I have great respect for Kevin Roose, but this was a disappointing piece. Dogecoin was a meme. It gained popularity and is still worth something. Jackson Palmer might not believe it has value, but clearly, there are people who own Doge that think otherwise.

There is definite frothiness in the market. Some token sales are scams, some are overpromising, and some that look promising will probably blow up. Take a look at SEC Fraud statistics for 2016. Crypto scams are a small fraction of these crimes: https://www.sec.gov/news/pressrelease/2016-212.html

Reporters need to separate Bitcoin, Ethereum, Litecoin (and some of the other older cryptocurrencies) from token sales and other crypto assets. Bitcoin has existed for 9 years and has real users with real use cases (remittance & cross-border payments)

I can keep going, but reporters really need to make an effort to do more research and separate fact from fiction (I guess this can be said for many areas of journalism though).

> Jackson Palmer might not believe it has value, but clearly, there are people who own Doge that think otherwise

If there is one way you really can't detect a bubble, it's relying on "people thinking X has value". Also people buying tulip bulbs for a house worth thought those bulbs had value, as in every other bubble in history.

> it's relying on "people thinking X has value"

Where do dollars or euro's get their value from? Let me give you the wikipedia definition:

"Fiat money is a currency without intrinsic value established as money by government regulation or law."

What do you think happens to fiat money when people stop believing it has value? Look back to 19th century France, were fiat money collapsed.

Bitcoins have no intrinsic value, which is bad. But the good part is that it only has to compete with fiat money, which also doesn't have intrinsic value. And if you ask me, I put more trust and faith into an algorithm distributed over lots of people, versus trust in banks and governments.

I agree with what you are saying to an extent (it is just paper), however at a minimum the value of government backed money could possibly be expressed by the mobilisation of resources a government would rally to give it value.

Lets say everyone declares USD is worthless, the government could 1) sell things of value demanding explicitly USD in return. 2) Impede movement or other activities, use of public goods using force and demand a toll explicitly in USD. I.e. this much $ is worth 100km of highway travel. Like calculating the value of a person's life to the government in free health coverage countries based on where they draw the line on spending to keep them alive, I think the value is the inverse of the cost the government would go to to prop it up.

You could argue without money how would they be able to enforce, however enforcement of a government order has not always required money, and that's one hypothetical too deep for me.

I've heard it mentioned various times that a fiat currency's value in any organized society comes from its ability to pay off the controlling state (i.e. taxes).

Whether it is dollars to the IRS, colored beads to the local chieftains, or copper coins to the Lord of the manor, it doesn't make a difference. The ability to 'pay off' the state in power, with legal permission and ability to use violence, gives that currency value.

So by that token, the ability to pay off ransomware authors gives bitcoin value?

I think you're right in this case. The ransomware authors functioning similarly to the state. If i couldn't access my computer I would have to buy bitcoins with my other assets.

Interesting how this works once you go back to currency. This extortion money being "legally" worthless, being the proceeds of crime.

(Illegally obviously worth the picture on the front.)

You should look into Zimbabwean dollars, Russian ruble, Venezuelan bolivar history. No amount of government intervention will help to keep the value once the population loses faith in the currency. Even if you start giving away gold bars for each unit of currency, you will quickly end up with no gold bars and lots of worthless paper. If you restrict the supply of currency, people quickly invent their own money, which you don't control.

EDIT:

And people will happily pay for goods and tolls with worthless paper, but your demand to accept dollars and fix the prices has one outcome: empty shelves and lots of people in prison (because how else do you enforce dumb demands?). Both were tried in Venezuela and USSR with the same result.

I think with Zim dollars and the like the problem is too much money chasing too few goods. Without that they would behave normally. I can't think of practical instances of restricting the currency supply leading to people inventing money getting far. Sometimes if the local currency is not taken abroad people will try using USD or similar instead but inventing some new money doesn't help much for that.

bitcoin or creating a new token helps for that

Why would you trust a novel currency over the collective interests that stand behind the USD or Euro? Currencies backed by powerful democratic governments, huge corporations, advanced military industrial complex, research, educational, and financial institutions, and basically all the people that live in those countries aside from a miniscule fraction that prefer cryptocurrency, a currency that must be converted into USD/Euro if you want to do things like buy milk or put gas in your car.

Do you reasonably think that if those currencies collapse, you will be just fine with a stockpile of bitcoin? If bitcoin collapses though, the USD will not even notice a ripple.

I'm not saying that bitcoin or other cryptocurrencies are not currently a lucrative investment, but I am far from convinced that crypto offers more stability and is a safer bet that dollars or euros

I consider Bitcoin more of a "collective interest" than money produced by governments. History is full hyperinflation horror stories.

Do you trust professional encyclopedia writers more than a bunch of anonymous volunteers collectively writing articles? But Wikipedia is a fact no? It works. Distributed things seem to work, in practice.

I agree that Bitcoin still has to prove itself. But if such a thing as Wikipedia can work, why not Bitcoin?

But I get your point. Although the world is bigger than US and Europe alone. What about current unstable states?

One thing will never happen to Bitoin: hyperinflation.

You can get the equivalent crash in currency value from people choosing to exit their BTC en masse without emitting new coins. Ultimately hyperinflation is a massive imbalance of supply and demand, and whilst the supply side is much more fixed with BTC than a floating, fractional reserve currency, the demand side is much less fixed because there really aren't that many future obligations to pay things in BTC.

And I was under the (possibly incorrect?) impression that with the support of enough of the hashing power, core Bitcoin could hypothetically be forked in a way which massively increased the rate at which new BTC were emitted. (Something which would be highly unlikely as miners have strong incentives not to do this under normal circumstances, but the same applies to governments having no incentives to rapidly debase their currency under normal circumstances)

I do like the idea of distributed efforts, and I think Bitcoin has some really positive aspects. Still regarding Bitcoin as the stable alternative to USD is a major stretch, and I think that is partially due to it being decentralized.

