Cryptocurrency -- Is anyone on-board?

[floobydust]

I think the crypto currencies have no reference (i.e. gold) to peg the token's value.

It's like our multimeters having no reference standard for the "volt", the number could be anything.

1971 President Nixon decoupled the US dollar from gold, it became a free-floating fiat currency.
But the history- it was tied to gold at the beginning and the $US has total trust world-wide, has allowed the $US to thrive.

Crypto currencies don't have this, their value is an arbitrary number. Nothing to ground it to physical reality.
Trust is not there yet, given the security flaws.

[WastelandTek]

https://video.twimg.com/ext_tw_video/940075967023800322/pu/vid/1280x720/JEw5P06WbKT3Gq3M.mp4

[nctnico]

I think it is time to share my encounter with cryptocurrency.
About 4 years ago the Bitcoin went up to an (for that time) insane value. That inspired me to try and mine some cryptocurrency on my own so I bought a videocard with a decent GPU (Radeon HD7850) and setup an old PC with Linux. I choose to mine Litecoins because these didn't need a whole lot of hardware to mine amount which didn't had a whole lot of zeroes between the dot and the number. I did some initial testing and found it interesting that an Intel I750 was about 30 times slower (30k iterations/s) than the videocard (150k iterations/s). CUDA has some pretty impressive processing power...

However from reviews on internet the videocard I bought should be able to do over 400k iterations/s. The mining software tried to maximize performance by keeping the GPU at it's maximum temperature. So lower performance meant inadequate cooling. Therefore I mounted a much bigger fan and ducting onto the videocard. This got the performance up to 320k iterations/s. It is rather odd that appearantly the standard cooling solution on the videocard could not support the maximum performance at all.

I also found that the mining software was oscillating between various iteration speeds and concluded the control loop the mining software uses wasn't working right. I downloaded the sources for the mining software and installed the required CUDA development tools. I recall compiling the mining software was pretty painless. Unfortunately there was no quick fix to get the mining software work better.

By that time I also lost interest in the Litecoin because pooled mining worked slow. I wanted to mine my own coins. I ended up choosing Infinitecoins. Because that was relatively new cryptocoin back then mining went quick in blocks of 128000 at first and 64000 later on. An interesting observation was that many miners where throttling down when the difficulty went up. This meant mining the coins remained pretty easy. I set a target for myself at 1000,000,- Infinitecoins (even though they where as good as worthless) and reached that. At least I can claim I have been a cryptocoin millionair!

I have got to get me one of these:


By that time the mining PC had been running for about 2 or 3 months 24/7 and for some reason it crashed. Because I had the amount I wanted I shut it down.

Except for transferring the Infinitecoin and Litecoin wallets to my new PC I didn't do anything with cryptocurrency until early this year. I checked the activity in the Infinitecoin community and found all the coin had been mined a long time ago and there where very few exchanges left where you can trade Infinitecoin. That made me decide to try and trade the Infinitecoin for Litecoin. I found an online exchange called Cryptopia (cryptopia.co.nz). First I tried a small batch of coins to see if the exchange was legit. And it was so I traded all my Infinitecoins for Litecoins. Ofcourse the rate went up just after I traded all my Infinitecoins  Anyway, now I had about 1.7 Litecoins which where worth around 5 euro. I decided to wait until Litecoins would be worth around 80 euro so I could get some money back.

