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The Almighty Buck Bitcoin

Lecturer Argues Cryptocurrency Should 'Die in a Fire', Predicts Implosion (currentaffairs.org) 327

Posted by EditorDavid from the crypto-cranky dept.
Nicholas Weaver is a senior staff researcher at the International Computer Science Institute and lecturer in the computer science department at UC Berkeley. But he's also a raging cryptocurrency skeptic, arguing that cryptocurrency is useless and destructive, and should "die in a fire."

In a recent interview in Current Affairs he promulgates what he calls Weaver's Iron Law of Blockchain. "When somebody says you can solve X with blockchain, they don't understand X, and you can ignore them." So for those pushing cryptocurrency for "Banking the unbanked," Weaver points to M-Pesa, a payment system Vodafone started in Kenya in 2007 "about the same time as Bitcoin..." It has eaten the Third World. It's huge. Because it just basically attaches a balance to your phone account. And you can text to somebody else to transfer money that way.... So even with the most basic dumb phone you have easy-to-use electronic money. And this has taken over multiple countries and become a huge primary payment system. [Whereas] the cryptocurrency doesn't work."
Weaver also contends that when companies say they accept payments in Bitcoin, "They're lying." (They're using a service which pays them in "actual money" after performing conversions on any Bitcoin proferred-up by a customer.) He believes cryptocurrency is only seriously used for payments for ransomware and drug deals — the things that non-decentralized currencies are legally obligated to block. The reason I've gotten so sour on the cryptocurrency space is the ransomware. It's doing tens to hundreds of billions of dollars worth of damage to the global economy. And it only exists because people can pay in Bitcoin.
Weaver also believes cryptocurrency lets venture capitalists "carry out securities fraud as a business model" when they sell one of their startup's tokens to retail investors. This is blatantly an unlicensed security. This is blatant securities fraud, but they didn't commit the securities fraud. It was just the companies they invested in that did the securities fraud, and the SEC has not been proactively enforcing this. They only retroactively enforce against the initial coin offerings after they fail.... and when things fail, the only people to prosecute are the companies, not Andreessen Horowitz itself. So they've been able to make securities fraud a business in such a way that they are legally remote, so you will not be able to throw them in jail....

The SEC has the authority to stop those proactively rather than reactively. They choose not to.... Basically, there's a fear among regulators — that I think started in the '80s — of being accused of "stifling innovation." There's no innovation to stifle. So regulate away.
He's also skeptical of cryptocurrency's other supposed advantages. Weaver argues cryptocurrency incentivizes green power "the same way that a whole bunch of random shootings would incentivize bulletproof vests." And even as an investment vehicle, Weaver sees it as "a self-created pyramid scheme." [Y]ou have to keep getting new suckers in. As soon as the number of suckers dries up, it collapses. And because it's not zero-sum, but deeply negative-sum, there are actually a lot of mechanisms that can cause it to collapse suddenly to zero. We saw this just the other day with the Terra stablecoin and the Luna side token.
So when asked for the future of cryptocurrency, Weaver predicts "It will implode spectacularly." (By which he means it will "collapse greatly.") The only question is when. I thought it would have actually imploded a year ago. But basically, what we saw with Terra and Luna, where it collapsed suddenly due to these downward positive feedback loops — situations where basically the system is designed to collapse utterly and quickly — those will happen to the larger cryptocurrency space....

[T]he Washington Nationals just the other day started doing a lot of tweets for their business relationship with Terra. That was $5 million for five years prepaid in advance in cash. So for the next five years, the Washington Nationals are obliged to hype a cryptocurrency that failed spectacularly already.

Thanks to Slashdot reader sdinfoserv for sharing the article...
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Lecturer Argues Cryptocurrency Should 'Die in a Fire', Predicts Implosion More

Lecturer Argues Cryptocurrency Should 'Die in a Fire', Predicts Implosion

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  • Any growth is at the cost of another buyer... (Score:5, Interesting)

    by dogcar3604 ( 1482103 ) on Sunday May 22, 2022 @10:03PM (#62557432)
    ...isn't that a Ponzi scheme? There will soon be an uncontrolled race to zero. Other than laundering criminally obtained funds, what utility does crypto offer? The block chain technology has value, but Dogecoin? Come on now...

    • If I buy an acre of farm land and I figure out how to grow a more profitable crop the growth did not come at the expense of the previous owner or the next one. I built value and will continue to produce value.

      • Re:Any growth is at the cost of another buyer... (Score:5, Insightful)

        by countach ( 534280 ) on Sunday May 22, 2022 @10:17PM (#62557480)

        Errm, what does the acre of farmland story have to do with crypto? Crypto produces nothing, it just goes up in value when the ratio of suckers getting in, to people cashing out is greater than 1.0 at any given moment.

