Currently I think cryptocurrency is mostly a curiosity. It's neither evil nor particularly useful. Many people disagree with this assessment.
If my opinion remains unchanged, this market will resolve to 50%. If I'm convinced that crypto is good and I should be supporting it, it'll resolve to YES. If I'm convinced that crypto is bad and I should be opposing it, it'll resolve to NO.
This is linked from the scott alexander post somebody already linked, but I think it's really important and should get it's own direct link: https://twitter.com/punk6529/status/1494444624630403083?lang=en "There are no other constitutional rights in substance without freedom to transact"
@IsaacKing in the market title when you say "by the end of 2023" you really mean "at the end of 2023", correct?
What if you find you believe that most cryptocurrency is bad or "just a curiosity", but some very small amount is good? Like a single currency or maybe even single contract that is particularly useful and couldn't exist without cryptocurrency.
Crypto allows you to sidestep the traditional institutions and transfer money internationally.
If you live in the US or Europe, you might not even notice this, but for many countries it's a good use case. As a Russian I personally transferred money via crypto since banking got tough to use after the war.
Check out this essay by Scott Alexander: https://astralcodexten.substack.com/p/why-im-less-than-infinitely-hostile
@42irrationalist By a similar token I made a large donation to the Ukrainian Come Back Alive fund via Bitcoin after the war broke out, since the banking system there (along with everything else) was in chaos.
@42irrationalist If anyone is interested, here is my market for the prediction in the footnotes at the end of that post
Here is a mutual of mine getting banned by Paypal for no reason: https://twitter.com/blisstweeting/status/1660335481098326019
Bitcoin is better than international wire transfers of fiat in terms of convenience/friction and better than gold in terms of the characteristics of hard money.
Scarcity: large advantage bitcoin. Conventional gold mining supply is very elastic over the long run and asteroid mining could 1000x it easily (99.999%+ of earth’s gold is trapped in the mantle/core because of gravitational sorting, but m-type asteroids get around this problem)
Fungibility and Recognizability: large advantage bitcoin. You don’t have to worry about tungsten filled bars, or the various different sizes and finenesses of gold. Cryptographic proof of 100% purity is provided automatically by the software.
Portability: large advantage bitcoin. Can beam it anywhere on the globe 24/7 without incurring the counterparty risk of gold IOUs or the regulatory risk of transactions being blocked by the legacy institutions that deal in gold IOUs
Security: large advantage bitcoin IF the user knows what they are doing with full disk encryption. Any bum can steal a small safe and break into it. Not even the federal government can get into somebody’s iPhone without Apple’s help
Scarcity: Gold will certainly become common once technology advances enough, but bitcoin isn't quantum proof, so it's going to lose all of its value much sooner as soon as quantum computers become a reality. I agree that any far-future currency would probably have to be a cryptocurrency, but it doesn't seem likely that any of our current cryptocurrencies can meet that need.
Fungibility and Recognizability: Agreed.
Portability: Plenty of countries are banning or restricting cryptocurrencies, so this doesn't seem correct at all. And the transaction delays are also quite annoying compared to Paypal's instantaneity.
Security: Yeah but most users don't. They're the kind of people who keep their passwords written on a post-it-note next to their computer. Also, the ability to reclaim fiat funds by proving identity to an institution is a positive, not a negative. If someone defrauds me out of my bitcoin or I lose access to my private key, I'm just out of luck, but with fiat money I can usually get it back in other ways.
Scarcity: There are already quantum-proof hash functions that bitcoin can hardfork to if necessary, and quantum computing will probably will never work anyway. Quantum computing will almost certainly not destroy bitcoin before 2100 (I’ll make a market on that)
Portability: the point is that nobody can stop payments of bitcoin per se. Regulators can only screw up the interface between bitcoin and the legacy financial system in the one particular country they have jurisdiction over, thus promoting capital flight to friendlier countries.