For one, with no state backing, what does a country risk in simply banning Bitcoin? China has already proven they are paying attention to crypto exchange, and their willingness to institute bans. Do you not fret the US could do the same at any moment? What options are there if the US put a ban on bitcoin exchange? Do you think it would still retain its value?

I think bitcoin is best understood as a countercyclical bet. Like gold, it is highly volatile but trouble in mainstream markets will always lead to an increase in its value.

So one would trust a novel currency over the collective interests that stand behind the USD or Euro if one expects a prolonged downturn in those economies or a divergence of the interests behind them.

The key words are "by regulation or law." Bitcoins are completely unregulated right now. Coinbase can do whatever they want with people's crytocurrency and the government won't bat an eye, which is basically what happened with Mt Gox. At least your bank account is FDIC insured.

Isn't Bitcoin considered a liquid asset by most jurisdictions? So even though it's not money, you can't do just anything without culpability whatsoever.

Ok. Anything is an exaggeration, but they can definitely get away with insider trading or market manipulation. For example, litecoin rose suspiciously right before Coinbase announced they were letting people buy litecoin.

My argument is that you can't detect a bubble by the logic "people thinking X has value" - because that's true for a bubble, and for a non-bubble. I don't understand how your response applies to my argument.

It's when the last hold out is convinced that the bubble bursts.

> Reporters need to separate Bitcoin, Ethereum, Litecoin (and some of the other older cryptocurrencies) from token sales and other crypto assets.

Not even actual crypto speculators seem to be able to do this. The second anything drastic happens on one of the crypto markets, all prices immediately peg to Bitcoin, and they all rise and fall in unison.

I see that as a sign that the markets (BETWEEN cryptocurrencies) work and are highly liquid.

What do you do with Dogecoin though? It's market cap is $91MM and yet its creation was a joke.

I guess sell it. People think it's valuable. Cryptocurrencies are priced not valued. You can't just go Dogecoin is valued at X. Dogecoin is priced based on supply and demand which is saying it's worth $91MM.

All Dogecoins in circulation are not worth $91m. For that to be the case, there’d have to be people willing to buy all 111 million Dogecoins for $0.000796 each, which is not the case at all. People are only willing to pay this price for a tiny fraction of all Dogecoins in existence; as we go beyond that, the bid price starts approaching zero.

The opposite is also true, and not just in assets like stocks but cryptos as well.

The price of any asset increases substantially if you try to buy a significant stake.

It's not any fundamentally different than Bitcoin, in fact it's probably better for money laundering than Bitcoin because nobody cares. Furthermore, the market cap was $400MM a few months ago, so does that mean we're still in a "bubble"?

As David Gerard notes, market cap of cryptocurrencies is a false and misleading metric. Look to total circulation volume/time, and realise it is exceedingly thin.

Whatever you want. Crypto currencies are the fiat currency end game. Get enough foreign currency cross pollinated via bitcoin (and assuming enough political clout) and the world will suddenly change.

I think this is a pretty dishonest way of framing it. It's not just bitcoin, our entire system for secure communications across the internet (SSL/TLS etc.) is built on the assumption that P≠NP.

If someone were able to prove P=NP and come up with a practical exploit that made bitcoin valueless, it would also spell instant death for Ebay, Paypal, Amazon and a few hundred other small companies. Not to mention that all internet banking would have to be taken down very quickly.

In summary, it would be such a huge shock to the economies in all industrialised countries that it would make the 2012 financial crisis look like a minor inconvenience. Nobody would be concerned with "ah shit, my BTC is valueless", they'd be concerned with "ah shit, there's a run on the banks to get physical money and I will probably starve."

It's pretty much the same story for anything that depends on cryptography, including virtually all transactions involving normal currencies.

I think there is a difference between a cryptocurrency bubble and an ICO bubble, and this article fails to distinguish between the two.

You can see Tom Lee, a financial strategist, talk about Bitcoin here: https://www.cnbc.com/2017/09/15/bitcoin-could-surge-another-...

He points out that there are only 300,000 Bitcoin wallets that hold $5,000 or more. In the grand scheme of things that is very small compared to the overall global economy. He also refers to Jamie Dimon’s comments that Bitcoin is a “fraud” (It is worth nothing that JP Morgan bought up millions of dollars worth of Bitcoin after the price crashed following that statement – on behalf of their clients).

ICOs, on the other hand, are absolutely in a bubble. Companies are raising hundreds of millions of dollars without even having a product. It doesn’t take a rocket scientist to understand how absurd that is. In my opinion, regulations in this area would actually do more of a service than disservice to crypto, and I welcome them with open arms. For one, it will legitimize token sales as a fundraising method, and for two it will remove most of the scams and illegitimate projects that seem to be popping up daily.

I think Blockchain technology is here to stay. Even if 99 out of 100 ICO projects fail (they will), that still leaves a few that will survive and may become quite valuable. While the recent explosion in crypto prices seems unsustainable, if it really does become the money of the future then the prices now are going to look like pennies in five or ten years time.

Noob question... What is the "product" that underlies the value of cryptocurrency that is so much more valuable than what underlies an ICO? What is the value of a machine churning hashes? It seems like the value is underlied by securing a transaction ledger + an arbitrarily difficult math problem. So is the value the security of the ledger?

That is a very good question. I didn’t do a good job making an argument for why I think the value of a currency like Bitcoin could be so much higher than an altcoin that did an ICO.

In my opinion, Bitcoin has the first mover advantage in this space. It was the first real use of the blockchain, is still the gateway to pretty much every other crypto currency, there is a maximum supply of coins, and is one of the only coins that can be purchased/exchanged for US dollars (or other fiat currency). In order to purchase an altcoin such as BAT (the token behind the brave browser the article refers to), you have to first purchase Bitcoin. If you want to sell your BAT tokens, you will receive Bitcoin.

