Well argued, but I will always regret I didn't have the balls to buy ten shares of Bitcoin when it was first introduced and trading about $200. A friend did and retired early.
Thank you for sharing your thoughts on Bitcoin. While I understand your concerns about its environmental impact, regulation, and volatility, I’d like to share a broader perspective based on my experiences.
This year, I’ve used Bitcoin as money to purchase gold, silver, and even pay for services around my house. These seamless transactions demonstrate its practicality as a medium of exchange for certain real-world uses. While Bitcoin is not widely adopted for everyday transactions, its functionality for investments and services is undeniable.
Regulation is indeed needed to address fraud and enhance security. Responsible oversight can strengthen the industry without undermining its decentralized ethos. For example, clear regulations could foster trust and make cryptocurrency safer for everyone.
The environmental impact is a valid concern, but it is being addressed. Cryptocurrencies like Ethereum have transitioned to proof-of-stake, significantly reducing their energy consumption. These innovations show the industry’s adaptability.
While Bitcoin’s speculative nature has drawn criticism, it is not unlike early-stage investments in other technologies. Over time, its role may expand, offering practical solutions to financial and technological challenges.
Though imperfect, cryptocurrency has proven its value in my own transactions, and its potential applications suggest it is far more than just a speculative trend.
Was it cheaper or more convenient to use Bitcoin to pay for services than to use a Visa or Mastercard? I suspect not. Would it provide advantages to payment services providers, and make payments cheaper for us? I suspect not: most of the cost of the card reader system we now use is in the "last mile" investments in consumer/businesses connections, not the back office accounting system and centralization Crypto supposedly "solves". And the current system is more robust. Errors and problems can be corrected: if somebody steals my identity, I can block payments on credit cards, but if somebody steals my Crypto info, I'm out of luck.
Nor is Crypto truly decentralized. Wallets and exchanges have proven to be necessary: somebody has to manage these. That's just a central bank under another name. (And we have historical experience with privately owned central banks, which is why they are now universally public).
Sam has it right: there is no sensible business case for Crypto.
Thank you for sharing your perspective and raising these valid questions and critiques. While I agree with some of your points, I think there are additional nuances worth considering.
Regarding your question about whether Bitcoin is cheaper or more convenient than using a Visa or Mastercard, I agree that in many cases, traditional payment methods are faster and simpler, especially for everyday transactions. However, the key difference lies in specific contexts where traditional financial systems have limitations. For instance, cryptocurrency can be advantageous for direct peer-to-peer payments or in situations where traditional financial systems impose significant barriers or fees. For example, I found Bitcoin convenient for larger transactions, such as paying for gold and silver, where speed and ease outweighed potential drawbacks.
You’re correct that much of the cost of traditional payment systems lies in the "last mile" infrastructure, but cryptocurrency offers a way to bypass intermediary fees in certain cases. While it’s not universally cheaper yet, innovation in blockchain technologies could reduce costs over time as adoption grows and competition increases.
As for your concerns about errors, fraud, and security, these are significant issues in the cryptocurrency space. However, emerging solutions like multi-signature wallets and decentralized finance protocols aim to address these problems by improving security and providing additional safeguards for users. While these solutions aren’t perfect, the industry is evolving, and there’s growing recognition of the need for more robust consumer protections.
On the topic of centralization, it’s true that exchanges and wallets introduce elements of centralization, but the distinction lies in the fact that users can choose to self-custody their assets if they prefer, which isn’t an option with traditional systems. The existence of centralized entities in crypto is a result of market demand for convenience, not a fundamental requirement of the technology.
Lastly, while it’s fair to question the broader business case for crypto, there are tangible use cases emerging beyond speculative investment. Smart contracts, decentralized finance, and asset tokenization offer potential for innovation in financial systems. Moreover, for individuals in countries with unstable currencies or limited access to banking, crypto can provide a lifeline, albeit with associated risks.