Delays: For transactions which are not obscenely large, and which don’t use replace-by-fee in themselves or any of their unconfirmed parents (I.e, 99.9% of transactions) merchants safely accept zero confirmation bitcoin spends within 10 seconds, with ~0% risk (versus 3% for credit card processing + X% chargebacks)
Wire transfer fraud is usually unrecoverable too, and wire transfers are orders of magnitude slower and costlier than bitcoin. ACH reduces the cost but adds another order of magnitude of slowness. Credit card is instant but adds another order of magnitude to the cost compared to wires. ACH/checks/wires/cards and are 99% of the legacy financial transfers in the us. Instant apps like PayPal/Venmo/cash app only support very small amounts, due to high levels of fraud. Merchants constantly get robbed by chargebacks on those apps. These apps also are either unprofitable/unsustainable loss leaders or charging very high fees, due to fraud and credit card fees.
quantum computing will probably will never work anyway
Well this is definitely wrong. Come bet against me here:
https://manifold.markets/IsaacKing/will-the-prime-factors-of-rsa2048-b-4fadcb0d7779
https://manifold.markets/IsaacKing/will-quantum-computing-lead-to-a-sc
https://manifold.markets/IsaacKing/quantum-computation-will-not-radica
https://manifold.markets/IsaacKing/will-scott-aaronson-ever-pay-out-hi
https://manifold.markets/xyz/will-a-quantum-computer-factor-a-6b
https://manifold.markets/LarsDoucet/when-will-quantum-computing-become
https://manifold.markets/BenMcGloin/will-a-quantum-computer-successfull
Portability: No amount of "technically you haven't prevented the transaction" assertions is going to stop the government from saying "if you do anything with bitcoin we will throw you in jail". Bitcoin is harder to regulate since there's no central authority to put pressure on, but it's far from uncensorable. And the capital flight argument applies to fiat payment companies as well.
Delays: Oh ok, didn't know that.
Fraud: Small payments are most of the payments I want to make.
@IsaacKing Sure a government could ban bitcoin, but that's quite unlikely due to concentrated lobbying from the industry and diffuse antipathy from others. And even if they did, enforcement would be much harder than anti-drug enforcement, which isn't going very well. There are bitcoin wallets that only connect to the internet through tor. Wasabi with coinjoin, for anonymous peer to peer payments, is basically unstoppable.
@IsaacKing "bitcoin isn't quantum proof" - says who? Proof of work relies on SHA hashing which is independent of the hidden subgroup problem, i.e. the thing that makes RSA etc breakable by Shor's algorithm. I just did a quick Google and everything I'm seeing backs this up.
@IsaacKing I'm sorry, I think I was actually the one mistaken here. Although the mining process by which Bitcoin is minted (SHA hashing) is quantum resistant, that says nothing about the actual signatures used to verify who has access to which wallets (ECDSA). I don't think this translates into being able to mint new coins at will, since that still requires generating a quantum-resistant SHA hash, but it does mean you could impersonate other users and steal their funds with impunity.
@IsaacKing So while there aren't official central authorities in bitcoin, there are de facto ones. Both in terms of mining power and hardware/ASIC production. Proof of stake currencies have similar centralization issues with stakeholder power.
And yes, EcDSA is definitely not quantum proof. There's some promising work on smallish signatures with decent quantum resistance, but we're not there yet.
@jonsimon I would say the issue is not so much that the quadratic speedup makes a breakthrough capability as much as it screws with the incentive system. Here is a good paper that changed my thinking on this.
The "is" is doing most of the work here... as in, theoretically in some alternate universe, some libertarian type might use a cryptocurrency in a socially useful manner. Or there's some computer science research that shows in some restricted cases maybe it could be useful. (I think you can do faster-than-light consensus using entangled qubits) Or, by using up 25% of GPUs and 5% of TSMC's fab capacity, proof-of-work cryptocurrencies delay the end of the world by unaligned AGI.
But in practice 99% of people in our universe are using it for scams or because they want to get rich quick. And any proof-of-work is a constructive proof that paperclip maximizers can be built, by giving humans the right incentive. And most cases presented where it could be useful(voting, publishing records, etc.) can be done with a public immutable(even by the storer) append-only log, which is a different set of requirements from cryptocurrency known how to be done in the 1970s; and cryptocurrency can only lay claim to the difference in benefits it gives above previous solutions.