Also Bitcoins do cost real money to actually mine (electricity costs).

Other tokens such as Ethereum are gaining popularity as well and have some advantages over Bitcoin, but I don’t see Bitcoin being displaced anytime soon.

In the case of Ethereum, the value is that the token is used as “gas” on the Ethereum network. Any action you want to take or data you want to store will require that you send a certain amount of Ether in order to perform that task. Since Ethereum is a platform that many of these ICO companies are building apps on top of, it stands to reason that the value of the platform should be greater than the value of the company building on top of it.

Question:

Bitcoin is a global cryptocurrency. Sure it has a first-mover advantage but so does Google. Today someone searches with google, tomorrow they may switch to Bing. Can't the same be said of Bitcoin and say Litecoin / Dogecoin / whatever? So why is Bitcoin worth more than Litecoin let's say? Both are accepted by Coinbase etc.

Bitcoin has brand positioning. It might not be technically the best, but brand positioning is really important if you are in a market. It occupies a clear position in people's mind.

Does the common man think of "cryptocurrency", or does he think of "bitcoin"? If in that persons head, "bitcoin" is the same as "cryptocurrency", then it will be really hard for a competitor.

Google is a nice example. "I will google it for you". Nobody says "I will bing that", or, sadly for other search engines, "I will search the web". We say "I will google it". In our head, google is the search engine, and the search engine is google. So if bitcoin is in that same ballpark, good luck to the competitors.

But I'm not saying other cryptocurrencies can't bring anything new to the table, such as Ethereum or Monero. But bitcoin definitely has the brand positioning advantage.

Currencies have network effects - everyone who will transact in a specific currency increase the value of that currency for everyone else.

So one reason BTC is worth more (speaking of entire market cap here) than, say, LTC, is because it is accepted more places.

Another reason is that BTC is perceived (rightly or wrongly) as more stable than other crypto currencies.

But all those legitimate reasons are amplified dramatically right now by speculation.

Distribution of new coins that are "mined" are dependent on the price of electricity and popularity. Being first means it was the most popular by default, so it had the most diverse group of "miners", all of them. I could make CrapCoinV37 today, with only myself "mining" it, it would be a worthless expense of electricity if it wasn't popular. The price of Bitcoin stays reasonably in equilibrium with the cost of electricity required to "mine", which is substantial.

Most importantly, the Coin that has the highest expense to "mine" is the most secure. To attack Bitcoin by out pacing the current miners, it would require millions of dollars in hardware which could just as easily be used to legitimately acquire Bitcoin by mining.

However second place is easily attacked, as the case with BCH, the bitcoin attempted fork. Miners are using their hardware to primarily mine Bitcoin, paying for the hardware, then occasionally attacking BCH, to break it's adjustment algorithm.

That's interesting. I have so many follow-up questions but I gotta head out to dinner. Time for just one... if you're saying ICO company coins are worth sand - and the value of Etherium is as a platform for ICO companies. That seems like the definition of a bubble. No?

Well, you could certainly draw that conclusion and make that argument, but I like to think of it as investing in the internet vs. investing in pets.com during the dot-com bubble.

As of right now, you are right. The entire crypto market is speculative. I think a platform like Ethereum has a better chance of being valuable than a random token that someone with no blockchain experience put together a whitepaper for in a few days and then launched an ICO for.

While the value of the average token may decline as a result of investors sobering up, I suspect the number of token sales will increase exponentially, at a rate that exceeds the per token decline in value, resulting in a net increase in the aggregate value of the token market, and with it, Ethereum.

>>In order to purchase an altcoin such as BAT (the token behind the brave browser the article refers to), you have to first purchase Bitcoin. If you want to sell your BAT tokens, you will receive Bitcoin.

BAT is an ERC20 token on Ethereum. In order to purchase it you buy Ether, and then go to a decentralized Ethereum exchange like 0x and purchase it. When you sell BAT, you receive Ether.

Yeah BAT was not the best example. I was just trying to illustrate that ANY altcoin can be purchased using BTC. Only some can be purchased with ETH

My point is that a token is not an altcoin, as it does not have its own independent blockchain. Almost all tokens are issued on Ethereum, and thus almost all can be purchased without any centralized intermediary using Ether. It's much easier to get into/out-of tokens using ETH than using BTC.

Okay I think we are actually arguing the same thing though. The original argument was why I thought currencies/platforms like BTC and ETH should be considered more valuable than random altcoins (independent of if they are ERC-20 or not).

I am not trying trying to argue about if BTC or ETH is better.

Oh okay, gotcha. Yeah I agree. Major currencies like ETH and BTC act as liquidity bridges for smaller cap digital assets. Tokens, which are digital assets issued on preexisting platforms, use ETH as their conduit, and altcoins, which are digital assets with their own native platform, mostly use BTC, and less commonly ETH, as theirs.

CryptoAssets (ICO, token, etc) vs CryptoCurrency

CryptoCurrency is the base primitive of the blockchain, that is consumed to store transactions permanently, as well as to reward the block creators. CryptoAssets are usually extra metadata in transactions that updates some state. The USDT token actually runs on the bitcoin blockchain, on an early 2nd layer network called OMNI. ICO takes the cryptoasset further and issues some 2nd layer token and then resell that for the underlying cryptocurrency. Its a magic bean sale, paid with gold coins.

An ICO on ethereum, for example, is simply a database entry that says your address holds some number of tokens in a contract. You do not own them, you are just tagged as having a certain number. Most contracts have a suicide clause. One authorized (we hope... ooops) method call could nuke that value instantly.

With a cryptocurrency, you control the value stored in unspent transactions. With this you own the private key. No external party can remove those funds with that private key.

The utility is a way to send value ~instantly, ~anonymously, relatively inexpensively, and irrevocably from one side of Earth to the other, without any intermediaries.

That hasn't existed before.

Shouldn't we consider telecom operators / internet service providers intermediaries?

