help me understand crypto

[target2019]

This is a decent FAQ with critique of Bitcoin, from Schwab:
https://www.schwab.com/resource-center/insights/content/bitcoin-does-it-have-place-your-portfolio

It helps explain many of the responses in this thread.

 

[sengsational]

I also don’t understand block chain technology, which is supposed to allow each owner to be visible, or something. But then the Russians who hacked the pipeline and nearly shut down the entire southeast demanded their ransom in Bitcoin. So how is that any different and any better than briefcases full of cash handed over now, or else Guido will make you sleep with the fishes?

The underlying crypto might be complicated, but the concept is pretty simple. If a participant tells the system to transfer so many Bitcoin to another participant, it happens without a central authority doing anything. It's a distributed database of transactions that can't be spoofed. It's not that people can't screw up, and let loose their password, but if only you have your wallet and password, nobody can initiate a transaction and have anybody in the community believe it's a legit transaction. As mentioned, connecting a wallet with a person isn't in the Bitcoin specification. Governments are trying to zoom in on where the Bitcoin gets exchanged into government currencies, and so gain visibility, but nothing stopping people from making another wallet, or batch of wallets and passing coins around to make it harder to keep track. Bitcoin certainly makes it easier for crooks to get paid. I always chuckle to myself when I remember that the "proof of work" that is the mining part of crypto currency, was designed to thwart spammers (doing a hard calculation was the cost of a "stamp", and only legit senders could afford to buy a stamp).

 

[ExFlyBoy5]

I know *a little* bit about it and have made a little $ gambling with it, but that's about it.

What bothers me the most about it is filing taxes. One of the first questions on the 1040:

At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?

I think that should be reworded to read:

Would you like to be audited?

 

[sengsational]

The purpose of that line is so they can throw the really bad guys in jail for tax evasion when they can't make a case for the many other crimes they committed.

 

[target2019]

I found the true meaning of crypto here: https://www.coinparticle.com/

 

[indiajust]

https://advisors.vanguard.com/insights/article/thecaseforcautionwithcryptocurrencies

A reference for non millenials

 

[Hans]

I didn't notice someone asked me a question until now. Since I was asked, I will respond.

Well, if I wasn't referring to you then why respond?

Freedom of speech.

Were you uncomfortable that I was not also non-participatory?

No.

BTC is a store of value, an investment if you will. Like gold. It's not particularly useful as a currency.

I'm already aware that some regard it as a store of value, some regard it as an investment, and some regard it as a currency. And some regard it as two or more of the above.

And some regard it as something else.

Have a good day.

 

[Markola]

Almost through osmosis, my various podcasts and blogs are providing a noobie-level education about this emerging industry. As I understand it:

- There are hundreds of crypto currencies now.

- Bitcoin is far and away the most valuable and with the largest market share. It is not terribly useful, however, except as a speculation device. An analogy is a painting, like the Mona Lisa. It’s interesting and immensely valuable but there isn’t much utility in it. Bitcoin was early in the game, captured the public imagination and its supply is limited, hence its market leadership.

- Ether is the second largest crypto, and it does have industrial application. The Ethereum network is an emerging software platform, a kind of new internet, upon which serious applications are being written based on Block Chain technology. Ether is the currency used within the Ethereum world. It’s supply will not be limited. Banks and other serious institutions are getting involved.
If you want to read more about it in plain English, this is a useful summary https://captainaltcoin.com/what-is-ethereum/

- All the rest of the crypto currencies are struggling for relevance, as best as I can tell. Some, like Doge Coin, are literally intended as joke parodies of the crypto world that some gamblers, nevertheless, buy. Each one requires staff, technology and energy, so my guess is, many will wink out as the crypto sector matures and consolidates, becoming as valuable as those old French Francs and Spanish Pesetas moldering in your closet somewhere.

- People are legitimately excited by Block Chain, because it is a far superior and more secure data filing system than the hack-prone, inconsistent and rudimentary filing systems used today by banks, the government and every other organization that stores our data. Basically, every transaction will be recorded for all time, unlike now, making record keeping essentially perfect. And, there is no central computer that can be hacked. Block Chain data is spread out on millions of machines around the globe. The link above summarizes the advantages.

