Cryptocurrencies - intelligent commentary

[Rich Beaudoin]

This is an intelligent crowd and I’m wondering what you think of cryptocurrency in general and the future of banking.
It appears financial institutions are publicly discouraging crypto, while at the same time privately encouraging their wealthier investors to get in.
Any thoughtful insight and wisdom?

[Mabouya]

I tend to be against anything who's two main purposes are

1) Avoiding scrutiny and tracing of shady, or worse, downright illegal, transactions

2) Pure speculation

Other than that, blockchain does seem to have useful applications.

[theflashunc]

It's more speculative than Dutch tulips, it consumes more energy than a small star, and has less utility than the very thing it purports to replace. The blockchain tech that underpins it has real value in terms of the future of ledger commerce, but Bitcoin itself?

Some have made good, but bottom will fall out sooner or later.

[sk_tle]

bitcoins and some other cryptoconcurrencies are crap from an environmental point of view because of proof of work which is a huge power consumption. I think bitcoin only itself was consuming more energy than Denmark only and it was only a few years ago. Not all cryptos are the same and for example Ethereum is in the process of moving from proof of work to proof of stake.

I "invested" a really small bit out of curiosity. Cryptoconcurrencies are really highly volatile. When China started doing a crackdown on miners all of them dropped dramaticall this spring. Also mining is so difficult these days now you can practically only enter the market through a broker which makes them lose a lot of appeal. For example you can't have a totally anonym wallet as all transactions are public with bitcoins.

But it is a good way to shake up a bit the banking and payment sector. There is no reason we should have to pay paypal/google/apple fees to transfer money quickly while you could do the same with community and opensource based tools.

[vertical_doug]

It appears financial institutions are publicly discouraging crypto, while at the same time privately encouraging their wealthier investors to get in.

Without a more substantial regulatory framework, they will discourage broad adoption. When I make a payment, the payment is not at risk of disappearing.

As an investor, you can speculate with the amount of money you can afford to lose. The line is generally drawn at the accredited investor level. (earn 200-300k and net worth +1mm in financial assets excluding your home)

But it is a good way to shake up a bit the banking and payment sector. There is no reason we should have to pay paypal/google/apple fees to transfer money quickly while you could do the same with community and opensource based tools

You can argue cost should be lower but there are regulatory and compliance costs involved for the firms. If it is free, it just means you don't know who is making how much money off you. I'd argue the 'costs' involved with anything crypto is much higher than current standard financial offerings.


From a philosophical point, I really doubt it solves any problems. Since people are involved, the same problems will exist, the only differences are the actors involved.
(In general, stablecoins are purely scams which appear to introduce leverage into the cryptosystem)

[smontanaro]

In addition to the other comments, if you want to gain some exposure, you might consider adding stock of companies who are starting to handle crypto trading to your portfolio. That includes (for example, not a recommendation) PayPal or Square. (Online payments ETFs might be even better.) This is, in some sense, like investing in Levi Strauss during the California Gold Rush instead of staking a miner who told you he was going to "hit it big."

[theflashunc]

bitcoins and some other cryptoconcurrencies are crap from an environmental point of view because of proof of work which is a huge power consumption. I think bitcoin only itself was consuming more energy than Denmark only and it was only a few years ago. Not all cryptos are the same and for example Ethereum is in the process of moving from proof of work to proof of stake.

I "invested" a really small bit out of curiosity. Cryptoconcurrencies are really highly volatile. When China started doing a crackdown on miners all of them dropped dramaticall this spring. Also mining is so difficult these days now you can practically only enter the market through a broker which makes them lose a lot of appeal. For example you can't have a totally anonym wallet as all transactions are public with bitcoins.

But it is a good way to shake up a bit the banking and payment sector. There is no reason we should have to pay paypal/google/apple fees to transfer money quickly while you could do the same with community and opensource based tools.

Facilitating the payment has long since been commoditized and is a race to the bottom on pricing. The costs -- other than companies wanting to make a buck -- are built into the IT upkeep, and enormous regulatory infrastructure behind domestic and cross-border payments. Anti-money laundering, terrorist financing, the list goes on and on about what's being done to try to keep folks from washing money or doing things they're not supposed to be doing.