Pedantically yes, but practically no. It's hard to impossible for ISPs to make use of that position. Much harder than, say, Visa.

It's interesting to think that the value of cryptocurrency as both the value derived from the platform's utility and the value ascribed to the coins based on consumer demand.

Because these are both embedded into the coin valuation it feels more like stock to me than currency. Specifically it might be like owning stock in eTrade, which has utility value as a platform for trading stock, and an arbitrary value based on consumer demand.

All currencies have that trait. USD has a value that is famously propped up because of its ubiquitous utility. Everyone wants/needs dollars (to trade w/ US, to pay US taxes, to use as a reserve currency, etc). This demand increases the cost of dollars relative to everything else.

The only reason it is harder to notice with crypto is because the size of the market you can use crypto in is so ridiculously small (relative to a national currency) that investment value and speculative effects dominate.

Small thing, but wasn't it JP Morgan's clients buying bitcoin through their brokerage service, not actually JP Morgan?

https://twitter.com/ToneVays/status/909032026455642113

Ah, good point. Well there is still some irony in that!

Not really, but it may make them hypocrites, as they act as enablers for something they see as fraud.

It's impossible to tell how many wallets there are with a certain amount in them. A wallet consists of multiple addresses and you can't tell which of them belong together. It is very common for money to be spread over multiple addresses, which are part of the same wallet. I probably have several hundred addresses in my wallet by now.

Ya, I am aware of that. I don’t think it really weakens his argument that much though. Your bitcoin is only redistributed to new addresses when you send and receive it so even looking at just people who have bought and held it will give you a piece of the puzzle.

You can also compare Bitcoin’s current market cap (~$60 billion) to that of gold ($7 trillion) and see that it still has a ways to go (if it is going to become widely adopted).

> It is worth nothing that JP Morgan bought up millions of dollars worth of Bitcoin after the price crashed following that statement

The crash was mostly independent of Dimon's statements.

Yeah I should have made that clear. The price had already started a correction, and the crashing was more associated with uncertainty related to Bitcoin exchanges in China shutting down, but his statement certainly didn’t help. It was picked up by pretty much every news outlet.

I guess that's true if learning that Jamie Dimon thought it was a bubble moved a lot of people to sell their bitcoin.

Of course blockchain technology is here to stay, regardless of what happens, the same way tulips stayed with us after the mania had ended.

> if it really does become the money of the future then the prices now are going to look like pennies in five or ten years time.

Yeah, that's literally exactly why it is a bubble. It's a big if, but that's how you rationalize entering the market.

I suppose that is true, but if the price does crash back down to $1,000 and then rises up to $6,000 then what does that mean? The bubble burst and the price crashed, but now we are in another bubble?

This article is an interesting read and seems to suggest something like that:

https://medium.com/@mcasey0827/speculative-bitcoin-adoption-...

> A group of Bay Area programmers this year used an I.C.O. to raise $35 million for their project, an anonymous web browser called Brave

As in Brave, the new browser from Brendan Eich (founder of Mozilla, famously invented JavaScript in 10 days)? Hardly a scam...

Either the reporter didn't do their research or twisted the facts to fit their story.

The scam was not so much with Brave, but how the BAT token was distributed. There were 184 investors in the BAT ICO -- is this a fair distribution for what is proposed to be the new attention economy?

The scam is in the back end of how ICO's are run. Even if the project is legit, doesn't mean the token distribution was legit. $35m in 30 seconds??

More details: https://medium.com/the-bitcoin-podcast-blog/a-look-at-the-ba...

https://www.reddit.com/r/BATProject/comments/6lnrf6/screenca...

How is that any different from issuing shares privately to VCs? It seems to me the only fundamental difference is with the technology. Things like voting and vesting can be done on a blockchain, so that's not a limitation. There isn't any rule that says a blockchains token distribution has to be "fair". Granted, a more "even" initial distribution makes sense for a currency, but it you're treating crypto tokens as shares in a company, those "rules" need not apply.

The difference is in how much value must be added before VCs can sell their holdings onto the public.

Many ICOs give deep discounts to "partners" who may not have even spent anything, but are just used as an endorsement and social proof. Within days those partners will be dumping on others.

I suppose by definition VCs look very similar to ICO "partners", but the latter's due diligence will rest entirely on finding the greater fool, whereas the VC will seek to establish whether the team can actually deliver, product fit, etc.

Thats said, I'm sure there are a handful of exceptions to both VCs and ICO partners.

> 184

Diffused to over 19,000 holders now:

https://etherscan.io/token/BAT#balances

Exactly. The narrative was all about strangers on the internet, so it would have been inconvenient to mention that the project is headed by the former CTO of Mozilla. Or to mention that the Brave browser was built long before the ICO happened.

Both of these facts mitigate the risk that the creators are scammers with no intention of using the funds for the designated project. But it doesn't fit the narrative!

As in Brave, the company whose business model is siphoning ad revenue from publishers.

Don't make stuff up. We never proposed "siphoning" as our default state is blocking. Unless you think users have no rights to block, then enabling automated micro-payments for content is not siphoning "from", it helps publishers.

We talked about indirect ads via Brave, too -- these would pay publishers a greater share than they get from programmatic ads today -- but haven't done them and we won't without publisher opt-in. We're focusing on user-private (not in any publisher ad slot) ads first.

Not that there's anything wrong with that.

The NY Times recently restructured their reporting operations in a way that reduced the amount of fact-checking done[1]. FWIW I'm a daily reader and definitely feel the quality has suffered.

[1] https://www.poynter.org/news/new-york-times-copy-desk-top-ed...

He may not be an expert on cryptocurrencies, but he's certainly an expert on markets in some ways.

So much this, the whole article is unbelievably biased against crypto (not to say misinformed or intentionally deceitful).

I was a longtime ethereum sceptic, however I was guilty of being a cynical old curmudgeon; the type that poo-poo's anything and everything novel on the grounds that I'll be right 95% of time, ignoring the fact that I'll poo-poo everything that will ever change the world.