- A Block Chain industry is emerging, with multiple start ups and massive venture capital, just like the internet and mobile industries emerged over the last 25 years. It will almost certainly be revolutionary in every aspect of our online lives. The finance industry is learning to provide investors the means to speculate in this industry, including through ETFs, which are under approval by the SEC.

Someone more knowledgeable than me: Edit away on my first-grade understanding. [emoji848]

 

[yakers]

Sounds like a pretty good summary. Only major item missed is how/whether stablecoin will work.

 

[Markola]

Sounds like a pretty good summary. Only major item missed is how/whether stablecoin will work.

‘Splain, please? Is it pegged to a certain price or currency, etc.?

 

[yakers]

The marketing of stablecoin is to appear pegged to a currency or reserve asset but there is no real peg. Various reserves of currency, bonds, maybe some gold and other crypto assets. Since there is no 100% reserve it is not a ‘true’ stablecoin but has a speculative element. When a country comes out with a digital currency it would/might be a true stablecoin IMHO. Something like the Venezuelan Petro is coming close but how does one retrieve their reserve oil?

 

[VungTau]

- "People are legitimately excited by Block Chain, because it is a far superior and more secure data filing system than the hack-prone, inconsistent and rudimentary filing systems used today by banks, the government and every other organization that stores our data. Basically, every transaction will be recorded for all time, unlike now, making record keeping essentially perfect. And, there is no central computer that can be hacked. Block Chain data is spread out on millions of machines around the globe. The link above summarizes the advantages."

Not sure if it is "far superior" in all cases. It is very cumbersome in many respects as it chains together the blocks to give it that excellent security that you mentioned but that also makes it slow and time consuming. All that energy that BTC uses to confirms transactions and make them secure comes at quite a price. Oracle, SQL and other Databases certainly don't exact that kind of toll. Products like the Lightning Network, that sits on top of the BTC protocol, are needed because it's impossible to scale BTC to become a payment system without something like it that can process payments rapidly. That what El Salvador is using in their effort to make BTC legal tender in their country. Let's see what happens on Sept 8 (I think thats the date) when it goes live!

 

[VungTau]

The marketing of stablecoin is to appear pegged to a currency or reserve asset but there is no real peg. Various reserves of currency, bonds, maybe some gold and other crypto assets. Since there is no 100% reserve it is not a ‘true’ stablecoin but has a speculative element. When a country comes out with a digital currency it would/might be a true stablecoin IMHO. Something like the Venezuelan Petro is coming close but how does one retrieve their reserve oil?

Check out Amy Castor's interesting article about the leader of the "stable" coins - Tether. It's pretty sobering...


https://amycastor.com/tag/tether/

 

[37andhappy]

I am interested in discussing some of the following:

Is BTC a store of value?


Thanks.

Is Bitcoin a store of value?

https://youtu.be/Nun8ngEo4Ao

 

[37andhappy]

.

Is there a generational effect in play that we boomers may be overlooking? One video said that everyone under 35 does not view gold as a store of value but instead views crypto for this function.

Does the argument that crypto will "de-monetize" gold, bonds and maybe even stocks have any traction?

The answer to your second question on the mindset of some boomers...

https://youtu.be/7EahaWJVG8o

 

[37andhappy]

- " All that energy that BTC uses to confirms transactions and make them secure comes at quite a price.

The price of something is relative to the perceived value it provides. Having a global monetary reserve of the internet, and enabling banking to the 1 Billion or more so-called "un-banked" people on the plant is certainly worth something to most people. Exactly how much this worth, the market will decide.

If you are referring to the "price" being energy consumption, bear in mind that over time economics will drive BTC mining to sustainable energy. But either way, the world collectively decides if the utility is worth the cost. Anyone reading this right now is consuming energy to power their computer, phone, the internet, the servers that enable this website to operate, etc etc.

 

[bolt]

I had to link this for smirks & giggles.

Cryptos a storage of value. As are SPACS & meme's.
This below is my understanding of crypto do date.

Its clear to me all the worlds FIAT currencies are both theoretically & historically destined to fail.

Good luck & Best wishes....

 

[Markola]

The price of something is relative to the perceived value it provides. Having a global monetary reserve of the internet, and enabling banking to the 1 Billion or more so-called "un-banked" people on the plant is certainly worth something to most people. Exactly how much this worth, the market will decide.