That ain't cheap unfortunately as crooks get smarter and smarter. The ledger and blockchain would help, but there are ways even around that sort of thing. Moving money is never going to be free as long as people will want to move money for nefarious purposes.

[gt6267a]

I tend to be against anything who's two main purposes are

1) Avoiding scrutiny and tracing of shady, or worse, downright illegal, transactions

A few thoughts about the tracing and the shady:

1) Every transaction is public and available on the blockchain. Its possible to reverse engineer and know quite a bit about transactions including linking multiple transactions and wallets. There is software that interrogates blockchains and links every wallet via transactions. There are companies and government agencies using the software. Its extremely detailed and virtually impossible to avoid because there is a public paper trail … the blockchain itself.
2) Every transaction has a source and destination wallet. This is what makes the reverse engineering possible. While its possible to have bitcoin in an unknown wallet and transfer to another unknown wallet, transactions link the unknown wallets and anonymity can only be maintained as long as you don’t touch a wallet of known origin either directly or indirectly.
3) To acquire or cash out coins typically requires touching an exchange, exchanges require accounts, and accounts are tied to a real identity requiring KYC. Buy something from a company with coins and the receiving wallet is tied to something within a company, presumably an account or record of purchase.
4) Basically, its much harder to be anonymous than most people think.

[Scott G.]

[snip]
That ain't cheap unfortunately as crooks get smarter and smarter. The ledger and blockchain would help, but there are ways even around that sort of thing. Moving money is never going to be free as long as people will want to move money for nefarious purposes.

"Moneyland" is a good overview of money moving.

https://www.theguardian.com/books/20...tion-oligarchs

[Mabouya]

A few thoughts about the tracing and the shady

In that case, someone needs to warn the criminals out there, because they sure think it will help shield them:

https://en.wikipedia.org/wiki/Bitcoi...l_transactions

Use in illegal transactions
Further information: Cryptocurrency and crime and Bitcoin network § Alleged criminal activity

Bitcoin held at exchanges are vulnerable to theft through phishing, scamming, and hacking. As of December 2017, around 980,000 bitcoins have been stolen from cryptocurrency exchanges.[130]

The use of bitcoin by criminals has attracted the attention of financial regulators, legislative bodies, law enforcement, and the media.[284] Bitcoin gained early notoriety for its use on the Silk Road. The U.S. Senate held a hearing on virtual currencies in November 2013.[285] The U.S. government claimed that bitcoin was used to facilitate payments related to Russian interference in the 2016 United States elections.[286] However, a 2021 study led by former CIA director Michael Morell showed that broad generalizations about the use of bitcoin in illicit finance are significantly overstated and that blockchain analysis is an effective crime fighting and intelligence gathering tool.[287]

Several news outlets have asserted that the popularity of bitcoins hinges on the ability to use them to purchase illegal goods.[179][288] Nobel-prize winning economist Joseph Stiglitz says that bitcoin's anonymity encourages money laundering and other crimes.[289][290]

In 2014, researchers at the University of Kentucky found "robust evidence that computer programming enthusiasts and illegal activity drive interest in bitcoin, and find limited or no support for political and investment motives".[178] Australian researchers have estimated that 25% of all bitcoin users and 44% of all bitcoin transactions are associated with illegal activity as of April 2017. There were an estimated 24 million bitcoin users primarily using bitcoin for illegal activity. They held $8 billion worth of bitcoin, and made 36 million transactions valued at $72 billion.[291][292]

[funcrusher]

I would recommend reading the Bitcoin Standard.

Also you need to separate the utility of crypto vs. store of value.

US dollar and fiat currencies are fukd. Only reason USD isn't with less is cuz all the other central banks are printing too and the value is all relative.

Don't think of it as an investment but as an inflation hedge.

[vertical_doug]

I mean this in all seriousness, if you think the US dollar is eff'd, then you better get ready for WW3. America will not give up the lifestyle without a fight.

In the old days, the gold bugs would tell me to buy as an inflation hedge or to use as barter when civilization collapses.. I always told them I will just buy a gun instead since when I need their gold, I can get it.