Bitcoin made currency decentralised and permissionless.

Ethereum has made capital raising and equity holding decentralised and permissionless. Sure, lots of people talk about SEC compliance, but in reality anyone can raise equity for anything now. You can issue a token to fund for a drugmarket if you wish, and pay dividends, and noone can stop you really. The market cap of ethereum is 22 billion.. is that to high or too low for the promise of permissionless securities?

> Bitcoin made currency decentralised and permissionless.

This is a common misconception, that cryptocurrencies can somehow exist outside government control, and it makes me doubt some of the long term value of Bitcoin. A government can basically make anything it wants illegal, and once cryptocurrencies become large enough, there will be tons of additional regulations and control.

> A government can basically make anything it wants illegal, and once cryptocurrencies become large enough, there will be tons of additional regulations and control.

Only totalitarian states have this power in practice. In a democracy, where e.g. 75% of people use Bitcoin, the government can’t criminalize it — if it were able to, that government wouldn’t be democratically elected. A democratic government does not have an opinion separate from the people; indeed that’s the whole idea of democracy.

If only a small fraction of people are using Bitcoin, it will not pose a threat to government, and it will have no incentive to criminalize its use. Only when a large part of people are using Bitcoin can it pose a problem to government, and once we reach that point the opposition to make it illegal will be too great.

Even though democratic governments are supposed to be representative of the people, a government is still a separate entity from the people, meaning it has its own motivations and tendencies.

An example of this is the military-industrial complex (disproportionate spending linked to politics). Or the way marijuana has been illegal for the past 100 years (a false campaign under the guise of protecting people).

If Bitcoin is banned early enough to harm liquidity and adoption between itself and fiats, and a government approved cryptocurrency is introduced as a competitor, then I think Bitcoin could basically be killed in an economy.

It's along the lines of: internet plus sufficient crypto[1] makes speech free everywhere.

It seems theoretically true, but not in practice. While I have several hunches,[2] I admit I don't fully understand why it shakes out this way.

[1] Plus steg, to the extent you think that's a separate discipline.

[2] Like, we don't yet have good enough crypto[1], or it takes time, or most people don't care enough to participate in networks that enable others to speak freely, or authoritarian police forces let governments cheat at information security games (they don't actually have to prove anything to torture you), or some mix of all of those. I change my mind at least daily as to which of these is most important.

Drugs are illegal almost everywhere in the world and they are one of the largest consumer markets. Something similar happens to US dollars in Venezuela. So I don't know if making bitcoin illegal will really hurt its value in the long run.

Consumers demand drugs because they like the way it makes them feel, and they derive utility from that.

In a country where Bitcoin is banned, a consumer derives almost no utility from Bitcoin because they can no longer immediately exchange it for fiat currency or goods unless they leave their country. Thus the demand for bitcoin falls, and if less people use it, it becomes less valuable (network effects). That directly hurts its value in the long run.

If you were to imagine a world where Bitcoin is banned by all governments, then no one would desire to own it or trade it, and it has virtually no value.

Your conclusion doesn't follow your observation. It's one thing to say that the government can't stop something, and quite another to say the government can't hurt it. Who knows how much bigger the drug trade would be without anti-drug laws.

> Who knows how much bigger the drug trade would be without anti-drug laws.

In a few years we'll have a good idea based on marijuana in several US states. We will have to sift out the tourists though, because there do seem to be a lot of those. At least, here.

We could also look at alcohol prohibition for a historic example.

> Who knows how much bigger the drug trade would be without anti-drug laws.

Look at the legitimate drug companies for comparison.

Like downloading movies and mp3's?

...yes?

The friction of government control is partly what allows things like Netflix, Hulu, et al to survive. If there were no copyright, then you'd seen tools that were just as good thrive on various p2p backbones.

Instead, the pressure from law enforcement on developers, big libraries of content, indexers, etc keeps the experience of for pay sites better for most people, and so most people just pay whatever streaming website.

Sometimes law enforcement isn't about winning ever battle so much as tilting economic scales.

I understand that governements need to make these things illegal.

But my point was that even though it's illegal, they can't stop it. One of the game of thrones episodes was on torrent before it even aired.

A governement can make bitcoin illegal. But stop it? No way.

Why does SEC compliance exist? It's because people are born suckers.

Very few people need what Ethereum is offering, a lot of people want to be millionaires before they've done anything, and they're willing to lie, scam, and exaggerate to get that. Is not part of the lesson of 2008 is that if you build your economy on sand, it's gonna collapse?

But the government only gets around to regulating something after it's done it's damage.

Then lobbyists eventually get the regulations weakened enough for a round two.

At least with cryptocurrencies, no one should have the illusion that somehow the government will prevent a collapse or bail them out. Unless, of course, they are "too big to fail".

Really tired of mainstream hit pieces against cryptocurrency.

I wouldn't call myself a bitcoin fanatic (I hold a very small amount, just for the fact of making myself learn about blockchain and cryptocurrencies), but these articles are not well-researched.

They don't understand the difference between Bitcoin and Dogecoin, let alone the difference between ICOs and Bitcoin, not to mention their misunderstanding that blockchains are a technology, not Bitcoin.

The article even admits Dogecoin's creator was always skeptical and made the coin as a joke, so him suddenly saying he is skeptical is just about the least shocking thing.

Indeed, and since this is the NYTimes, it's worth remembering Gell-Mann Amnesia once again:

“Briefly stated, the Gell-Mann Amnesia effect is as follows. You open the newspaper to an article on some subject you know well. In Murray's case, physics. In mine, show business. You read the article and see the journalist has absolutely no understanding of either the facts or the issues. Often, the article is so wrong it actually presents the story backward—reversing cause and effect. I call these the "wet streets cause rain" stories. Paper's full of them.