With the Bitcoin rising to beyond insane values I found it time to see what the Litecoins where doing. Much to my surprise they where worth over 100 euro since a few days. Not bad! Time to fire up the Litecoin wallet. That immediately complained that it needed to be updated and the new version didn't like the config file from the version from 4 years ago so I needed to fix that as well. When I got the new Litecoin wallet going it had to fetch all the transactions from last year which took a couple of hours. Meanwhile the Litecoin went up and down wildly. The next problem was to find a way to change the Litecoins for real money. I found anycoindirect.eu which turned out to be run by a Dutch company. They didn't had that many bad reviews so I registered and sold my Litecoins for little over 200 euro. The process was pretty painless. What I liked is that Anycoindirect seems to create a temporary wallet where you send the coins to and they process the order from there. You don't have to keep your cryptocurrency in their wallet. At the time of writing this the Litecoin is worth much more but it might as well have gone down. The money hasn't arrived in my bank account yet so I can't yet comment on whether Anycoindirect is legit or not. Edit: The money just arrived so Anycoindirect delivers on what they promise 

I find it interesting how one would setup a website to buy and sell cryptocoins with real money. There has to be some real-time trading algorithm at work otherwise they wouldn't be able to handle the volatility of the cryptocurrency.

All in all it has been interesting. My cryptocurrency wallets are empty now and I made some of my money back but if I factor in electricity costs I'm still in the hole.

Disclaimer: I'm not endorsing investing into cryptocurrency! When I worked at a stock trading company the lady who did the bookkeeping often said: "Rien ne va plus, your money no longer belongs to you".

[james_s]

I suspect we're witnessing a massive bubble in cryptocurrencies. Like any bubble, people who manage to sell at the right time and leave others holding the bag will make a killing but I don't see the value holding long term. Anything that volatile is useless as a currency, Bitcoin and the like are speculative investments, buying them is no different than buying some hot stock or must-have toy. If you can make a lot of money in a hurry you can also lose just as much.

[nctnico]

Interesting read about 'bubbles'. It seems that is yet another fine Dutch invention (like shares): https://en.wikipedia.org/wiki/Tulip_mania

[Decoman]

I see that gold is discussed as a valuable item here above, and I can't help but think that gold as a commodity is somewhat old style economics, as if belonging to an era where the economies of the world was smaller 50 years ago. I am by far no expert on economics, but I have the last few years come to think that so called fractional banking system is the "new" thing in economics, in which, as I understand it, faith is put in a system of circulating printed money and creating layered debt and value, for:

a) having most/all people predictably wake up in the morning and go to work and do stuff (creating value, one way or another)
b) put a price on anything, wages, things and property
c) create wealth by the concept of a predictable income from rent off loans

So, the more complex transactions become, with printed money (basically printed from nowhere as I understand it, though I won't claim to truly understand 'fractional banking') have more people paying more for things, creating more wealth in the other end. Presumably, the other end being able to get more, for less, as opposed to the other end again, who get less, for more. Although I am happy buying stuff from eBay at a nice price, or even buying chocolate where I live, I can't help but wondering if there are poor people doing the hard work, being doomed to live a life in poverty, people providing work, at at some predictably low wage standard, and I suppose there are really a lot of these people around on our planet.

I would think that debt and random price increases is (unfortunately) a valuable thing, barring war and unrest, and what I find disturbing nowadays, is that a serious gaming news website I read, entertain the idea that game developers might as well charge whatever for their games, simply because they would have their reasons for wanting a higher price, which imo is outrageous and silly, as if arbitrarily attributing a value to some commodity would be ok, as if the value of things were to be whatever-you-can-get-away-with (I think this is would be wrong and offensive with mass produced stuff). On a related note, I am sometimes bewildered as I see a laughably high price on chocolate, making me think that, the chocolate is either costly to manufacture with wages, OR, that they sell chocolate as an overly high price to look for trends that indicate that people are willing to actually pay a small fortune for that 200g bar of chocolate, and I occasionally see chocolate being sold at seemingly dumping prices (compared to regular high price on the very same item), a few times throughout the year. This dumping price gimmick is common with hot dogs at summer time where I live.

Edit: Wow, my typos, sry about that.