I'm buying 50% because I expect nothing to have changed from this year and 5 years ago, so whatever opinion you have should stay the same.
@IsaacKing - for clarification, in your evaluation on this question would/will any use of blockchains, even for non-financial purposes (recording land title records, publishing scientific data sets) count as “cryptocurrency?”
@IsaacKing My understanding is this is still early days for trialling it out, but:
https://www.forbes.com/sites/forbesbusinesscouncil/2022/12/13/how-blockchain-and-nfts-could-revolutionize-real-estate-investment/
and
https://research.ibm.com/topics/trusted-decentralized-systems
@MattCWilson If it's not a currency, it doesn't count for this market. (Though of course if there's some beneficial blockchain technology that only works due to the existence of cryptocurrency, that would be a point in favor of cryptocurrency.)
Scott Alexander also formulates good reasons in favor of cryptocurrencies, much more eloquently than I could. And well researched: https://astralcodexten.substack.com/p/why-im-less-than-infinitely-hostile
@Sjlver This is similar to my position, though I think it overstates the true usefulness of cryptocurrencies in underdeveloped countries. (For example it completely ignored the fact that much of Vietnam's crypto usage is from Axie Infinity players.) It also assumes that the ability to circumvent government restrictions is a good thing, and while I agree with many of the examples he provided, I'm not convinced that is always the case. Governments exist for a good reason!
Vitalik Buterin has a thoughtful recent piece on applications for Ethereum: https://vitalik.ca/general/2022/12/05/excited.html
Oh by the way, a clarification. I think that in the far future, currency will have to be entirely cryptographic, because there will be nothing preventing perfect counterfeiting of bills. This doesn't mean it would have to be a cryptocurrency; a secure central bank ledger would work too. But cryptocurrency seems like a natural fit for a multi-planetary species, since a centralized system would be challenging to maintain over such a huge population and with such long communication delays.
However, current cryptocurrencies don't even begin to approach what's necessary for that. As far as I'm aware, most current cryptocurrencies aren't even quantum-safe, which seems like a significant lack of foresight. Nor are they designed to maintain trust across a network where signals could take years to reach other nodes.
So I don't count this future use-case as a point in favor of current cryptocurrencies.
It's a bit constrained to think of cryptocurrencies without the advances that make it possible, i.e. consensus algorithms and distributed state machines, P2P networks, cryptography, etc.
@o For this market, I think it's fair to count advances that were explicitly motivated by cryptocurrencies. Things like consensus protocols designed specifically for blockchains, or some advances in practical zero-knowledge proofs. That said, "consensus algorithms", "P2P networks", "cryptography" as a research field all predate cryptocurrencies.
I'd be happy to have a conversation about advantage and disadvantages of crypto, if you want. Here are some starting points that I wrote as a reaction to FTX's insolvency: https://twitter.com/Sjlver/status/1592504488249917445
@IsaacKing The thread highlights both parts of crypto that I think are positive and unique, as well as parts that are negative. I think the negative parts are more peripheral (the scams, the speculation) and we might reduce these problems in the future. I admit there isn't really a breakthrough application for cryptocurrencies, mostly because we are all fine with trusting centralized entities.
For the purpose of thinking about cryptocurrencies on Manifold, it might make sense to compare cryptocurrencies to prediction markets. Both are cool, useful, probably positive, somewhat niche... still, cryptocurrencies have more general applications (particularly the programmable ones; you can build prediction markets on blockchains, but not the other way around) and they've had a much larger impact so far.
@IsaacKing Cheap money transfers.*
There are situations where cryptocurrency transfers are better than traditional options, particularly for cross-border payments or remittances. But of course, they are not without caveats. Complexity is still high, and volatility is problematic. This seems to be a fairly recent and balanced take: https://www.forbes.com/sites/danielwebber/2022/09/28/amid-a-crypto-winter-cross-border-payments-are-a-potential-lifeline/
* Seemed the best answer, since the blockchain trading card games are pretty crappy 😉
@IsaacKing As far as I know, yes. You can do the same thing in other ways (SWIFT, MoneyGram, Western Union...). These traditional ways often cost >$10 or >5% fees, hence the appeal of cryptocurrencies.