[gt6267a]

In that case, someone needs to warn the criminals out there, because they sure think it will help shield them:

Do you also review how much USD Currency is used for illegal transactions? What the amount of money outside US and not traceable or known? I do not believe the USD will come out so well in that evaluation. Not that I am promoting illegal actions. Merely pointing out that all currencies are used in illegal transactions.

In terms of trying to steal Bitcoin, once again, do you really want to get into a discussion about people stealing fiat currency, gold, diamonds, etc. Theft is not new. When was the first bank robbery?

One thing is true, fiat currency, especially in its paper form, does not have nearly the traceability of Bitcoin / Etherium / Etc. Take the Colonial Pipeline cluster fcuk earlier this year. There are pros and cons to how this works. Take a payment in gold or paper. Maybe you get lucky with catching someone picking up goods during a transfer or with tracking techniques. If not, the dollars are gone. With the Bitcoin transfer, there is tracking info during the transfer and then with forensics of the blockchain, wallets, and affiliated data. Both have pros and cons. In this case, the govt was able to recover substantial loses.

Again, not promoting illegal activity, but if that is a disqualifier, then you disqualify all fiat currency.

[Mabouya]

Do you also review how much USD Currency is used for illegal transactions?

So I guess that means huge percentages of bitcoin transactions being used for criminal activity are OK then.

Just about every time the issue comes up this justification is used, but I don't see how it helps crypto's case. Currency is the primary means of trade so of course that's what will be used by crooks. They then see something that better meets their needs and begin to switch over to it. That tells me all I need to know.

[funcrusher]

I mean this in all seriousness, if you think the US dollar is eff'd, then you better get ready for WW3. America will not give up the lifestyle without a fight.

In the old days, the gold bugs would tell me to buy as an inflation hedge or to use as barter when civilization collapses.. I always told them I will just buy a gun instead since when I need their gold, I can get it.

And you probably should've bot some gold too. I only started buying crypto last year when the govt started printing trillions to get out of this covid mess. I do think USD reserve status is at risk. Fiat is the biggest ponzi scheme in the history of humanity

[funcrusher]

Just sayin'

[IMG]2021-09-10_06-03-54 by W L, on Flickr[/IMG]

[vertical_doug]

I'd think if you look at SPX versus gold over the same peroid, you'll see SPX is up 2.4X Gold. More importantly, if you properly reinvest dividends as a total return, you are up over 5x more.

Just say'in

I think if you factor the issuance of stablecoins which are not fully backed which are used to purchase a lot of crypto, the 'reserve' system is much more fractional than the USD.
The problem with crypto is not the ledgers, it is all the other stuff bolted on adding leverage to the system. Somehow people think unknown actors will behave better than known actors in the Federal gov. When has a less regulated sector, behaved more responsibiy than a regulated one?

D

[funcrusher]

I'd think if you look at SPX versus gold over the same peroid, you'll see SPX is up 2.4X Gold. More importantly, if you properly reinvest dividends as a total return, you are up over 5x more.

Just say'in

I think if you factor the issuance of stablecoins which are not fully backed which are used to purchase a lot of crypto, the 'reserve' system is much more fractional than the USD.
The problem with crypto is not the ledgers, it is all the other stuff bolted on adding leverage to the system. Somehow people think unknown actors will behave better than known actors in the Federal gov. When has a less regulated sector, behaved more responsibiy than a regulated one?

D

my point was not to hold gold or crypto in lieu of equities...equities have also benefited from dollar devaluation and offer inflation protection...

[funcrusher]

i do find it fascinating that many won't invest in equities and/or crypto cuz they worry about volatility...but if you hold a lot of dollars, it is only moving in one direction

[vertical_doug]

i do find it fascinating that many won't invest in equities and/or crypto cuz they worry about volatility...but if you hold a lot of dollars, it is only moving in one direction

I try to invest in assets where I can worry about my return on capital, not the return of capital. Crypto falls into the later camp.


2010: A generation of financial investors is ruined, they will never take risk again
2014: Passive investments is okay, but you can't beat the market
2019: If you buy a selected basket of growth stocks and hold'em, you can outperform.
2021: I invested in a picture of a rock.

Can't wait to see what 2022 brings.....