• Tehhund@lemmy.world
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      9 months ago

      See I think more nuanced takes like this are good. I’m not familiar with the Chinese banking issue that you are describing, but it sounds like deposit insurance (like the FDIC) might be a better solution than cryptocurrency, and it’s definitely better understood. Since the real world value of cryptocurrencies are so volatile they are a questionable store of value, and taking a risk on a poorly regulated bank might be better than taking a risk on storing your money in a volatile and unregulated security like cryptocurrency. Honestly it’s hard to know which is the better risk. So it could be better or it could be worse.

      I agree with your point about transferring money internationally, and even within the US transferring money used to be a real pain. So I’m still interested to see if cryptocurrency can be a better medium of exchange or medium of transfer than traditional ways, or at least give traditional systems incentive to improve. But again the volatility is a concern so for most people the best move is probably to get in and out of the crypto market as quickly as possible or else risk getting a vastly different amount of money out of it than you put in. Admittedly it could appreciate, but when I’m transferring money to someone I don’t want that to simultaneously be an investment. The few times I have used Bitcoin to purchase something the whole process has taken hours, and there’s no guarantee there won’t be price swings — a lot could happen in those hours.

      I appreciate the brutal honesty about cryptocurrency not being for the average Joe. It’s not that long since many cryptocurrency boosters were hoping it would replace fiat currency, but now that I think about it I haven’t heard as much about that recently. In its current state it is really not for the average Joe.

      • General_Effort@lemmy.world
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        9 months ago

        Legal money transfers are not a use case. Crypto is simply much more expensive to maintain. All these mining rigs and all that electricity must be paid for.

        If it seemed cheaper, then either:

        • the banks were charging inflated fees. That can be fixed only once. (And it should have been fixed by government). ETA: Doesn’t work, after all. It can only be the other 2.
        • It was masked by price fluctuations. Eventually, someone else must pick up the tab. Can’t work long-term.
        • Costly regulations/taxes were dodged.

        Under the spoiler is something I wrote recently to explain how crypto is not like stocks.

        spoiler

        Let’s look at how stocks get their value.

        A company sells shares to get funding. Say, you want to make microwave dinners. You need to hire people, an industrial kitchen, packaging and packaging machines, ingredients, and probably a whole lot more. The company takes in revenue from selling the dinners, which pay for the running costs. Anything above that may be reinvested or turns into profit. The profit is paid to the stock-owners to pay them for their investment.

        Now the question is: What is the value of a stock?

        Imagine you take out a loan. That gives you money right now, in the present. You pay back the loan with the money that you get from your stocks; your share in the profit. Now imagine that the company goes out of business (and the value of the stock becomes $0) right as you are done paying back the loan + interest. Then that loan was the present value of the stock.

        In theory, the value of a share is the present value of the future money that you get paid. Of course, one cannot know how much that is, so this is useless for actual investing. Still, the market price of a share should be the best guess of people with money. If the stock is trading higher than someone’s guess, they sell. If it’s lower, they buy. So the market cap should reflect the future profits.

        But what’s the value of a crypto-coin like bitcoin?

        Let’s start by thinking only about a coin being used to transfer money. And to make it easier, let’s say that coins are only exchanged for money once a day.

        Say people want to transfer 10 million USD each day. The senders buy coins for 10 million USD. They don’t care how many coins that gets them, only that the coins represent 10 million USD. If there are 2 million coins being sold on the market, then each coin must transport 5 USD and that will be the market value.

        New coins are constantly being “mined” to pay for the upkeep of the system. Let’s say that’s 100,000 coins per day.

        The intended receivers of the 10 million USD sell their coins to get the money. The miners also sell their coins to pay their bills. So the next day you have 2 million + 100,000 coins on the market. The senders again want to transport 10 million USD, so they buy the 2,100,000 coins on the market. The market value of a coin is now ~4.76 USD. Adding more coins lowered the value of the coins. That is inflation. The “missing” money goes to the miners to keep the system running. That’s not a problem for senders and receivers. Transferring money costs money, however you do it. (That crypto is an extremely expensive way to do this, is one underlying reason why it has no adoption as a payment system in the normal economy.)

        So far, you wouldn’t expect anyone to store or “hodl” coins. The value is just going down. But obviously, this is only true as long as the amount of USD to be transferred stays constant. If the system is more widely adopted and more money is transferred (outpacing the inflationary effect of the newly mined coins), then each coin has to transport more USD and the “value” goes up.