The tricky parts are more about usability than legality: it still requires some expertise to obtain cryptocurrencies and convert them back to fiat. That said, there are some legal issues: Depending on tax law, you might have to pay taxes on capital gains when you convert the cryptocurrencies back to fiat currencies. That's part of the "volatility is problematic" bit; stablecoins help against that to some extent.
@IsaacKing Why doesn't PayPal use cryptocurrencies: I don't know (it's a tough question).
Why doesn't PayPal offer cheaper international transfers: looks like market inefficiencies to me. I hope that crypto will enable alternatives and decrease prices in the long run, even prices of established players like PayPal.
@Sjlver It sounds like cryptocurrencies don't really lower transaction fees, they just change those fees from being monetary to being time and effort? If the effort doesn't scale with the size of the transaction then maybe crypto is a real benefit for large transfers, but it doesn't seem useful for normal people.
I also wouldn't expect that to remain legal. Countries impose import fees for a reason, and they're not going to let a loophole take away their profits.
@IsaacKing There is no fundamental reason why there should be transaction fees, time, or effort needed to transfer money to someone. There is also no reason why that transfer should cost more if the other person happens to be in a specific geographical location.
Globally, technology has reduced the cost, time, and effort to do just about anything. Cryptocurrencies are a promising step towards doing that for money transfers; probably the most promising technology for this at the moment. It seems just a matter of time before they are more established (and therefore cheap and effortless to use).
Finally, all the fees currently go to banks or financial organizations (PayPal, MoneyGram, Western Union, Visa, ...), not to states. There are no taxes or import/export fees on money transfers or transactions per se in most countries (see https://en.wikipedia.org/wiki/Financial_transaction_tax). That's for good reasons. For example, countries benefit from money flowing into them, and from trade more generally.
@IsaacKing See also https://en.wikipedia.org/wiki/Wire_transfer#Regulation_and_price for more reliable information about existing regulations and costs ;-)
Finally, all the fees currently go to banks or financial organizations (PayPal, MoneyGram, Western Union, Visa, ...), not to states. There are no taxes or import/export fees on money transfers or transactions per se in most countries
Interesting, I didn't know that. Why does Paypal allow free transfers within the same country but charges a fee once it's crossing a border then? Surely there's some reason for the difference?
There is no fundamental reason why there should be transaction fees, time, or effort needed to transfer money to someone. There is also no reason why that transfer should cost more if the other person happens to be in a specific geographical location. [...] Cryptocurrencies are a promising step towards doing that for money transfers; probably the most promising technology for this at the moment.
I don't think this makes sense. I agree there's no fundamental reason that transferring money across a border should have a significant fee; it's just numbers in a database being sent across the internet. I don't understand exactly why the fees do exist, but it's not a technological limitation. So I don't see how cryptocurrency changes that in the slightest. In fact crypto is worse, because it has a fee for every transaction. (Technically normal transactions also cost electricity, but it's gonna be something like 0.000000001 cents, it's completely negligible.)
Why does Paypal allow free transfers within the same country but charges a fee once it's crossing a border then?
I don't think this is how PayPal works. As far as I know, transfers between two PayPal accounts are free if you select the "this is a gift" option, and cost a fee if you select the "this is a commercial transaction" option. Supposedly, you get some sort of buyer protection insurance in the latter case.
In addition to that, PayPal charges you for currency conversions (by offering exchange rates that are worse than bank rates). There might be other fees too, e.g., for withdrawing money from your PayPal account; I'm not sure.
So I don't see how cryptocurrency changes that in the slightest.
Cryptocurrencies give you a trustworthy system to do a transaction. The system proves, in a manner that everyone agrees on and can verify, that the transaction is valid and won't be rolled back. Without crypto, it's hard to establish that kind of trust at a global scale. Only few companies like Western Union could do this so far (for some relaxed definition of "global"). That lack of competition means they can charge high fees.
Finally, don't over-estimate the fees in crypto. They are part of the rough edges that any young technology has. In fact, more recent blockchains like Stellar or Solana have negligible fees. Any successful technology had wrinkles when it was young; we should look beyond those when we try to estimate whether a technology is valuable or not. Don't be the "electric vehicles will never be a thing because there are no charging stations" guy ;-)
@IsaacKing by the way, I really like this discussion, and think you are asking good questions. I hope it's valuable to you too!
