypto isn’t credit. Or much of a payment means at present. So what specifically do you mean by “other option”?
This seems like a dodge. The common meme is that crypto will be valuable because it will be the money of the future and appreciate along the way.
I find it hard to believe that you spend time on HN and possibly other crypto-focused websites, but have never seen this sentiment?
These two aspects are some of my least favorite of the crypto community. Hyping up this future techno utopia without banks, while the real end goal is to increase the amount of real currency in their possession.
This doesn't describe the whole community, but a large portion of those on different crypto forums.
I have respect for those truly interested in the tech side of things and those looking to make money on a speculative asset, but people who mix those two drive me crazy because it seems so inauthentic
Indeed, i would like to see how long Buterin would work on eth without funding, savings and rent to pay around the corner.
Vitalik worked on a Bitcoin newsletter and coded blockchains and worked on Ethereum for little to no money for years. He didn't care about money and is as much of a pure tech guy as there is.
I was happily surprised to see someone proposing this, assuming it was about PoW when reading the headline... but unfortunately it's just someone trying to time the market on our behalf?! Like, should we also ban stock trading when we expect the next pandemic or .com bubble?
Try steelmanning it. Their argument is that crypto is as worthless as an investment with Bernie Madoff. Therefore, the Netherlands should exit early so its citizens aren’t left holding the bag.
That’s their claim to argue against.
It's basically if you've ever read about MMM and thought: Why didn't the government do anything? That's the kind of thought process they are likely in.
Of course in my opinion Madoff & MMM are fundamentally different than cryptocurrencies because there isn't someone at the top who can hide what is happening or issue new coins. Arguably what is happening with Tether might be similar, but that's a very specific thing that you try to target with government intervention instead of blanket banning.
: to be clear there are ponzi/madoff schemes in crypto, plenty actually, but if you weight by retail exposure to them they are not that common
Steelmanning. Nice, learned something. I like it.
I think their argument is that cryptocurrencies not just (PoW) but (PoS) too are just a meme with no social benefit (unlike the stock market), yet people put large amounts of money on them and it will end in tears.
I mean, this type of thinking was applied to the early internet as well. “No one will ever buy anything over the internet, people want stores!”
The same lack of imagination is leading to most of these takes.
Except the fundamentals of the Internet were sound and scalable: near instant global communication and commerce. Cyroptocoin fundamentals don't offer much (any?) value over digitized fiat systems once externalities are considered.
Perhaps they still remember the Tulip Mania that started there
Do you consider the fact that some people get really hurt by bubbles?
But, like, the reason they lose money is because they invest what they can't stand to lose. If you want to solve that problem, then pass a law that banks should stop transactions to investment platforms if the person has less than an average monthly income's worth of money on their account (to be clear, I'm not in favor of that, just that this would solve the issue you're seeing without the guesswork of timing a bubble). Telling the whole world "btw this bubble might burst" isn't going to protect your citizens better than anyone else, especially not the gambling types that get hurt by these sorts of events.
Yeah, there is no good solution. But there is something that stinks about all this and ought to be addressed. I believe something like BTC aid incompatible with anything close to a real time market. It should be large block trades only. The supply of this thing is digitally constrained. The owners are unknown. How do we know this think isn’t in a perpetual pump-and-dump cycle? This is what it looks like.
Governments should step in. If the only way to buy it is to commit to holding it for a while or to buy it in large blocks then maybe we wouldn’t get the kind of market we have today. One that is hurting lots of people.
It makes a lot of sense for a country that has significant portions of its territory below sea level. But, I wonder. For years I was absolutely baffled by how the world decided to ignore crypto environmental footprint. Then, out of the blue, a few months ago, it looks like EVERYBODY is talking about it. Then, the G-7 wants to impose the beginning of a global tax regime upon the developed nations (that's what it is basically). Doesn't it smell funny?
He cites: "citing fraud, criminal use, and financial instability" - not environmentalism.
Also, that argument only applies to PoW coins, not PoS coins.
The "nobody visibly cared, then some people cared more loudly, then everyone cared" pattern exists in essentially everything.
Climate change, opioid addiction, police murders, genocide in China, microplastics, childhood obesity, #metoo, whatever other thing.
That's just how society works. There are a billion different things happening every day, at any given moment some are gaining attention and some are losing attention. Everybody will care about the most popular one for a while, some laws might get passed or someone might go to jail or get elected or give a speech, and then it'll fade from the mainstream news and daily conversation will move on to the next issue.
This isn't some coordinated conspiracy, this is the pattern of how literally every issue ebbs and flows in attention.
The reason this pattern is so common is that most people take their cues for what to care about from the media, and the media take their cues from a presumably small and difficult-to-identify group of thought leaders (some combination of editors, PR firms and people with extremely respectable positions).
It is basically a self organising system around a very small pool of original thoughts. It is pretty remarkable how stuff can completely slip the general discourse because it never catches on in the in-group.
That describes what I think about current public discourse exactly. I wonder if that's how it's always been with human societies?
apparently ripple (xrp) is behind the fud campaign against POW, which is why we've seen such an uptick in negative news against it recently
The misallocation of resources into crypto mining also now has real-world implications. GPUs and other chips being unavailable, for example.
>"Cryptocurrencies are essentially neither money nor a financial product, but an example of what Nobel laureate Robert Shiller calls a 'contagious narrative': a contagious story in which people believe because other people believe in it."
How is this different from money or the financial markets? Why do those continue to exist if not for the belief we collectively have in them? And why is that only a problem for bitcoin?
> How is this different from money or the financial markets?
A big difference is that the sovereign requires you to pay taxes in a given currency at the threat of punishment. So long as everyone needs to pay the taxman, the currency that the tax man accepts is gonna have at least some value.
Only to the tax man...
There have been and still are(?) economies where the local currency was only used for 'official' business, and most trade was carried out in another, more stable currency.
They can make this difference disappear by accepting bitcoin then.
Taxes will still be calculated in the local currency, not in BTC.
Because the Netherlands make significant money from funnelling money to their tax havens. If people can do it themselves with bitcoin, how are these tax-pros supposed to live? /s
"Hasekamp stated that several countries took steps to curb cryptocurrencies [...] The Netherlands is lagging behind. "
It seems like The Netherlands would be the first western country to do so.
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