Central Bank warns on cryptoassets

[Duke of Marmalade]

Most people don't know how their phones /cars/fridge/mortgages actually work, doesn't stop them using them.

True. And take those flying machines. Apparently they work because of Bernoulli's law - the pressure in a fluid is inversely proportional to its speed. Personally I have more confidence in Newton - what goes up must come down. That's why I have a fear of flying.
Anybody who would have an inkling of how bitcoin works wouldn't touch it with a barge pole, except for a cult few who actually worship at how it works.

 

[tecate]

I really don't know where to start with this - I forgot rule number one - never get into an argument about Bitcoin with someone who has money invested in Bitcoin.

On rule No.1, I don't think you've broken it - as I'm not aware of you being in an argument but a discussion - unless you've decided otherwise
On the money invested, maybe some have or some havent. Over the course of 5 years of discussion here, I've both held a not immodest amount of btc and not held any at all. According to that logic - I would have been talking it down when I held none - but you won't find posts to that effect. Bias works both ways - and the polarised views this subject drives means that talking it down can be motivated by having gotten this wrong from the get go and missing out.

I'm confident that I do actually know how our current monetary system works, and why, and while its not perfect, I'm happy to stick with it for the time being.

I haven't seen anyone suggest that you'd have to choose. This is a common misunderstanding.

You're right, most people don't take the time to investigate how their fridge works, but it actually provides them real utility and won't swallow all their wealth

He seems to have addressed the point you made but you've moved on to another. If gold can exist as a monetary asset, so can bitcoin - whilst also being digital and having the ability to be transacted easily. It's going to do just fine in the real utility stakes.
As regards swallowing all their wealth, it depends on how they position size, etc.

I don't hold Bitcoin, but my training and profession means I do understand a lot of the implementation details (Merkel trees, one-way functions, hash puzzles, Nakamoto consensus/proof of work, etc.).

I'm sceptical about industry adoption of 'crypto', even in the fintech domain - apart from pure crypto plays, most seem to involve centralized gatekeepers stamping out blocks or tokenizing assets. If you trust those centralized players, why do you need blockchain? And if you don't trust anyone, bootstrapping real trust is hard; there have been a lot of initial coin offerings where the founders vanished with the loot.

I agree with most of this. Bitcoin to me is confirmed - because it has been battle tested and it has been setup with a narrow focus. The rest is much more difficult and it's far too early to see how it pans out. I'd imagine a handful of projects will eventually achieve real world use/utility. As regards centralisation, I agree - albeit that there is no such thing as perfect decentralisation. That said, it also depends on use case - some use cases may need a higher level of decentralisation than others.

I do wonder when the bubble bursts and people lose tens and hundreds of thousands of Euros, how long will it take before the moaning starts?.

Which bubble would that be? The one in 2011 or 2013 or 2017 or 2021?

 

[tecate]

Anybody who would have an inkling of how bitcoin works wouldn't touch it with a barge pole, except for a cult few who actually worship at how it works.

Says the guy who is not open to being wrong - and won't acknowledge that there's a conceivable chance that bitcoin continues to expand, grow and mature.

 

[Peanuts20]

Which bubble would that be? The one in 2011 or 2013 or 2017 or 2021?

And in that simple statement, you quite eloquently summarise why Bitcoin is ultimately a glorified chancers paradise. I can't help but think of the guy down the pub boasting how he won a grand in the bookies today, but never says anything when he's lost €200 a day for the past week

 

[tecate]

And in that simple statement, you quite eloquently summarise why Bitcoin is ultimately a glorified chancers paradise. I can't help but think of the guy down the pub boasting how he won a grand in the bookies today, but never says anything when he's lost €200 a day for the past week

All it shows is that there are hype cycles when it comes to tech, that this coming of age for bitcoin has been entirely retail driven up until very recently. Are there speculators, sure... but they're not all acting like speculators. Furthermore your point doesn't prove bitcoin's offering to lack substance.

 

[Peanuts20]

All it shows is that there are hype cycles when it comes to tech, that this coming of age for bitcoin has been entirely retail driven up until very recently. Are there speculators, sure... but they're not all acting like speculators. Furthermore your point doesn't prove bitcoin's offering to lack substance.

