A real world use case for cryptocurrency exchanges
February 13, 2018 § 30 Comments
Every real world economy is filled with real people, and there are all kinds of people in the world. There are always criminals, grifters, scammers, market manipulators, thieves, frauds, and tax evaders. There are always financially ignorant monomaniacal idealists: people who don’t grasp the difference between reality and their beloved simulations and fictions; people who believe that messy human authority and fallibility can be dispensed with and replaced by machines. There are always substantial numbers of naive gamblers and bagholders, lured into getting fleeced by their own avarice and ignorance.
Cryptocurrency exchanges may represent a natural economic evolution, nature’s way of attracting many of these elements out of the real economy and into a buggy, hackable, scammable, get-rich-quick speculative open source video game.
You can think of cryptocurrency exchanges as a heat sink. A heat sink is a large thermal mass which carries destructive waste heat away from the parts of a system where that waste heat can do harm.
Cryptocurrency exchanges are like a heat sink, except for stupidity and vice rather than heat: they are economic stupidity-and-vice sinks. The real economy is doing very well at present, despite what is technically a very long running bull market. I wonder if that isn’t at least in part because a lot of the insanity which typically accompanies bull markets has voluntarily walled itself off in its own video game world. A lot of the craziness that we saw in the dot com era has literally locked itself away from reality inside an electricity-wasting computer game, at a cost of less than six billion dollars taken out of circulation.
Some people predict that the price of cryptocurrencies will soon go to zero; that they will shortly be left behind in the dustbin of financial history. Personally I have my doubts. I think society produces enough stupidity and graft to keep cryptocurrencies running indefinitely. They may well stick around for a long time, as the economy’s evolved way of avoiding sepsis from what amounts to an intestinal blockage of greed and stupidity.
Zippy Catholic 
I thought the main purpose of cryptocurrency was to allow the free flow of drug money laundering. That, and, it now occurs to me, the NSA must have a very large mining computer to allow the CIA and other government agencies launder their illegal cash.
The main problem with this idea is that one is very careful to manufacture heat sinks such that they don’t generate heat. Vice sinks don’t work like that.
China is the #1 crypto currency mining country. Let that sink in for a while.
[…] Source: Zippy Catholic […]
Nail.
Dit.
Great post, Zippy.
Maybe Christendom College’s critics will insist that consent to sex be moved to the blockchain:
https://legalfling.io/
That app sounds like a lawsuit just waiting to happen.
It is just a trustless self-divorcing blockchain marriage certificate in the new technolibertarian utopia.
I think a whole lot of it is more ignorance than greed. The only BTC “investor” I’ve met is cut from the same cloth as the average person on retail investing and banking balances (it’s my money, you’re just holding onto it).
When I explained that all stack theoretically has a liquidation value that entitles all holders to a tiny percentage of the assets if the business were to be liquidated tomorrow, and BTC is literally just a line on a ledger it immediately “clicked.” I think the guy planned to just take his lumps and go back into real equities from there.
You laugh, but
and legalfling.io support is already incorporated into Alexa and Echo.
It is just a trustless self-divorcing blockchain marriage certificate in the new technolibertarian utopia.
Cue Jeffrey Tucker’s lispy voice “itzth beautiful anarchy”
This gives a whole new meaning to “exit scam”.
While the early cryptos will probably never accomplish anything useful (setting aside how useful they are as a way for the already-rich to extract wealth from the foolish “bag HODLers”), some of the newer tokens have utility in terms of auditability and fast settlement times; also, Bitcoin is almost alone in its comical inefficiency. I don’t doubt that banks or fintech companies will eventually using blockchains or something resembling them behind the scenes in money transfers.
The question then becomes when and how these things are going to be regulated in such a way that banned-since-the-twenties-in-the-real-world schemes are eliminated, taking the absurd valuations with them and probably eliminating retail “investment”.
I think the real game changer you’re going to see is when title management transactions go over a government-owned or regulated blockchain. The crap that happened in 2008 would have really been put into stark relief if blockchains had been in use for a decade or two.
Mike T and Peasant:
There might be value in a public-API cryptographically authenticated ledger of securities. But the blockchain approach specifically would make such a thing worse, not better, by opening it up to 51% attacks and making it extraordinarily inefficient.
And if we are talking about multiple authoritative certificate authorities, etc as opposed to “might makes right” (in terms of compute power) authentication then we aren’t really talking about blockchain anymore. The whole point of the blockchain is to substitute computational “might makes right” in place of trust.
Very solid points. Having a blockchain that cannot allow untrusted actors to enter the network is pointless, and it stands to reason that the PRC would throw an annual classified budget of $10B just at building new data centers to overtake such a network with their own computational power which is sorta what they’re doing with BTC already.
Some of the drama that Google and Mozilla have caused various CAs that don’t play by the rules is also a good warning for some of this.
When bitcoins are “lost” (private key destroyed/unretrievable) nobody really cares; but if some blockchain “solution” were tracking ownership of real property it would raise it to entirely new levels of humor when land became unownable because the private keys were lost.
And if there’s an authority that can “retrieve” or “recreate” the ownership, why not just have them run a database tracking the information?