[CatalinaWOW]

I would think that debt and random price increases is (unfortunately) a valuable thing, barring war and unrest, and what I find disturbing nowadays, is that a serious gaming news website I read, entertain the idea that game developers might as well charge whatever for their games, simply because they would have their reasons for wanting a higher price, which imo is outrageous and silly, as if arbitrarily attributing a value to some commodity would be ok, as if the value of things were to be whatever-you-can-get-away-with (I think this is would be wrong and offensive with mass produced stuff). On a related note, I am sometimes bewildered as I see a laughably high price on chocolate, making me think that, the chocolate is either costly to manufacture with wages, OR, that they sell chocolate as an overly high price to look for trends that indicate that people are willing to actually pay a small fortune for that 200g bar of chocolate, and I occasionally see chocolate being sold at seemingly dumping prices (compared to regular high price on the very same item), a few times throughout the year. This dumping price gimmick is common with hot dogs at summer time where I live.

While the earlier part of your post shows some understanding of currency systems, the latter part shows that you are missing some key parts. 

All currencies reflect an approach to making barter efficient.  The game writers have something you want.  You have something the game writers want.   They can set any price they want on their product.  You choose whether it is worth it to you.  The higher the price they set, the fewer people find the trade worthwhile.  This relationship is called the elasticity curve - it relates price to sales.  Optional things like games tend to have very steep curves - sales drop precipitously as prices go up.  Commodities which have limited or fixed supplies have prices that reflect the relationship to availability.  If availability exceeds demand the price drops to something close to the cost of production. 

Demand for BITCOINS and other cryptocurrencies currently exceeds production.  Prices are growing rapidly.  But since there is no inherent use for these digital currencies demand is unpredictable and could easily drop to zero.  In a nutshell that is what has happens when a bubble bursts.

[CatalinaWOW]

But the whole reason that the world moved away from using gold or any other currency of intrinsic value is because:

* They can be faked.   Fake gold coins where a real issue back in their day.
* They are easily stolen.
* In a lot of cases they are hard to store and hard to move/carry/ship
* they are very difficult to trade with if as the denominations are awkward to work with.  If your loaf of bread is not worth a whole gold coin what do you do?  Buy 500 loafs and let the 499 rot?


I suppose you could start scrapping off slithers and using jewellers scales to weigh out the 100mg of gold needed to buy your lunch, but if the person behind you in the queue sneezes while you are doing that, lunch could cost you twice as much.

A quick watch of "Requiem of the American Dream" is good craic.

Your list of reasons for abandoning the gold standard is bogus.  The problem of detecting fake gold coins was solved thousands of years ago by a gentleman named Archimedes.  Better solutions have been developed since and are in place in pawn shops, jewelry stores and any other place that handles gold.  Easy theft is somewhat valid, but actually it is not materially different in difficulty from other currencies.  Gold is inconvenient for transfers of large sums of money.  Not the kind of sums used in daily trade, but the kind of sums banks and countries move around.  Look into how heavy the gold equivalent of a car or house is.  It won't strain much of anyone.  The divisibility of gold coins has never been a serious problem.  From pure mechanical division (pieces of eight are an example even though those coins were silver) to use of base coinage for subdivisions the problems were easy to deal with.

The biggest single reason we went away from a gold based currency system was that the supply of gold was not increasing as rapidly as the growth of other things in the economy.  If gold mining increases the gold supply by 1% a year then economic growth is limited to 1% or other distortions occur.  BITCOIN has the same type of defect.

[mtdoc]

Yeah, Decoman - I agree that some more study of the rational and history for gold as money might be helpful.

Here's  an interesting take on the Bitcoin bubble and how it compares to gold. I found the idea that gold is the only money essentially immune to entropy interesting. It's hard to beat 5000 years of history.

[dnwheeler]

If gold mining increases the gold supply by 1% a year then economic growth is limited to 1% or other distortions occur.  BITCOIN has the same type of defect.

Just for context, all the gold ever mined is around 187,200 tons (a cube roughly 21m on each side), and current mining is 2,500-3,000 tones per year - roughly 1.5% of the current amount, but not really growing (i.e., the annual percentage growth will decrease over time as the total increases linearly).