All it shows is that there are hype cycles when it comes to tech, that this coming of age for bitcoin has been entirely retail driven up until very recently. Are there speculators, sure... but they're not all acting like speculators. Furthermore your point doesn't prove bitcoin's offering to lack substance.

All it shows is that there are hype cycles when it comes to tech, that this coming of age for bitcoin has been entirely retail driven up until very recently. Are there speculators, sure... but they're not all acting like speculators. Furthermore your point doesn't prove bitcoin's offering to lack substance.

Glad you admit it's tech and not finance. I don't need to prove bitcoin is lacking substance, the onus should be on the promotors to prove that it has some substance and I've yet to meet one who has even half vaguely articulated a semi decent arguement on "substance".

Interestingly, I saw the 19 millionth bitcoin was recently mined so only 2m to go. I wonder what happens with the 21 millionth is mined?. Will another 5 million suddenly be "discovered"?. Will people move to other coins?

 

[tecate]

Glad you admit it's tech and not finance.

An admission? You'll have to explain the distinction in context as I'm not sure where you're going with that. Bitcoin at its core is software - and software can be used as a tool. And that tool in this instance can be used as (or fulfil the role of ) digital money/gold and a store of value. In the same way as gold is a metal and yet it can be used as money, store of value, etc.

The onus should be on the promotors to prove that it has some substance and I've yet to meet one who has even half vaguely articulated a semi decent arguement on "substance".

What 'promotors'? There are folks that see value in it and see a use case for it. However, they are not its 'promotors'. There is no Bitcoin, Inc. - no HQ, no CEO. There was no pre-mine. It's open to anyone to use as they see fit. As Satoshi put it:
"If you don't believe me or don't get it, I don't have time to try and convince you, sorry."

Interestingly, I saw the 19 millionth bitcoin was recently mined so only 2m to go. I wonder what happens with the 21 millionth is mined?. Will another 5 million suddenly be "discovered"?. Will people move to other coins?

You're speculating as to what happens in 2140 when the last bitcoin is mined? I think that this speculation as to whether it has or has not utility will be long since settled at that point. As regards the notion of there being 5 million more bitcoin discovered, why do you think that would be necessary? To serve who's interests? From the point of view of those that hold and utilise bitcoin, what advantage would this bring for them? Quite the contrary - it would be totally against their interests. We have already seen in 2017 that miners as a stakeholder group tried to act in their own interest - and with that hard fork, it's the users ultimately that decided they were'nt having this. So whilst technically it's possible that the hard cap can be changed, in reality it would be akin to every participant in this discussion deciding to cut off their left hand - it is technically possible but incredibly unlikely.

Why would anyone need to move to another coin in the way you describe? What would that bring?

 

[Duke of Marmalade]

"Miners" (I hate the term, "mindless trial and error merchants" is better) currently earn $30k per minute from "mining" new coins. Assuming constant prices, this will fall to €15k in 3 years time, €7.5k in 7 years time €3.75k in 11 years time etc.
Now there must grow a temptation for the miners to go back to the good old days by increasing the amount of coin released each minute.
I am not sure how consensus works but it would definitely be in the miners' interests to change the rules.

 

[tecate]

"Miners" (I hate the term)

That's incredibly unfortunate for you Duke - I like the term myself.

Now there must grow a temptation for the miners to go back to the good old days by increasing the amount of coin released each minute.
I am not sure how consensus works but it would definitely be in the miners' interests to change the rules.

We've already seen what happens when miners as a stakeholder group act in their own interests rather than that of the network as a whole. The ultimate say goes to network users in any hardfork scenario. The hard cap is sacrosanct to network users - lifting it would be akin to a group of people all agreeing to cut off their left hands....so, yes it's possible but highly unlikely.

 

[Duke of Marmalade]

We've already seen what happens when miners as a stakeholder group act in their own interests rather than that of the network as a whole. The ultimate say goes to network users in any hardfork scenario. The hard cap is sacrosant to network users - lifting it would be akin to a group of people all agreeing to cut off their left hands....so, yes it's possible but highly unlikely.

Okay, I'll take your word for it. If miners do not have a majority say in the consensus, then the consensus will not agree to give them preferential treatment.
On a related point, what is this "air drop" thing that cropped up recently?