Crypto isn’t a perfect solution, and it’s not meant to replace traditional systems entirely. Instead, it offers an alternative that, while flawed, has potential in niche scenarios and for broader applications as the technology matures.
I appreciate the opportunity to engage in this discussion, as these critiques are essential for the growth and refinement of any new technology.
I appreciate your careful reply. Thank you. To be honest, however, I don't find it convincing.
If you look back at your arguments about cost, you will see that it comes down to a possible future in which transactions will be cheaper in cyber currency. Reminds me a bit of the sign in the bar: "free beer tomorrow." And I'm not sure how cyber avoids the last mile costs. But I suppose it is a possibility---just not one that I can see getting excited over right now. (Maximum, I'll save the 3% interchange fee that MasterVisa charges...nice but not a huge change in my lifestyle).
The reason Sam and I are on the same page about this is not just that, however. It's tha this is a currently marginal technology that might---might---provide payment systems in the future. But somebody is paying depositors a substantial amount (4%? 8? I just saw 14%!). Whoever is paying this return is not doing it because they are lending to businesses providing goods and services to paying customers. Such businesses can finance themselves much more cheaply through bank borrowing or issuing traditional debt like bonds and commercial paper.
Promised extremely high returns on an asset are a sign that something is wrong. It's often a sign of a Ponzi scheme (and crypto has already seen that) or of very risky speculation. In any case, it's not a useful part of anybody's investment portfolio, and the sales tactics that we see are pretty much always those of operators who are not offering legitimate investments, but merely trying to separate the marks from their money.
Sam and I have been through a few of these rodeos. It's always hard to argue with boosters when a bubble is on the upswing. (Read "the Big Short"). But bubbles always burst. This has all the signs of a bubble.
I'm not saying we won't eventually find ourselves using a version of blockchain based currency sometime in the future. I am saying that I wouldn't touch it with a ten foot pole right now.
Thanks for listening, and we should both thank Sam for giving us a platform for our discussion.
Well argued, but I will always regret I didn't have the balls to buy ten shares of Bitcoin when it was first introduced and trading about $200. A friend did and retired early.
Dan Michaud responds:
Thank you for sharing your thoughts on Bitcoin. While I understand your concerns about its environmental impact, regulation, and volatility, I’d like to share a broader perspective based on my experiences.
This year, I’ve used Bitcoin as money to purchase gold, silver, and even pay for services around my house. These seamless transactions demonstrate its practicality as a medium of exchange for certain real-world uses. While Bitcoin is not widely adopted for everyday transactions, its functionality for investments and services is undeniable.
Regulation is indeed needed to address fraud and enhance security. Responsible oversight can strengthen the industry without undermining its decentralized ethos. For example, clear regulations could foster trust and make cryptocurrency safer for everyone.
The environmental impact is a valid concern, but it is being addressed. Cryptocurrencies like Ethereum have transitioned to proof-of-stake, significantly reducing their energy consumption. These innovations show the industry’s adaptability.
While Bitcoin’s speculative nature has drawn criticism, it is not unlike early-stage investments in other technologies. Over time, its role may expand, offering practical solutions to financial and technological challenges.
Though imperfect, cryptocurrency has proven its value in my own transactions, and its potential applications suggest it is far more than just a speculative trend.
Was it cheaper or more convenient to use Bitcoin to pay for services than to use a Visa or Mastercard? I suspect not. Would it provide advantages to payment services providers, and make payments cheaper for us? I suspect not: most of the cost of the card reader system we now use is in the "last mile" investments in consumer/businesses connections, not the back office accounting system and centralization Crypto supposedly "solves". And the current system is more robust. Errors and problems can be corrected: if somebody steals my identity, I can block payments on credit cards, but if somebody steals my Crypto info, I'm out of luck.
Nor is Crypto truly decentralized. Wallets and exchanges have proven to be necessary: somebody has to manage these. That's just a central bank under another name. (And we have historical experience with privately owned central banks, which is why they are now universally public).