I don't think this is how PayPal works.
Nope, it definitely is. Even the "Friends and Family" option that is normally free within the US will add on fees is the recipient's account is registered in a different country, even if they're receiving USD. If you'd like to test this out yourself I can PM you a foreign Paypal address and you can see what fees it calculates. (Without having to actually send anything.)
Cryptocurrencies give you a trustworthy system to do a transaction. The system proves, in a manner that everyone agrees on and can verify, that the transaction is valid and won't be rolled back. Without crypto, it's hard to establish that kind of trust at a global scale.
How is crypto different from fiat here? Bitcoin has value because people trust that other people will be willing to exchange goods and services for bitcoin in the future. USD has value because people trust that other people will be willing to exchange goods and services for USD in the future.
Cryptocurrency is different in that no single actor has the power to reverse a transaction, but that's not always a good thing, since it leaves you open to Sybil attacks from anyone who's able to amass the computing power.
Either way, you have to have put trust in someone.
Finally, don't over-estimate the fees in crypto. They are part of the rough edges that any young technology has. In fact, more recent blockchains like Stellar or Solana have negligible fees.
How do they accomplish this? What's the incentive for mining?
@IsaacKing thanks for the correction regarding PayPal! I didn't know about these fees, and I have no idea why they exist (beyond the generic "not enough competition").
How is crypto different from fiat here?
Crypto can be transferred. If I wanted to give you a $10 bill, I couldn't. Other traditional ways of transferring $10 would cost me high fees. If I wanted to give you M10 instead, I can tip your comment, but we both depend on (i.e., have to trust) Manifold. With crypto, you get transfers with low fees and low trust requirements.
Either way, you have to have put trust in someone.
This is true, but mostly in the tautological sense. With crypto, the trust is exceptionally well spread on many uncoordinated entities. In traditional systems, trust is a lot more centralized (e.g., PayPal can, and has in the past, single-handedly revert transactions or close accounts). This brings us back to my first tweet (above): one cool thing about crypto is how it makes trust so clear and explicit.
How do they accomplish this? What's the incentive for mining?
Newer chains often use protocols that don't require mining (in the traditional sense of the term). Instead, transactions are validated by validators. These do receive fees, but since they perform relatively little work per transaction, throughput is high and fees are low. The protocols have different ways of guaranteeing that validators agree with each other, even in the presence of malicious participants. Essentially, Solana requires that honest validators own 2/3 of the capital (a "proof of stake" system). Stellar allows users to explicitly select which validators they trust; the majority of users then converges on a diverse set of validators that all agree with each other. (Note: this was a very condensed and quite probably inaccurate summary of the two consensus protocols.)
Crypto can be transferred. If I wanted to give you a $10 bill, I couldn't. Other traditional ways of transferring $10 would cost me high fees.
No they don't? I can send you $10 with Paypal for no fee.
With crypto, you get transfers with [...] low trust requirements.
It's not low trust, it's distributed trust. With crypto I'm choosing to trust the average decision of a large number of people rather than the decisions of a single person or institution. The actual amount of trust remains the same, and it's not obvious to me that distributing it across more people is beneficial.
In traditional systems, trust is a lot more centralized (e.g., PayPal can, and has in the past, single-handedly revert transactions or close accounts). This brings us back to my first tweet (above): one cool thing about crypto is how it makes trust so clear and explicit.
I'm not a fan of having to trust Paypal, but that's only because they've demonstrated a lack of integrity by doing such things. I'd have no problem trusting an institution that has a more consistent and transparent approach.
Cryptocurrency's transparency is nice, I'll agree with that. But are you really telling me that if Paypal said "Ok, we're implementing a voting system; if 51% of our users vote YES, we'll take away your money and give it to them." that you'd feel better about keeping your money in Paypal?