        Now, if you believe that adoption continues to grow, it becomes a reasonable strategy to stash some coins to sell them later at a higher “value”. Maybe the problem is already obvious, but let’s continue to take it slow.

        So, let’s say, it’s a bit later. There are 15 million coins and they are to transfer 100 million USD. The market price of a coin is now $6.67. (Let’s also say that there are no more coins being mined and the upkeep is paid some other way.) Now we bring in some venture capitalists. One day, they buy coins for an additional $50 million. Now the coins trade at $10 per coin. 15 million coins bought for $100 million + $50 million, right?

        The VCs now have 5 million coins. But note where the money went. It went to the transfer receivers when they sold the 15 million coins for $10 each. They got a windfall profit. That’s how it goes in crypto. All the money that people “invested” by buying coins is gone. It was either used to pay miners/for the system upkeep, or early adopters took it and ran. It’s all gone. That’s the big difference to shares.

        If the VCs sell their coins again, they lose. Because when there is only 100 million USD in the market for 15 million coins, they would only get 6.67 USD per coin. The money that they spent is gone. If they want to make a profit, new money has to come from somewhere. There are only 2 ways to achieve this.

        One is continuing adoption. If more money were to be transferred, with the same number of coins, the price goes up. They can siphon off some of that money by selling into that market. But that lowers the price again, so that only yields a profit if adoption increases enough.

        The other is that someone else also removes coins from the market. If there are fewer coins for the same (or a decreasing!) amount of money being transferred, then the market price will also go up. (In this scenario, too, they would be siphoning off money that other people are trying to transfer. The cost of transferring money would be increased for no very good reason; not a great feature in a payment system.) But note that this, too, lowers the price again. That only yields a profit, if “hodlers” sequester the coins sold by the VCs for a higher price than the VCs paid.

        I’m not saying this is a Ponzi scheme because everyone has heard that already.

        So that’s it. If you want to know the effect of 50k bitcoin on price, you need to look at the trading volume (minus wash trades): How many bitcoin are actually “in use”? You also need to know how many of these coins will be promptly removed from the market by “hodlers”.

        • QuaternionsRock@lemmy.world
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          9 months ago

          Legal money transfers are not a use case. Crypto is simply much more expensive to maintain. All these mining rigs and all that electricity must be paid for.

          Various currencies are moving away from the proof-of-work model, FWIW. Ethereum was mentioned in this comment chain as one of them.

          • General_Effort@lemmy.world
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            9 months ago

            Which doesn’t solve the economic problem. (Good for the environment, though)

            Ethereum has proof of stake. That means someone has to deposit Ethereum, tying it up. It could be exchanged for money and invested in stocks or bonds, yielding a return. This is only economically feasible if the stake yields the same return as a comparable investment. This profit has to come from the users.

            A competing payment system, based on sensible, modern technology also needs computers and the internet but not a stake. It must be cheaper.

            The stake is supposed to keep people honest, because it can be taken if fraud is detected. Normally, fraud is dealt with by putting the perpetrators in jail. Being known by name is proof of stake.

            Users have to pay extra just so that some kingpins in the back can remain anonymous. Do you want to for that?

            It also doesn’t solve the other deal-breaker (in the spoiler). Whenever you transfer money through crypto, you risk that some “investor” siphons off some of it.

      • mexicancartel@lemmy.dbzer0.com
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        9 months ago

        Since the real world value of cryptocurrencies are so volatile they are a questionable store of value

        It will not be so volatile if it’s primary means of transaction for everyone(obviously not yet). Value of thoose cryptos are just like the values of normal money in different countries.

        For example, if you can buy an apple for 10 shitcoins, instead of buying it in USD, then the value is not volatile. The problem arises when the apple is 5 USD and you have to transfer the shitcoin amount which is equal to the exchange rate of 5USD at that time.

        • Tehhund@lemmy.world
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          9 months ago

          This is true, but it’s hard to see why we would ever move from fiat currency to cryptocurrency as the primary means of exchange. Currently cryptocurrency’s advantages are modest and its disadvantages are substantial, and I haven’t seen a lot of movement toward fixing that balance. I’d like to give traditional finance channels some competition to reduce fees, lock-in, and inconvenience, but cryptocurrency is going to have to get a lot better for average people if it’s going to be a real alternative.