In any case, you read with exasperation or amusement the multiple errors in a story, and then turn the page to national or international affairs, and read as if the rest of the newspaper was somehow more accurate about Palestine than the baloney you just read. You turn the page, and forget what you know.”

For every story you read where you notice wrong facts, tens or hundreds of stories are getting things fine.

Almost no one sits down and says "oh, indeed, this article is competent and a correct statement of fact"

It just so happens that all the stories where we know about the topic are the ones with the wrong facts?

Without any other comment or value judgement it's just worth pointing out that while the Gell-Mann Amnesia Effect is named for Murray Gell-Mann, it doesn't come from him. It's a coinage of the fiction writer Michael Crichton. We should probably call it the Crichton Amnesia Effect, but that doesn't sound as cool.

From his talk:

> I refer to it by this name because I once discussed it with Murray Gell-Mann, and by dropping a famous name I imply greater importance to myself, and to the effect, than it would otherwise have.

This might be humblebragging, since Crichton is certainly more famous than Gell-Mann.

But Circhton was an author, while Gell-Mann was a physicist. We associate scientists with a lot more rigor than authors.

The full essay, for those as curious as I was: http://larvatus.com/michael-crichton-why-speculate/

I didn't see as a hit piece. This is a mainstream publication that probably feels the need to explain the basics to the mainstream general populace.

Their conclusion after exploring a number of cryptocurrencies is that the environment attracts a fairly large number of fraudsters, scammers and pump-and-dumpers. Doesn't mean the entire ecosystem is 100% scammers, but the probability of an average joe being hit by a scam is quite high.

What other common use case should they have covered for their readers? Micropayments on the Web? Wide retail acceptance? We know the ship has sailed on those two.

One of the reasons Doge was successful was because it was, at its heart a meme, and something fun. Bitcoin is sort of a meme too but it seems to keep recreating itself. New 'Bitcoin Myths' keep popping up of why it should be valuable. Bitcoin will make micro-transactions on the internet feasible. Bitcoin will upend tyrannical governments. Bitcoin will be adopted by countries with hyperinflation. Bitcoin is a hedge against financial collapse.

GOt that idea from here: https://publication.widmerdun.com/the-perpetual-bubble-machi...

I think the thing to remember with ICOs and new altcoins is that HODL, block your ears and walk away does not apply.

People are making a living simply by flipping, insider trading, fake insider rumours, companies stringing out claims and updates, releasing of Alpha's that are paper models (not really even prototypes), teams with a lack of devs with relevant crypto background, ideas that have no use of a blockchain at all, tokens that offer no utility, or whose utility is yet to be determined, etc. Tokens that have utility, but whose utility is relatively small, yet whose investor base and node base is YUGE. It's turning into a bloodbath of fuckery.

This is what an unregulated market looks like, and the more chaotic it gets, the more I think people should understand why we regulate markets.

Some have posted and argued that these currencies do not have "real" value. I would argue that CrytoCurrencies do actually have inherent value. A few reasons:

1# CrytoCurrencies are free from the existing monopolies of the banking sector, money exchangers and politics. You can argue that those hegemonies should have control, but it is undeniable that there is tremendous value to many in that control weakening and being eliminated.

So you can see a source of inherent value.

#2 CrytoCurrencies are incredibly secure, can be extremely private and become ever more secure overtime because of the effect of mining, every watt burned acts to secure the network in an irreversible way

#3 Mining is the first application, mining secures the network and participants are rewarded. More generalized applications with things like solidity only increases the value of the network.

CrytoCurrencies are very much in an early phase, and not cleanly understood. There's a long way to go.

> Some have posted and argued that these currencies do not have "real" value.

I was always puzzled about this. Real people are buying real stuff with crypto currency. It sounds like a Monty Python skit: "Your money isn't real! You didn't buy that! You didn't sell that! This transaction never happened, stop it!"

These are features that are useful only after you accept that the coins have some value. If they don't store any value - then there is no use in security, privacy etc.

But the point is that it is the same with all money - people don't want it for itself - but rather because they expect to exchange it for something that they'll want in the future.

If your paper money does not store value directly. Which means you can't eat it or directly build anything useful with it. And your checking account is simply a digital representation of that paper then i would argue that a purely digital currency is simply an evolution of that and not actually massively different from paper. The difference being the removal of the requirement of centralized control.

This is possible enough that anyone putting a significant amount of money in crypto is playing with seriously dangerous fire.

On the other hand, the fall of one cryptocurrency to scammers doesn't mean all of them are destined to pan out the same way. This article doesn't really offer any evidence for that extrapolation, either.

Coins could be useful for many ends, some dubious and some benign. Criminal purchases, inflation hedging, remittances, tax avoidance, online transactions, payments between friends, store of value / speculation. Any one of these could be affecting its value.

I often wonder though if Cryptocurrency's killer app is just capital flight from China, with every other use case just so much noise.

While that toy theory may seem reductive, it's miles more explanatory than the models offered by either the 'bubble' or 'will soon replace global financial system' camps.

The real "value" in cryptocurrency IMO is public-key encryption, which everyone on the internet already uses every day for free.

The blockchain idea is novel, but I think way less valuable than the hype has led us to believe.

Is there a cryptocurrency bubble? Of. Fucking. Course. Only those who are extremely naive or cryptocurrency zealots could possibly believe otherwise.

Now, here's the core problem preventing people from understanding the reality of the bubble: in almost all bubbles there is still a kernel of honest, real value inside the bubble. That's the impetus for the bubble, but it doesn't prevent the bubble from being a bubble. Housing values during the 2000s were based on a strong economy and increasing demand in some fast growing cities. In some places housing values merely plateaued during the financial crisis, in some they never stopped going up. But, of course, across America there was a vast drop in housing values, a huge increase in foreclosures, and a recession that spread across the entire planet. It was a bubble, the bubble popped, bad things happened.

