If Bitcoin’s primary value was the belief of its holders that it could one day serve as a replacement for the US dollar (or any other international currency for that matter), there would have been a substantial push by holders and miners towards upgrading the transaction limits of the clients and reducing the time between blocks.
We have seen no such developments. Instead, daily transaction volume has remained basically flat since early 2017 despite two huge spikes in late 2017 and early 2021. This is not surprising: most of the technological optimists have moved on to other projects, so those that remain in Bitcoin are mostly interested in the currency’s value as digital gold.
I see almost no evidence to indicate that Bitcoin (or even Ethereum for that matter) will replace any major fiat currency as a means of transaction. For actual transactions, stablecoins capture nearly all the upsides of Bitcoin or other speculative tokens while maintaining relatively consistent purchasing power.
This idea that Bitcoin ITSELF is the future of money is simply a meme with almost no empirical evidence to back it up.
As for calling Bitcoin a bubble instead of a Ponzi...
I suppose one could make the argument that Bitcoin’s value is derived from transactions of illicit goods and services and that a network effect around its use gives it a stable price floor. Under that framework, the deviation we’ve seen from that base is a bubble, but we’d still expect the fundamental value to appreciate in proportion to the growth of its use within black markets, and the growth of black markets overall.
I guess I don’t see Bitcoin’s fundamental technological edge being all that strong. Currencies like Zcash or Monero offer better transaction privacy and the barrier to adoption doesn’t seem particularly high.
But even if Bitcoin’s hold on the market ends up being stronger than alternatives, cryptocurrency doesn’t provide a particularly strong way for its holders to capture dividends. With proof of work, most of the transaction fees are used to pay for the cost of upgrading ASICs and paying for electricity. Even if Bitcoin switched to proof of stake, it’s long-term value growth is capped at the rate of growth of illicit trade (which I suspect would essentially be the rate of economic growth).
Assuming Bitcoin has 1% fees and captured all $500 billion of the annual worldwide drug trade, and assuming we gave it a 15x multiple in line with an average stock, the true value would be… $75 billion. So even given those optimistic assumptions, it still looks to be about 5x overvalued.
My overall assessment is that while you’re correct that Bitcoin is not a typical Ponzi (which is what I stated in the post), a very optimistic price floor w price floor, and nearly the entire current valuation is derived from completely baseless speculation and constant shilling of its mostly fictitious virtues.
there would have been a substantial push by holders and miners towards upgrading the transaction limits of the clients and reducing the time between blocks.
If you want it to be a currency, yes. If you want it to be a store of value, like gold, much less so. I think most of Bitcoin’s actions so far have indicated that it wants to be a secure store of value like gold, rather than a liquid and commonly exchanged currency like the US dollar.
If Bitcoin’s primary value was the belief of its holders that it could one day serve as a replacement for the US dollar (or any other international currency for that matter), there would have been a substantial push by holders and miners towards upgrading the transaction limits of the clients and reducing the time between blocks...
This assumes that miners or holders would have a personal incentive to effectively contribute to the protocol rather than riding on the coattails of others. But Hal Finney has been dead for nearly a decade, and so Bitcoin has not had any cofounders for a while, just investors who individually hold a very small percentage of all coins in circulation. The result is that protocols like Bitcoin are developed instead by charitable volunteers who have to design things by committee. That’s obviously inefficient, and I wish the Bitcoin community had a better ability to improve the currency and adopt obviously good changes, just like I wish that of the IETF. Alas, we live in an imperfect world, which is different than saying HTTP is a Ponzi scheme.
We have seen no such developments. Instead, daily transaction volume has remained basically flat since early 2017 despite two huge spikes in late 2017 and early 2021.
No, people figured out the throughput of the Bitcoin network was going to remain basically the same long term, so they built things on top of the network like cryptocurrency exchanges and begun to use those to transact Bitcoin as well. The volumes on those exchanges and layer 2 networks has not remained the same since early 2017, not even close.
This idea that Bitcoin ITSELF is the future of money is simply a meme with almost no empirical evidence to back it up.
That’s fine because “Bitcoin is the future of money” is not the actually reasonable bull position you have to “debunk”, here. Things don’t have to be “the future of money” to be worth a trillion dollars.
Assuming Bitcoin has 1% fees and captured all $500 billion of the annual worldwide drug trade, and assuming we gave it a 15x multiple in line with an average stock, the true value would be… $75 billion. So even given those optimistic assumptions, it still looks to be about 5x overvalued.