Sam has it right: there is no sensible business case for Crypto.
Thank you for sharing your perspective and raising these valid questions and critiques. While I agree with some of your points, I think there are additional nuances worth considering.
Regarding your question about whether Bitcoin is cheaper or more convenient than using a Visa or Mastercard, I agree that in many cases, traditional payment methods are faster and simpler, especially for everyday transactions. However, the key difference lies in specific contexts where traditional financial systems have limitations. For instance, cryptocurrency can be advantageous for direct peer-to-peer payments or in situations where traditional financial systems impose significant barriers or fees. For example, I found Bitcoin convenient for larger transactions, such as paying for gold and silver, where speed and ease outweighed potential drawbacks.
You’re correct that much of the cost of traditional payment systems lies in the "last mile" infrastructure, but cryptocurrency offers a way to bypass intermediary fees in certain cases. While it’s not universally cheaper yet, innovation in blockchain technologies could reduce costs over time as adoption grows and competition increases.
As for your concerns about errors, fraud, and security, these are significant issues in the cryptocurrency space. However, emerging solutions like multi-signature wallets and decentralized finance protocols aim to address these problems by improving security and providing additional safeguards for users. While these solutions aren’t perfect, the industry is evolving, and there’s growing recognition of the need for more robust consumer protections.
On the topic of centralization, it’s true that exchanges and wallets introduce elements of centralization, but the distinction lies in the fact that users can choose to self-custody their assets if they prefer, which isn’t an option with traditional systems. The existence of centralized entities in crypto is a result of market demand for convenience, not a fundamental requirement of the technology.
Lastly, while it’s fair to question the broader business case for crypto, there are tangible use cases emerging beyond speculative investment. Smart contracts, decentralized finance, and asset tokenization offer potential for innovation in financial systems. Moreover, for individuals in countries with unstable currencies or limited access to banking, crypto can provide a lifeline, albeit with associated risks.
Crypto isn’t a perfect solution, and it’s not meant to replace traditional systems entirely. Instead, it offers an alternative that, while flawed, has potential in niche scenarios and for broader applications as the technology matures.
I appreciate the opportunity to engage in this discussion, as these critiques are essential for the growth and refinement of any new technology.
Sincerely,
Dan Michaud
I appreciate your careful reply. Thank you. To be honest, however, I don't find it convincing.
If you look back at your arguments about cost, you will see that it comes down to a possible future in which transactions will be cheaper in cyber currency. Reminds me a bit of the sign in the bar: "free beer tomorrow." And I'm not sure how cyber avoids the last mile costs. But I suppose it is a possibility---just not one that I can see getting excited over right now. (Maximum, I'll save the 3% interchange fee that MasterVisa charges...nice but not a huge change in my lifestyle).
The reason Sam and I are on the same page about this is not just that, however. It's tha this is a currently marginal technology that might---might---provide payment systems in the future. But somebody is paying depositors a substantial amount (4%? 8? I just saw 14%!). Whoever is paying this return is not doing it because they are lending to businesses providing goods and services to paying customers. Such businesses can finance themselves much more cheaply through bank borrowing or issuing traditional debt like bonds and commercial paper.
Promised extremely high returns on an asset are a sign that something is wrong. It's often a sign of a Ponzi scheme (and crypto has already seen that) or of very risky speculation. In any case, it's not a useful part of anybody's investment portfolio, and the sales tactics that we see are pretty much always those of operators who are not offering legitimate investments, but merely trying to separate the marks from their money.
Sam and I have been through a few of these rodeos. It's always hard to argue with boosters when a bubble is on the upswing. (Read "the Big Short"). But bubbles always burst. This has all the signs of a bubble.
I'm not saying we won't eventually find ourselves using a version of blockchain based currency sometime in the future. I am saying that I wouldn't touch it with a ten foot pole right now.
Thanks for listening, and we should both thank Sam for giving us a platform for our discussion.