Blockchain is computerized pure liberalism.
Let’s go further; with blockchain Catholicism we can get rid of priests! And it’s different from Calvinism or Lutheranism, because that way nobody can add a jot to the Deposit of Faith after, say, 1954.
Padre Pio, pray for us.
“It remains here to distinguish the Christian Revelation or “deposit of faith” from what are termed private revelations. This distinction is of importance: for while the Church recognizes that God has spoken to His servants in every age, and still continues thus to favour chosen souls, she is careful to distinguish these revelations from the Revelation which has been committed to her charge, and which she proposes to all her members for their acceptance. That Revelation was given in its entirety to Our Lord and His Apostles. After the death of the last of the twelve it could receive no increment. It was, as the Church calls it, a deposit — “the faith once delivered to the saints” (Jude, 2) — for which the Church was to “contend” but to which she could add nothing.”
http://www.newadvent.org/cathen/13001a.htm
In other words, nobody’s been able to add to the Deposit of Faith since St. John shuffled off this mortal coil. I get what you’re saying, but that’s not the right phrase. Doctrine or dogma, perhaps?
No, I meant what I said. I was gently poking fun at the worries of some ‘traditional’ Catholics in these latter days, who have correctly diagnosed that the Church, as everywhere else, has been conquered politically by liberalism, but whose solutions involve fleeing from the traditional authority of the pope in fear that he might change or corrupt things, and thereby throw the baby out with the bath-water.
TomD: wrt. lost coins, there was a comical incident with Ethereum a while back where the devs ended up hard-forking to correct a very large theft from a nonprofit which came about due to a coding error. Predictably, not everybody followed them because some people are nuts enough to still believe “the code is the law!” even when the obvious consequences hit them in the face (either that or they were in league with the thieves).
Zippy: it’s funny you say that, some of the crypto zealots call the trying-to-be-useful currencies “bankers’ coins” for that reason.
The way I remember it (having had to sit through presentations by other students who were writing mining programs as part of my alma mater’s open source initiative), Bitcoin as launched in 2009 had four selling points: it was supposed to be much faster than other ways to send money, it was supposed to have near-zero fees, it was supposed to be deflationary rather than infationary (total supply hard-capped at 21MM, circulating supply actually decreases with time due to keys getting lost), and it was supposed to be decentralized in the sense that there was no single authority. As of right now, it fails on about two and a half of those points. Other tokens have other goals. Personally I see a future for some digital currency that tries to accomplish the first two goals (and adding the goal of having a public ledger) while totally ignoring the second two (often still going for decentralization in terms of being a CP distributed system in compsci terms, but not in the Bitcoin sense of being independent of an authority).
I know nothing about crypto currency but the heat sink metaphor is helpful and entertaining.
More humor: https://www.theverge.com/2018/2/15/17017374/coinbase-cryptocurrency-bitcoin-ether-unauthorized-charges
If charging for nothing is wrong, certainly charging four times for nothing is even wronger.
Fascinating. I really hope it’s true. The irony is marvelous. With sanctimonious chants and adolescent cant about perfect liberty, the libertarian futurists marched off en mass to lock themselves up in a prison.
It’s kind of like Chesterton’s quip about early feminism: The ladies chanted, “we will not be dictated to!” and then all ran off to become stenographers.
Would the state accepting bitcoins to resolve tax liabilities grant bitcoins some value? I suspect not, but I’m not entirely sure of the logic.
“A payment gateway, such as bitcoin or other cryptocurrency, using electronic peer-to-peer systems. The department shall convert cryptocurrency payments to United States dollars at the prevailing rate within twenty-four hours after receipt and shall credit the taxpayer’s account with the converted dollar amount.” (Arizona Senate Bill 1091)
https://legiscan.com/AZ/text/SB1091/id/1677658
semioticanimal:
In theory a tax authority can authorize and accept pretty much anything for the settlement of tax liabilities, including (e.g.) counterfeit bills. What settles tax liabilities falls under the sovereign’s prudential judgment.
One of the things I used to harp on here regularly though is that “prudential judgment” doesn’t imply that anything at all the authority chooses is by definition moral, or even sane.
@Zippy
The essential difference from a value perspective between bitcoins and dollars is that that tax authority issues notes that entitle the owner to resolve tax liabilities, whereas bitcoins entitle you to nothing even if a tax authority chooses to accept them.
semioticanimal:
Yes, much as if the sovereign irrationally decided to accept known-and-obviously counterfeit currency as tax payment — but lacking even the physical paper and ink of counterfeit currency.
At the very least I would suggest that a sovereign who did this has violated his fiduciary responsibility; though it might be possible to construct some bizarre fictional exigent circumstances in which this was not the case, as a matter of casuistry.
Relevant:
One of these days I’m going to have to just convert your blog to an ebook and start working through it.
Somewhat OT, but did you see BofA just got dinged again for engaging in deals with third party HFT firms to front-run their own clients’ trades, while running a second operation to lie to said clients in real-time about where the trades were supposed to be taking place? They only had to pay $42m, I bet they made ten times that during the 5 year period during which they admitted to doing it. The entire “industry” is ridiculous.