This is like looking at the amount people spend moving cash in armored cars, then comparing that to the amount of dollars in circulation, and going “see, the dollar can’t possibly be valued as a medium of exchange or store of value, it must be an elaborate scam”. The (spot price * circulation of Bitcoin) is not a fixed multiple of the amount of transaction fees captured on the mannet by miners, nor ought it be even if its current price is a function of its utility for moving capital around.
This assumes that miners or holders have a natural interest in effectively contributing to the protocol rather than riding on the coattails of others.
Crypto communities have created effective methods of coordinating in the past. Hell, a bunch of people got together and raised $47 million to buy a copy of the constitution. It seems trivial to make a smart contract where people can contribute funds will only be released if some minimum threshold of money is raised.
It seems to me like the problem is most Bitcoiners do not WANT any change, because most of them don’t see Bitcoin as anything other than digital gold.
No, people figured out the throughput of the Bitcoin network was going to remain basically the same long term, so they built things on top of the network like cryptocurrency exchanges and begun to use those to transact Bitcoin as well. The volumes on those exchanges and layer 2 networks has not remained the same since early 2017, not even close.
Ok, this is an area where I am actually pretty uneducated, so forgive me if this is a stupid question, but what has the actual increase in Bitcoin L2 throughput been? The only one I know about is Lightning, but last time I checked they had only done about 700 transactions total in over a year. Unless there has been a massive change since then, I don’t see L2s solving the problem. For a variety of reasons (some technical, some regulatory), it doesn’t seem like these solutions will solve the problem in any but a narrow set of use cases. It seems like you have to create at minimum two transactions (one to fund an L2 smart contract and one to distribute money afterwards). I can see this making sense for like a revolving line of credit, but not that much else.
It also seems like it negates most of the actual benefits of blockchain (guaranteed security, decentralization, immutability and transparency)
That’s fine because “Bitcoin is not the actually reasonable bull position you have to “debunk”, here. Things don’t have to be “the future of money” to be worth a trillion dollars.
Yes, I agree. That’s the point I was trying to make in the first place: Bitcoin’s value is not based on the belief that it will be the future of money. It’s based entirely on the faith of its holders that other buyers will come in and drive up the price in the future.
This analysis assumes that the market cap of Bitcoin as a currency ought to be a fixed multiple by the amount of transaction fees captured on the mannet by miners. I really don’t understand why it assumes that, and it’s wrong. This is like looking at the amount people spend moving cash in armored cars, then comparing that to the amount of dollars in circulation, and going “see, the dollar can’t possibly be valued as a medium of exchange or store of value, it must be an elaborate scam”.
Very few people hold dollars as a store of value. They’re too vulnerable to inflation. Most people buy real estate, stock, bonds, or gold to store wealth in. The value of dollars is determined by their ability to facilitate commerce, which as I established above, Bitcoin seems unlikely to do at scale.
My central thesis is simply that Bitcoin is a more robust type of ponzi scheme, and that is why it has reached a trillion dollars in value. I don’t think my thesis really even undermines the case for owning it that much (hence the title of the article; Ponzi schemes can be highly profitable if your timing is good).
If Bitcoin’s primary value was the belief of its holders that it could one day serve as a replacement for the US dollar (or any other international currency for that matter), there would have been a substantial push by holders and miners towards upgrading the transaction limits of the clients and reducing the time between blocks.
We have seen no such developments. Instead, daily transaction volume has remained basically flat since early 2017 despite two huge spikes in late 2017 and early 2021. This is not surprising: most of the technological optimists have moved on to other projects, so those that remain in Bitcoin are mostly interested in the currency’s value as digital gold.
I see almost no evidence to indicate that Bitcoin (or even Ethereum for that matter) will replace any major fiat currency as a means of transaction. For actual transactions, stablecoins capture nearly all the upsides of Bitcoin or other speculative tokens while maintaining relatively consistent purchasing power.
This idea that Bitcoin ITSELF is the future of money is simply a meme with almost no empirical evidence to back it up.
As for calling Bitcoin a bubble instead of a Ponzi...
I suppose one could make the argument that Bitcoin’s value is derived from transactions of illicit goods and services and that a network effect around its use gives it a stable price floor. Under that framework, the deviation we’ve seen from that base is a bubble, but we’d still expect the fundamental value to appreciate in proportion to the growth of its use within black markets, and the growth of black markets overall.