          • mexicancartel@lemmy.dbzer0.com
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            9 months ago

            Advantages of cryptos is that they are decentralised. Just like lemmy is decentralised, no single entity or government control the money. Transaction happen from peer to peer. No middlemen involved. I don’t understand the disadvantages yet except environmental concerns. I heard coins like ethereum switched to proof of stake model which is more environmental friendly.

            • Tehhund@lemmy.world
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              9 months ago

              I don’t understand the disadvantages yet except environmental concerns.

              As you point out, PoS basically solves the environmental concerns. (Some people might say it still consumes too much power but I disagree, I think power consumption under PoS is acceptable).

              This is just my opinion, but I think the big disadvantage is cryptocurrencies are a pain in the ass to use. Lengthy story about what a pain it’s been to use them in Spoiler tag. I think this story is a bit of an outlier since I hit all of these issues, but the fact that a technically inclined person who is just getting back into cryptocurrency after a long hiatus can have this much trouble with it does not speak well use ability or safety.

              ::: I have a few coins I mined back in the day (before switching all my computing power to BOINC), and I saved off my wallet.dat from those wallets. I wanted to use them recently, so I reinstalled the wallet software. That worked, but then I had to download the entire chain again, so I had to wait more than a day to actually use the coins. Putting cash in a bank is faster if I’m already a customer of the bank. If I’m a new customer I might have to wait, but the point is cryptocurrency doesn’t have a clear advantage here.

              The coins I had weren’t Bitcoin, but the shop I wanted to buy from only accepts Bitcoin. So then I had to exchange mine for Bitcoin and pay transaction fees. I guess you could say it’s my own fault for holding a less-popular coin but I’m not sure cryptocurrency is living up to its own hype if there’s exactly one or two coins that you have to use, just like how in the US there’s no real alternative to USD.

              I found a no-account exchange, and I had to carefully enter keys and figure out amounts of coin > BTC. And I had to trust the exchange to give me what I wanted. If the no-account exchange didn’t exist, I would have to create a whole new account on a website I don’t entirely trust just to exchange one coin for Bitcoin. That’s a layer of trust in a “trustless” system. I also don’t like creating yet another account with my info in it — yet another way that cryptocurrency is not better than traditional finance.

              Then not only did it cost transaction fees, it took hours for the transaction to go through. I could pay more for it to go faster, but now we’re talking about fees that far exceed those of credit cards or regular money transfers. Then I had to send the Bitcoin to the online store and wait for that transaction to clear. More time and more transaction fees. The purchase worked without a hitch, but it wasn’t any better than using a credit card.

              I had to buy extra BTC because it’s really difficult to know exactly how much you’re going to pay including transaction fees, so after the transaction went through I tried to turn my remaining Bitcoins (I think it was worth ~$13?) back into the kind of coins I keep, but I set my transaction fee too low and the trade I set up expired before my coins went through. Luckily I had given the exchange a refund account, but that meant I had to wait over 24 hours before my transaction actually happened, and then the exchange had to send back my Bitcoin, incurring fees at each step.

              While waiting I tried to cancel this Bitcoin transaction, but the software I used didn’t support that. So then I tried to extract my private key to enter into another piece of software, and that was surprisingly difficult. I thought cryptocurrency was supposed to put me in control, but without a LOT of technical knowledge I was just as powerless as I’d be with a bank that froze a transfer. I asked for help on a few forums and some people tried to help but the whole thing was confusing and eventually I had to give up and just wait for the transaction to go through.

              Then I had to do the BTC > mycoin transaction again, and this time I think the fees were 5-10% of the amount I was transferring. That’s way more than Venmo’s immediate transfer fee or even credit card fees (I think those are around 3%?).

              I will say that during this process I discovered the Electrum wallet, which is very good and works on a lot of platforms. Some of the issues I had would not have happened if I had used that all along. But there are so many wallets out there it’s hard to know which one is best and obviously when I started this process no one told me it was the best. And maybe it’s not and that just my opinion.

              In summary, I’m interested in cryptocurrency and kind of enjoyed using it in the way learning new things can be fun. But it was slower, less convenient, and more expensive than regular currency. Cryptocurrency boosters are going to have to improve all of these problems before it’s competitive with regular currency, and I don’t see a lot of discussion about how much these pain points suck and how to improve.

              :::