A decade prior to that was the dot-com bubble. Many new internet businesses were growing like crazy, investment and stock valuations had gone off the deep end, leaving rationality behind. Businesses with no prospects for ever turning a profit were having money rained down on them from VCs and IPOs. Then eventually the bills started coming due, people became more skeptical of dubious business plans, venture capital dried up, stocks started getting dumped. Money stopped flowing so freely from investors into ridiculous startups and from there into the rest of the economy. The entire world economy was pushed into severe recession. But, of course, that doesn't mean there was nothing of value inside the dot-com bubble. Amazon cut its teeth in that era, and grew from a fledgling book store into a fulfillment powerhouse expanding into a variety of goods and services. Easily tens if not hundreds of billions of dollars in real honest to goodness value was built by internet companies during the dot-com boom, and many companies weathered the bust just fine, some even getting stronger. Google was born during the recession, in fact, in an era when basically the only way you made it with a dot-com company was to already be turning a profit or to have a very good and well executed idea.

Of course there is real, substantive valuable stuff happening with cryptocurrency. But is that the majority of what's happening? Or is most of the activity, most of the valuations and "market caps" driven by speculative investment? It's pretty clear that it is the latter and that cryptocurrencies are in a huge bubble. And just as with all bubbles, when it pops it's going to be painful. Maybe something of value will survive? But only then will we know for sure what the true, hard-nosed practical value of cryptocurrencies is.

I don't think it is a bubble. Everyone seems to equate real estate, stocks, and currency as all the same thing. Unlike the first two, currency increases in intrinsic value the more people believe it has value. So saying that how can bitcoin increase 1000x and still not be overvalued, you have to understand that now (people x perceived value) has had to increase 1000x as well. This means the currency is now accepted 1000x by more people and in greater amounts.

This is a snowball effect that won't apply to real estate or stocks, but does apply to currency.

Until people see the difference, they are going to be continually blindsided by the increase in value of crypto currency.

This is only true if the people buying it actually think of it and use it as a currency. I own some bitcoin and ether and have never used them as a currency. If its usage is not primarily as a currency, it isn't a currency. I struggle to believe there is more value on a daily basis in transactions of btc for goods and services than there is for "forex".

I think you're putting the cart before the horse here. The reason that USD is used to buy goods and services is not because everyone woke up one day and began to "think of it and use it as a currency".

USD just happens to be the most convenient financial instrument for a lot of people.

The more people that own and value BTC, the more convenient it will become to transact with, the more stores that will accept it, and then people will think of it and use it as a currency (if it succeeds, that is).

Any item of value is priced according to its future utility. So BTC's price now relates to what it's value as a currency will be, adjusted by the probability it will succeed, in the future.

If you don't believe that BTC will ever be used as a currency, then you don't believe in the success of the bitcoin experiment in general, and since that's its only purpose, then of course you would have to conclude its in a bubble. But if you do believe in the success of the experiment, then the price does not seem out of whack at all.

> I think you're putting the cart before the horse here.

I'd argue that you are the one doing this. You're labeling something as what you'd like it to be and what it's intended to be, not what it is.

> If you don't believe that BTC will ever be used as a currency, then you don't believe in the success of the bitcoin experiment in general, and since that's its only purpose, then of course you would have to conclude its in a bubble

This is irrelevant to me. If I can profit off something, I don't need to form conclusions as to whether or not it's a bubble or whether or not it will succeed. I worked as an equities trader for half a decade. I didn't need to know the 5 year plan of AMZN before I bought it, nor did I need to know the 5 minute plan of a company stock that dropped 50% in a minute because of one large seller. All I needed was some clue that other people are willing to buy it for more than I did at some point in the future. At this moment in time, that's exactly what BTC is to me. I think it would be neat if it succeeded, but that isn't why I own it at this moment in time.

> I'd argue that you are the one doing this. You're labeling something as what you'd like it to be and what it's intended to be, not what it is.

What does "labeling" mean? I'm just saying the value of cryptocurrency depends on whether in the future it will be used as a currency. If it will, then it's value is much higher than it's current price. If not, then it's value is zero.

> This is irrelevant to me. If I can profit off something, I don't need to form conclusions as to whether or not it's a bubble or whether or not it will succeed.

I thought we were talking about whether crypto is in a bubble or not. No? Then what are you talking about? Irrelevant to what?

Google was founded in 1998, the dot com bubble didn't burst until 2001. Google had already established search engine dominance by then.

What is a bubble? """ An economic bubble or asset bubble (...) is trade in an asset at a price or price range that strongly exceeds the asset's intrinsic value. """ from wikipedia https://en.wikipedia.org/wiki/Economic_bubble

What is intrinsic value of Bitcoin? There is none. But it is the same with dollars actually, yes if you live in the US then you can pay taxes with it, but you mostly pay taxes only after you earn dollars. And then the same with gold - the intrinsic value of gold as a technical material or for jewellery is probably a small fraction of its current market value. I tend to think that being in a bubble is a defining feature of money - people want it not for its value - but because they believe they'll later exchange it for something valuable.

Money is a perpetual bubble, a bubble that does not pop. I am not sure if there is a place for thousands of inflated bubbles. There is too much friction in such a system - you never know if the seller will accept your coins.

Not all cryptotokens are money - some are just securities with an intrinsic value - for example https://zrcoin.io/ which is backed by a promise to buy it back for the market price of 1kg of ZrO2.

> Money is a perpetual bubble, a bubble that does not pop

The bubble can very much pop if people stop having faith in the currency and stop accepting it (or demanding larger amounts to compensate), making the currency lose its value.

This is a very large risk for most current cryptocurrencies, bitcoin included.

I would also argue that the Dollar has a very strong link to useful physical goods: it's the only currency OPEC oil is sold in.

"Bubble" has been used with so many contextual implications that it's practically meaningless.

In this case it's effectively used to describe the digital divide in a new network protocol, just as the dot-com bubble before it.