I guess I don’t see Bitcoin’s fundamental technological edge being all that strong. Currencies like Zcash or Monero offer better transaction privacy and the barrier to adoption doesn’t seem particularly high.
But even if Bitcoin’s hold on the market ends up being stronger than alternatives, cryptocurrency doesn’t provide a particularly strong way for its holders to capture dividends. With proof of work, most of the transaction fees are used to pay for the cost of upgrading ASICs and paying for electricity. Even if Bitcoin switched to proof of stake, it’s long-term value growth is capped at the rate of growth of illicit trade (which I suspect would essentially be the rate of economic growth).
Assuming Bitcoin has 1% fees and captured all $500 billion of the annual worldwide drug trade, and assuming we gave it a 15x multiple in line with an average stock, the true value would be… $75 billion. So even given those optimistic assumptions, it still looks to be about 5x overvalued.
My overall assessment is that while you’re correct that Bitcoin is not a typical Ponzi (which is what I stated in the post), a very optimistic price floor w price floor, and nearly the entire current valuation is derived from completely baseless speculation and constant shilling of its mostly fictitious virtues.
If you want it to be a currency, yes. If you want it to be a store of value, like gold, much less so. I think most of Bitcoin’s actions so far have indicated that it wants to be a secure store of value like gold, rather than a liquid and commonly exchanged currency like the US dollar.
This assumes that miners or holders would have a personal incentive to effectively contribute to the protocol rather than riding on the coattails of others. But Hal Finney has been dead for nearly a decade, and so Bitcoin has not had any cofounders for a while, just investors who individually hold a very small percentage of all coins in circulation. The result is that protocols like Bitcoin are developed instead by charitable volunteers who have to design things by committee. That’s obviously inefficient, and I wish the Bitcoin community had a better ability to improve the currency and adopt obviously good changes, just like I wish that of the IETF. Alas, we live in an imperfect world, which is different than saying HTTP is a Ponzi scheme.
No, people figured out the throughput of the Bitcoin network was going to remain basically the same long term, so they built things on top of the network like cryptocurrency exchanges and begun to use those to transact Bitcoin as well. The volumes on those exchanges and layer 2 networks has not remained the same since early 2017, not even close.
That’s fine because “Bitcoin is the future of money” is not the actually reasonable bull position you have to “debunk”, here. Things don’t have to be “the future of money” to be worth a trillion dollars.
This is like looking at the amount people spend moving cash in armored cars, then comparing that to the amount of dollars in circulation, and going “see, the dollar can’t possibly be valued as a medium of exchange or store of value, it must be an elaborate scam”. The (spot price * circulation of Bitcoin) is not a fixed multiple of the amount of transaction fees captured on the mannet by miners, nor ought it be even if its current price is a function of its utility for moving capital around.
Crypto communities have created effective methods of coordinating in the past. Hell, a bunch of people got together and raised $47 million to buy a copy of the constitution. It seems trivial to make a smart contract where people can contribute funds will only be released if some minimum threshold of money is raised.
It seems to me like the problem is most Bitcoiners do not WANT any change, because most of them don’t see Bitcoin as anything other than digital gold.
Ok, this is an area where I am actually pretty uneducated, so forgive me if this is a stupid question, but what has the actual increase in Bitcoin L2 throughput been? The only one I know about is Lightning, but last time I checked they had only done about 700 transactions total in over a year. Unless there has been a massive change since then, I don’t see L2s solving the problem. For a variety of reasons (some technical, some regulatory), it doesn’t seem like these solutions will solve the problem in any but a narrow set of use cases. It seems like you have to create at minimum two transactions (one to fund an L2 smart contract and one to distribute money afterwards). I can see this making sense for like a revolving line of credit, but not that much else.
It also seems like it negates most of the actual benefits of blockchain (guaranteed security, decentralization, immutability and transparency)
Yes, I agree. That’s the point I was trying to make in the first place: Bitcoin’s value is not based on the belief that it will be the future of money. It’s based entirely on the faith of its holders that other buyers will come in and drive up the price in the future.
Very few people hold dollars as a store of value. They’re too vulnerable to inflation. Most people buy real estate, stock, bonds, or gold to store wealth in. The value of dollars is determined by their ability to facilitate commerce, which as I established above, Bitcoin seems unlikely to do at scale.
My central thesis is simply that Bitcoin is a more robust type of ponzi scheme, and that is why it has reached a trillion dollars in value. I don’t think my thesis really even undermines the case for owning it that much (hence the title of the article; Ponzi schemes can be highly profitable if your timing is good).