If you are referring to the "price" being energy consumption, bear in mind that over time economics will drive BTC mining to sustainable energy. But either way, the world collectively decides if the utility is worth the cost. Anyone reading this right now is consuming energy to power their computer, phone, the internet, the servers that enable this website to operate, etc etc.

And I wonder how much energy the global banking industry uses.

 

[acronymous]

Bitcoin and other "proof of work" derivatives make computationally intensive calculations a core security measure. These computations escalate in complexity over time, presumably to keep up with Moore's law. It's a whole lot of busy work and outrageously wasteful and getting worse over time.

Ethereum is transitioning away from POW to "proof of stake" security that is much more computationally efficient.

 

[Luvtoride]

I had to link this for smirks & giggles.

Cryptos a storage of value. As are SPACS & meme's.
This below is my understanding of crypto do date.

Its clear to me all the worlds FIAT currencies are both theoretically & historically destined to fail.

Good luck & Best wishes....

BOLT That is a RIOT! As far as Crypto goes, I'm not sure its that fast but most of us our HODL!!!

 

[brett]

It seems to me that it is much easier to steal. And in incredibly large amounts. Seamlessly.

 

[MichaelB]

It seems to me that it is much easier to steal. And in incredibly large amounts. Seamlessly.

+1

This is probably the single most important factor affecting Central Bank decisions to sponsor and manage digital currencies.

 

[37andhappy]

Bitcoin and other "proof of work" derivatives make computationally intensive calculations a core security measure. These computations escalate in complexity over time, presumably to keep up with Moore's law. It's a whole lot of busy work and outrageously wasteful and getting worse over time.

Ethereum is transitioning away from POW to "proof of stake" security that is much more computationally efficient.

You are speaking last month's FUD.

Proof of work is the entire genius of a decentralized blockchain. Proof of stake defeats the whole purpose of what Satoshi created, and allows the truth of the block chain to be corrupted by those in power. Proof of stake is essentially what we already have with the current power structure in control of Government money. Proof of stake is not decentralized.

Economics will dictate that the energy used to mine and protect BTC will be sustainable and essentially "free". To that extent, Bitcoin is also a huge driver of the use of renewable energy.

 

[acronymous]

You are speaking last month's FUD.



Proof of work is the entire genius of a decentralized blockchain. Proof of stake defeats the whole purpose of what Satoshi created, and allows the truth of the block chain to be corrupted by those in power. Proof of stake is essentially what we already have with the current power structure in control of Government money. Proof of stake is not decentralized.



Economics will dictate that the energy used to mine and protect BTC will be sustainable and essentially "free". To that extent, Bitcoin is also a huge driver of the use of renewable energy.

https://www.ft.com/content/1aecb2db-8f61-427c-a413-3b929291c8ac

This FT piece explores POW energy consumption pretty well. The argument in favor of POW as a driver of renewable energy adoption is an impressive feat of green washing.

 

[37andhappy]

https://www.ft.com/content/1aecb2db-8f61-427c-a413-3b929291c8ac

This FT piece explores POW energy consumption pretty well. The argument in favor of POW as a driver of renewable energy adoption is an impressive feat of green washing.

Basic economics - when you are mining, you want to be as efficient as possible. Ultimately this means you will place mines close to plentiful (and ideally unlimited) energy sources. So think deserts and arid large open inland landmasses with lots of sunlight, with solar, wind, hydro, Geothermal, and all in locations where the energy cannot be easily transferred to any other location.

Ultimately, we can FUD all we like on any emerging asset class or technology, but as investors, but we need to figure out if global demand and use of Sats will increase or decrease over time. That in turn will govern our investment decisions.

The genius of Satoshi was understanding that effort or "work" is what creates scarcity, which in turn can be used to store value via a decentralized blockchain, and indeed secure the blockchain at the same time. Same reason we don't value fake gold over real gold, or fake diamonds over real ones. Bitcoin can and will only be created once, whereas an almost infinite number of imitators will come along (and fail). Proof of work is basically a perversion of the entire concept of a decentralized store of value. (Its essentially everything we had PRIOR to the invention of Bitcoin).

We will over time see more actual BTC transactions on second layers such as the Lightening Network, and of course, if it ever becomes less profitable to mine, we will of course see hashrate fall (resulting in less energy being used, and the energy being used coming from increasingly efficient sources.)