The casino analogy is accurate only if you ignore what most commentators fail to comprehend: Cryptocurrencies are both a technological innovation and a COMPETING CURRENCY.

https://en.wikipedia.org/wiki/Free_banking#History_of_free_b...

https://en.wikipedia.org/wiki/Alternative_currency

The Federal Reserve is very simply a banking cartel, which gives the United States a single stable currency to conduct transactions efficiently and maintain a unified economy. Obviously the trade-off in this system is a permanent banking oligopoly.

The casino analogy works better if you include the notion that we all live and work within a dramatically larger casino.

To answer the underlying point of the article, most of these cryptocurrencies are as much a scam as CompuServe, Usenet, Netcom, or whatever else is still walled off from the internet stack.

The current Bitcoin bubble is much tamer than previous ones. There were multiple periods in 2010-2013 where Bitcoin saw 10x gains in 2-3 months. In fact it's so tame that even some large-cap stocks have matched or outperformed Bitcoin recently eg. AMD who is up 6-7x over last 2 years, like Bitcoin.

I don't see the NY Times writing articles about AMD being in a bubble...

The problem of bitcoin is that there is a finite amount of it that will be available.

As use of bitcoin is scheduled to grow, the pace of the production of bitcoins needed to support the market does not keep up.

This results in a steady increase of the value of bitcoin, which is good for adoption (more people will buy it to speculate and sellers will accept it), but endangers it as a mean of paiement as buyers are always better of paying in $, which devaluates over time, instead of Btc, which will increase over time.

The reason bitcoin will not be used for daily exchanges is the same as we do not use gold anymore. But since Btc has no intrisic value, I hardly see it as a reserve money.

> The reason bitcoin will not be used for daily exchanges is the same as we do not use gold anymore.

Everybody has a cellphone. You pay and receive "money" with your cellphone. Wallets will be redundant in the future, everything that is in your wallet will be stored in your phone.

And you know which currency can be paid with your phone? Exactly!

Well you could do the same with paper-gold. But since its value increases over time you have no incentive to prefer it over $, which have a decreasing value. Stop focusing on tech and try to think about underlying market forces.

I don't know about you, but I prefer to store the value that I work for, in something that doesn't burn 2% off each year.

And if I have to buy something, I will just trade in my value stored with the thing I want to buy. I don't see any need to go to an intermediate thing that keeps decreasing in value.

Paper money was preferred over gold because it was inconvenient to keep working with gold, not because the paper loses its value.

Said in another way, do you prefer paying for your car in bitcoins, which is likely to increase in the next years, or $, which will decrease?

Bitcoin may be good to store value (gold or land being the best), but isn't adapted for exchange, as no one wants to use it to buy something. Sellers should offer steep discount for the opportunity cost in order to obtain the money, which isn't very likely.

Scott Sumner: http://econlog.econlib.org/archives/2017/09/how_do_we_evalu.....

Two simple patterns (and there is nothing wrong with either one):

- People who say crypto is a bubble missed to invest

- People who hype crypto are invested

However, the key is still to have a balanced portfolio and not just with crypto.

There is a bubble some where. Looking at the total supply of bitcoin and the current maximum of 21 million, bitcoin's inflation is slowing while fiat inflation is growing exponentially. Expect more big waves and mass capital flight as currency transitions into the crypto economies.

Given the low interest rate environment the past 10 years by major central banks around the world, couldn't you argue that everything is a bubble at this point?

If the world is awash in cheap money, then it's almost tautological that most "assets" are in a bubble.

It seems hip to say things are in a bubble so I'm going to say yes, everything is a bubble, well except the things that are "dead" because that's even cooler to say. So, hmm, maybe Bitcoin is dead. Time to write a Medium article called "Bitcoin is Dead, Long Live Blockchain!"

Here is where's the bubble's at http://www.marketwatch.com/story/heres-how-the-us-got-to-20-...

True or False: Crypto currency's value is determined by its utility to the black market.

Whenever I hear of "bubble" I am reminded of this quote - "“The market can stay irrational a lot longer than you can stay solvent!”

So yes it may be a bubble- but the bubble may very last a few months, a few years, or a few decades...who knows?

Agreed. It's too bad there aren't effective mechanisms to go short though, so people who think we're at a peak can back their view with money.

What are you talking about? Also every exchange out there will let you short any number of cryptocurrencies.

I do not personally believe the bitcoin markets will function properly for the shorting mechanism to pay off in interesting scenarios.

If I borrow your bitcoins, how will you force me to sell them? If we agree that a third party will warehouse those coins, how can I trust them? And if BTC plunges, who's to say that 3rd party will still operate?

All very different from shorting a stock.

But if you want to loan me your bitcoins, let's talk!

I'm also interested in borrowing any other bearer instrument that you possess? (Now thinking of bearer bonds in the movie Heat)

People successfully short cryptocurrencies every day and reputable exchanges pay out, even during massive drops. If you really want to short, sign up at GDAX and enable margin trading.

"It has worked ok so far. Therefore there's no problem."

You want to suggest that they would not pay out if Bitcoin crashes to zero? Maybe. They are not regulated after all. They might also be bankrupt before Bitcoin hits zero.

Still, you can short these 30% drops without problem.

Did shorting the housing market work out well in the crash? I remember a movie with Christian Bale, where it did.

Yes, some people successfully shorted the housing market. But they did not use bearer instruments to take their positions.

https://en.m.wikipedia.org/wiki/Bearer_instrument

Also, counter party risk was a major issue during that financial crisis.

Ironically, Doge had a market cap of over 400 million a few months ago. It is now below 100 million. Does that mean the bubble already happened according to this article?

This thread is history book material, once again. Coming generations will roll on the floor laughing that we actually used pictures of dead people for money.

He is probably just upset that Dogecoin has been going down for a while now. The fact that Dogecoin is going down could be seen as proof that cryptocurrencies are becoming more serious.