So yes, gold is very rare, and can't support any sort of economic growth or inflation. If it were backing currency, it's value would have to rise dramatically and continuously. This is essentially what is happening with Bitcoin.

[mtdoc]

So yes, gold is very rare, and can't support any sort of economic growth or inflation.

And there in lies the problem. The earth itself cannot support endless economic growth.  Infinite growth cannot occur on a finite planet. Central bank/fiat money shenanigans only push future potential growth forward - but eventually the piper must be paid.

[nctnico]

So yes, gold is very rare, and can't support any sort of economic growth or inflation.

And there in lies the problem. The earth itself cannot support endless economic growth.  Infinite growth cannot occur on a finite planet. Central bank/fiat money shenanigans only push future potential growth forward - but eventually the piper must be paid.

That is assuming that gold is the only thing of real value but it is just as useless as bitcoins because it only gets valuable if we can barter it for something else. With what we call money (either a number printed on a piece of paper, stored as a number in a computer at a bank) we barter value we add to goods for other goods. IMHO it is the value which gets added which drives the economy. What is muddling the water is that there is also a system which speculates on a value becoming more or less valuable.

[james_s]

The thing about gold is that it's incredibly useful stuff, unless somebody succeeds where thousands of years of alchemists failed or we manage to figure out how to build chemical elements out of neutrons and protons and such gold is always going to have value. Ignoring the decorative aspect gold has excellent chemical properties. It is highly resistant to oxidation and other chemical attacks, it doesn't break down when exposed to UV or ionizing radiation, it's a fairly good electrical conductor, a superb IR reflector, it's malleable and easy to form into objects, it can be electroplated over less valuable metals and applied mechanically as gold leaf. It has many, many uses.

Civilization and the internet could crumble and gold will still have value as it has had since the dawn of civilization. Bitcoin will likely be as useful as an 8" floppy disk 20 years from now. It has no tangible form, it's not backed by anything at all, and the value fluctuates wildly. I'm not sure why so many people fail to realize that anything that can skyrocket in value like that can plummet even faster. We've seen this play out time after time after time but people never learn.

[james_s]

That is assuming that gold is the only thing of real value but it is just as useless as bitcoins because it only gets valuable if we can barter it for something else. With what we call money (either a number printed on a piece of paper, stored as a number in a computer at a bank) we barter value we add to goods for other goods. IMHO it is the value which gets added which drives the economy. What is muddling the water is that there is also a system which speculates on a value becoming more or less valuable.

That's a point that I've tried to make many times to many people. Money is a tool created to facilitate transactions because it's usually inconvenient to drag your goods around and trade them on the spot for someone else's goods or services. Money has little inherent value but we assign value to it when we trade it for something. To be useful as a currency the value needs to be relatively stable, I should be able to trade something for money and later use that money to purchase something else of comparable value whether there's 5 minutes or 5 months between the transactions.

Cryptocurrencies do not fit that description, they are speculative investments, a sort of Ponzi scheme where a person can make a big profit if they get in early and get out while they're ahead. Sooner or later some people are gonna be left holding the bag.

[hendorog]

That is assuming that gold is the only thing of real value but it is just as useless as bitcoins because it only gets valuable if we can barter it for something else. With what we call money (either a number printed on a piece of paper, stored as a number in a computer at a bank) we barter value we add to goods for other goods. IMHO it is the value which gets added which drives the economy. What is muddling the water is that there is also a system which speculates on a value becoming more or less valuable.

That's a point that I've tried to make many times to many people. Money is a tool created to facilitate transactions because it's usually inconvenient to drag your goods around and trade them on the spot for someone else's goods or services. Money has little inherent value but we assign value to it when we trade it for something. To be useful as a currency the value needs to be relatively stable, I should be able to trade something for money and later use that money to purchase something else of comparable value whether there's 5 minutes or 5 months between the transactions.

Cryptocurrencies do not fit that description, they are speculative investments, a sort of Ponzi scheme where a person can make a big profit if they get in early and get out while they're ahead. Sooner or later some people are gonna be left holding the bag.