In general, I take it as given that the supply is capped and any possible "air drops" or whatever are as theoretical as mass self amputation of limbs or ears. If there were any serious question marks on that, it wouldn't have survived till now.

 

[tecate]

Okay, I'll take your word for it. If miners do not have a majority say in the consensus, then the consensus will not agree to give them preferential treatment.

The beauty about a public discussion board is that if there is any question on this, someone or other will chime in. Well, so long as they're not censored from doing so at least.

On a related point, what is this "air drop" thing that cropped up recently?

So you could spin up the long over due and long awaited Marmalade Coin tomorrow as a competitor to bitcoin. You could hold 20% of tokens back for the 'community' in a nod towards the power of network effect. You'd be starting from ground zero with just the 'charisma' of the Duke as the only thing to pimp the token. If you put tokens in the hands of all AAM members, you might stand some chance of building a community - and getting some form of network effect going. That's where airdrops come into this. Bitcoin never employed that tactic and it couldn't be utilised from this point onwards either as there are no such coins available. Furthermore, I can't see that such a move would achieve anything for the network at this point - if anything it would damage it - as the hard cap is now a cornerstone of what bitcoin brings to the table.

 

[Duke of Marmalade]

Somewhat off topic but Investopedia lists the following as one of the dangers of a Central Bank Digital Currency.

• The effects a switch to CBDC would have on a financial system's stability are unknown. For example, there may not be enough central bank liquidity to facilitate withdrawals during a financial crisis.

How could a Central Bank not have enough liquidity to facilitate withdrawals? In fact what does withdrawing your CBDC mean? I mean withdrawing your €50 euro note is meaningless and all CBDC is are digital €50 notes.

 

[tecate]

al Bank not have enough liquidity to facilitate withdrawals? In fact what does withdrawing your CBDC mean? I mean withdrawing your €50 euro note is meaningless and all CBDC is are digital €50 notes.

I'm not sure if I have a proper understanding of this as it relates to a FedCoin or CBDC and the Fed itself. Surely if we're talking about the Fed itself, it can just magic up more USD CBDC. Maybe they're referring to banks with Fed account access? The traditional banking system works on the basis of leverage. There's settlement risk as TradFi is accustomed to settlement time of 1 day or greater. Digital currency settles more or less immediately. If leverage is a key practice in TradFi and settlement time gets cut down, there could be risk in that respect. Perhaps that's what Investopedia is referring to??

 

[Duke of Marmalade]

Surely if we're talking about the Fed itself, it can just magic up more USD CBDC.

It doesn't even require any magic. If I go to a Central Bank counter and hand in my €50 note saying I want to withdraw it. They would say "no problem, and give me my €50 back"

Maybe they're referring to banks with Fed account access?

But that is just no different from the current situation where a commercial bank must provide Fiat currency on demand, which it may run out of.

Perhaps that's what Investopedia is referring to??

I think they may simply have it wrong, not the first time. But maybe some other contributor can make sense of the point.

 

[tecate]

But that is just no different from the current situation where a commercial bank must provide Fiat currency on demand, which it may run out of.

My understanding is that the difference would be that TradFi banks are more likely to get caught with their trousers down as settlement time is considerably faster than what they're used of - and with a system that depends on leverage, that's a recipe for disaster.

 

[Duke of Marmalade]

My understanding is that the difference would be that TradFi banks are more likely to get caught with their trousers down as settlement time is considerably faster than what they're used of - and with a system that depends on leverage, that's a recipe for disaster.

Okay, maybe, so they are not referring to the CB having a liquidity problem, which is impossible. Let's leave it at that.

 

[Duke of Marmalade]

For avoidance of doubt I must state that I accept all the technical claims that @tecate makes for bitcoin.
It’s supply is capped.
It is not centralised.
It is censorship free.
It can be transmitted rapidly across borders.
Its transactions are anonymous (maybe).
Its blockchain security is rock solid.

But the Central Bank are right.
It is not a store of value.
It is not a unit of account.
It is not a medium of exchange.
It is not digital gold.
It is not a currency.
It has no intrinsic value.
It is a speculative bauble.

 

[tecate]

No harm to have the recap from you Duke. Just for clarity, I don't think its transactions are anonymous per se...it's pseudo-anonymous at best. Not going to push back on your CB list as it's been done to death. We can follow events to see how it pans out.