Newer chains often use protocols that don't require mining (in the traditional sense of the term). Instead, transactions are validated by validators. These do receive fees, but since they perform relatively little work per transaction, throughput is high and fees are low. The protocols have different ways of guaranteeing that validators agree with each other, even in the presence of malicious participants. Essentially, Solana requires that honest validators own 2/3 of the capital (a "proof of stake" system). Stellar allows users to explicitly select which validators they trust; the majority of users then converges on a diverse set of validators that all agree with each other. (Note: this was a very condensed and quite probably inaccurate summary of the two consensus protocols.)
What prevents economies of scale from leading to centralization among the validators?
@IsaacKing I'm pretty sure we're in different countries, so no free PayPal for us ;-) More generally, I think it's fair to say that traditional ways to transfer money aren't good enough. Consider that we are both very privileged when it comes to access to financial institutions, and the situation is much worse in other parts of the globe.
Regarding trust: cryptocurrencies have several incentives to ensure that rational participants are best off if they cooperate. Similarly, there are incentives that push toward decentralization. (Sorry for being vague and brief here... The mechanics are a bit to subtle and complex for a single comment, but well documented elsewhere.)
The 51% attacks that you allude to are technically possible, but expensive to pull off. They would require significant investment in the cryptocurrency, and are likely to have a destabilizing effect that would put all this investment at risk. It's also tricky to actually profit from such an attack. (Again, things are somewhat more subtle and I'm glossing over all the details... But I think it's safe to say that there are many aspects of cryptocurrencies that are more problematic than 51% attacks).
@IsaacKing Your conversation here is a fascinating read. Adding my two cents:
It's not low trust, it's distributed trust. With crypto I'm choosing to trust the average decision of a large number of people rather than the decisions of a single person or institution. The actual amount of trust remains the same, and it's not obvious to me that distributing it across more people is beneficial.
I think the idea is that instead of trusting people to favor our best interest, we're merely trusting them to work in their best interest, supposing the blockchain system to be sufficiently difficult to overthrow.
Like, if instead of one small group being able to pull a lever to reroute your money, you had everyone who had money being able to pull their own levers, and the system aggregated all of those lever pulls together so that if/whenever small groups decided to reroute your money, it would consistently fail to "stick", and would cost them for no payout. And the effort and cost and negative feedback loops required to get a huge group together to pull those levers against the grain would be prohibitive.
I'm no expert on crypto, there might be some hypothetical scenarios (the world very rapidly concludes that someone deserves to be punished, and that crypto is the arena in which to do it) where the public decision could overcome that barrier, but it seems improbable. Maybe some kind of anti-crypto, virus-like system that gets out of hand? It seems unlikely even a single strong government has enough clout to do it, unless they were to find some exploit.
@TylerColeman Couldn't the same argument be made for centralized payment systems? It's clearly in Paypal's best interest to be trusted by their users, so as long as I'm confident that they can be modeled as a self-interested actor, I can trust them to not steal all my money.
@IsaacKing Paypal as a corporation is incentivized not to steal your money, but that doesn't hold for all of the individual actors within Paypal; you need to trust that Paypal has sufficiently robust controls to prevent people with access to their centralized system from stealing your money. It's in Paypal's best interest to create such controls, but it's hard for anyone to know whether they're strong enough (until, perhaps, they turn out not to be and someone makes off with your money).
Also: it's currently in Paypal's best interest to be trusted by their users, but you could imagine this calculation changing such that the value of user trust is less than the balance currently available for them to steal; even if Paypal steals a bunch of dollars, dollars will still have value. Whereas 51% of the $cryptocurrency_x network stealing a bunch of $cryptocurrency_x would destroy the value of $cryptocurrency_x.
Still, I'm betting NO. I think the social solutions we have to these weaknesses with centralized payment systems (i.e. people mostly have a sense of morality, and people who do this stuff mostly go to jain) are good enough that cryptocurrencies aren't a big win here.
@IsaacKing I'm not familiar with Paypal, but as a well-known and oft-used corporation, they have, and probably deserve, a good deal of public trust. But I also have heard that corporations are occasionally prone to corruption/scandal, and that data security breaches are not unknown. So if the theory behind crypto is sound, it should be highly resistant to those (trust-breaking) problems, so I'd still expect there to be some advantage.