Bitcoin is clearly not a currency and never will be a practical currency. That much has become very clear and obvious in my limited experience with it.
It doesn't scale in several ways - transaction rate, transaction fees, use of electricity, limited supply.

So at the moment the whole thing is an unstable mess. But that doesn't mean it will always be the case.

Bitcoin is just one attempt at a crypto currency. I'm not sure how you can say in general that all crypto 'currencies' will never be anything but speculative investments based on that one example.

I think that at some point in the future, something much better will stick its head up and will be usable as a currency.

[james_s]

I'm not saying that no cryptocurrency will ever be stable and viable, but the ones that are all the rage right now are all speculative investment pyramid schemes, the skyrocketing value is why people are talking about them.

I'm still skeptical though, a cryptocurrency is useless if you don't have electricity and network access. A system failure, ransomware attack, virus, hack etc could easily result in losing your entire stash. Since it's backed by nothing I don't see what is going to prevent the value from being volatile. With a real currency we can print as much of it as is needed to facilitate the transactions taking place, it's not artificially limited by production, it's limited (in theory) by the value of goods people trade with it. The value is not in the money itself, it's in the goods and services being traded. Paper money could be as simple as a promissory note saying I owe you x amount at a later date for goods you give me now. The value is not in the note itself (money), it's in the goods or services you are entitled to when the time comes for me to hold up my end of the transaction.

[nctnico]

I'm still skeptical though, a cryptocurrency is useless if you don't have electricity and network access. A system failure, ransomware attack, virus, hack etc could easily result in losing your entire stash.

Money in the bank has similar limitations but it is strongly regulated. Nevertheless you could loose (part of) your money if the bank goes belly-up.

[james_s]

Money in the bank has similar limitations but it is strongly regulated. Nevertheless you could loose (part of) your money if the bank goes belly-up.

In the US, banks are federally insured to prevent exactly this from happening. That's not to say it's foolproof, the entire economy could collapse but at that point I'll probably have bigger issues.

[hendorog]

I'm not saying that no cryptocurrency will ever be stable and viable, but the ones that are all the rage right now are all speculative investment pyramid schemes, the skyrocketing value is why people are talking about them.

I'm still skeptical though, a cryptocurrency is useless if you don't have electricity and network access. A system failure, ransomware attack, virus, hack etc could easily result in losing your entire stash. Since it's backed by nothing I don't see what is going to prevent the value from being volatile. With a real currency we can print as much of it as is needed to facilitate the transactions taking place, it's not artificially limited by production, it's limited (in theory) by the value of goods people trade with it. The value is not in the money itself, it's in the goods and services being traded. Paper money could be as simple as a promissory note saying I owe you x amount at a later date for goods you give me now. The value is not in the note itself (money), it's in the goods or services you are entitled to when the time comes for me to hold up my end of the transaction.

Right - I don't think it is a pyramid scheme though. It is just rampant speculation based on an assumption that bitcoin is the future. People haven't yet worked out that bitcoin simply is too limited to be a major currency player of the future, and therefore the limited supply isn't relevant as there will not be a large demand for it. When they do it will surely die a rapid death.

Here in NZ I think the vast majority of transactions are electronic, so requiring network access is not really a change from the norm for us. So perhaps I can see that part working fairly easily compared to other countries which are more cash based.

If you pare it back to brass tacks, and take the emotion out of it, then I do wonder why a future crypto currency couldn't work in the same way as paper money?
Why couldn't it be regulated, backed by something and all of the other technical money type things? That would be rather different to the way bitcoin works, but so what?

Even bitcoin has some smart protections. For example I have a paper code that allows me to regenerate my wallet instantly _myself_ if it gets lost or wiped. That is a pretty cool feature, I would love to be able to do that with cash. I can password protect it to stop anyone who finds it from spending the money. I can spread it around very easily to spread the risk.

[hamster_nz]

Right - I don't think it is a pyramid scheme though.

Not so much a pyramid scheme (where everybody up the chain gets a cut of transactions at the bottom), and not a Ponzi scheme (which presents itself as an investment, but just pays out money from fresh investors to exiting one).

In a few years, it will most likely have its own term. Maybe "Fake money".

[hwj-d]

I am really surprised how many people do not understand the real character of "money" and what's the real meaning of "fake money" aka "fiat-money", what we have this years and we are forced to live with it. Of course, from this perspective, one can not understand the actual meaning of a more modern independent international monetary system, otherwise applied restrictive by banks and governments to the working population. Other states like Japan have already recognized this and are using Bitcoin officially as a widely recognized currency in their national payment system. That works very well, other states will follow.

[paulca]

People who whine that money is debt and fiat and fake are just saying rain is wet.  There are dozens of conspiracy theory documentaries based around the assumption that "money" has any actual worth.  Some coins are roughly worth their value, notes are just "I promise to pay on demand"... trading "IOU" tokens.

I found this very interesting to watch:

[Cerebus]

If you pare it back to brass tacks, and take the emotion out of it, then I do wonder why a future crypto currency couldn't work in the same way as paper money?
Why couldn't it be regulated, backed by something and all of the other technical money type things? That would be rather different to the way bitcoin works, but so what?

It's worth remembering that paper money as we know it started out as a private, as opposed to public, governmental, scheme. There's still vestiges of that here in the United Kingdom - money in England and Wales is issued by the Bank of England, in Northern Ireland and Scotland notes are issued by seven private banks and are not technically legal tender (albeit they are treated as if they were by the local populace) but are promissory notes.

There's no reason that cryptocash couldn't be issued privately in exactly the same way. This ought to have happened some time ago. One thing that has been holding this back is that many fundamental patents that would have made a cryptographic cash equivalent practical were held by David Chaum, who has a long history of failing to either use them effectively or opening them up for others to use. Chaum cracked several of the fundamental problems including providing cryptocash with a similar level of anonymity and privacy as real cash, and preventing the 'double spending' of cryptocash 'notes' (which, quite obviously, can be physically copied as many times as one likes). The bitcoin blockchain (which is a very old idea, spruced up and repurposed, see Merkle Tree) effectively prevents 'double spending'.

Chaum's patents are gradually expiring and it can't be too long before some enterprising issuing bank picks up on this and exploits it.

[paulca]

If you pare it back to brass tacks, and take the emotion out of it, then I do wonder why a future crypto currency couldn't work in the same way as paper money?
Why couldn't it be regulated, backed by something and all of the other technical money type things? That would be rather different to the way bitcoin works, but so what?

It's worth remembering that paper money as we know it started out as a private, as opposed to public, governmental, scheme. There's still vestiges of that here in the United Kingdom - money in England and Wales is issued by the Bank of England, in Northern Ireland and Scotland notes are issued by seven private banks and are not technically legal tender (albeit they are treated as if they were by the local populace) but are promissory notes.

It's irritating to be frank as it's almost entirely academic, but can cause you so much hassle if you forget to lift your cash at the airport.

Also note:
"Equally, Bank of England notes are not legal tender in Scotland and Northern Ireland."

I only found this out and I am looking forward to screwing up an English person's day / weekend as soon as I can.  Tit for tat.  I have had it done to me many times.

[hwj-d]

Chaum cracked several of the fundamental problems including providing cryptocash with a similar level of anonymity and privacy as real cash

Yes, with one more decisive extension. Real cash, consumption money at first is issued exclusively by a commercial bank. So it is not anonym at all, for example to pay a little bigger bill cash as, let's say, a used car, and you bring or want get this cash from the bank, not without declaring officially from whom to where the money comes and goes. That can't happen if you pay directly with bitcoin using its anonymous public and private keystrukture. This commercial and state surveillance is more true to the normal citizen as the money laundering criminal who has still other possibilities.