        • Stop thinking about the value of crypto in the US or Europe and start thinking about itâ(TM)s value in Venezuela, Cuba or Argentina. Then youâ(TM)ll get it.

          • Re: (Score:2)

            by narcc ( 412956 )

            It looks equally worthless in every country.

            Full disclosure: I have a 'steak' in Doge coin.

            • It does not.

              Youâ(TM)re just seeing it with the eyes of (privilege) someone who never had to save in a high inflation currency in a country that prohibits buying foreign currencies. If you had lived in such a situation youâ(TM)d know cryptos offer a way out of being killed by inflation.

              Thereâ(TM)s a reason why cryptos have been embraced more heavily in countries where the state is more oppressive.

    • Re:Any growth is at the cost of another buyer... (Score:5, Interesting)

      by Rosco P. Coltrane ( 209368 ) on Sunday May 22, 2022 @10:25PM (#62557500)

      The whole proposition behind bitcoin was that it couldn't be controlled, regulated or manipulated by any government. It was touted as some sort of utopian libertarian freedom currency.

      Only it's bullshit. What it is is tax evasion - which, admittedly, is what "freedom from government tyranny" means for many libertarians - and if the government really wants to, they can tell exactly who transferred how much on the blockchain, so the promise isn't fulfilled anyway.

      My personal reason for always believing it was unsustainable is very simple: it's a systam that adds vast amounts of records to an ever-expanding ledger. You know what happens when your computer runs of or RAM? It swaps and becomes unusable. What do you think happens if enough people koin the network and start making the ledger balloon out of proportion before technology has a chance to catch up and make it manageable again?

      Even my most basic cusory assessment of its technological working has always told me the whoe idea is basically unsustainable. I've known it from day one.

      • Re: (Score:2)

        by drnb ( 2434720 )

        The whole proposition behind bitcoin was that it couldn't be controlled

        And it failed in that regard. The mining community did not give a crap about maintain the integrity of the bitcoin security model, they we're just pump and dump where the pump was "manufacturing" new coins rather than inflating the price of existing coins. So how did it fail?

        Until recently 70% of mining hardware was located in a single jurisdiction. That made a government 50% attack feasible. The security model in crypto is that such an action is not possible.

        Today such an attack is not feasible. Is t

        • There's three major mining pools and any one of them with the help of one other could do a 51% attack on any blockchain you cared a name. Some of them could probably pull off a 51% attack on some of the smaller blockchains all by themselves.

          Cryptocurrency relies on the concept that the mining pools wouldn't want to undermine the investor confidence, but that's where the exchanges break everything. See you the mining pools need the exchanges to move their currency reliably. Otherwise they've got to find

    • That makes Tesla a Ponzi scheme. You’re telling me it’s worth a trillion dollars?

      • That makes Tesla a Ponzi scheme. You’re telling me it’s worth a trillion dollars?

        Not any more. It has lost about $500 billion in market cap since April 4.

      • It survives entirely on a government program where polluters can pay Tesla in order to be allowed to pollute. It's only in the last year the tesla actually sold a car for a profit and the profit wasn't that high. In the absence of heavy government subsidies delivered indirectly Tesla will go out of business just like AMC did. They make luxury electric cars but they're branding is only so so and they won't be able to compete with things like BMW and Lexus. Their engineering is pretty weak too and their cars

        • Re: (Score:2, Informative)

          by rsilvergun ( 571051 )
          One more thing I want to add it's remarkable that people on this forum are so young or so forgetful they forgotten that every major car company in America has collapsed and been bailed out by the government multiple times. We bail out car companies because we're going to use their manufacturing capacity in the event of a war. Tesla doesn't make enough vehicles for it to be worth doing that so when they implode we're going to let them die.

          It's not really a question of if it's a question of when and who's

          • One more thing I want to add it's remarkable that people on this forum are so young or so forgetful they forgotten that every major car company in America has collapsed and been bailed out by the government multiple times.

            Incorrect, but also laughably silly.
            You're comparing it to companies that are 100 years old.
            Either way, Ford Motor Company hasn't managed to sink itself yet.

            • Ford was bailed out in 2009. This "fact check" tries to sugar-coat it, but read the whole thing:

              https://www.factcheck.org/2011... [factcheck.org]

            • Either way, Ford Motor Company hasn't managed to sink itself yet.

              Ford may not have gotten a "bailout" but they did get a big fucking government loan and hasn't finished paying it back [freep.com] although Nissan and Tesla (both of which borrowed money under the same program) have done so. Let's not get too starry-eyed about Ford's alleged fiscal responsibility. Maybe the F150 Lightning will get them back in the black.

    • . Other than laundering criminally obtained funds, what utility does crypto offer?.

      That's enough for it to survive the asset bubble crashes. If tulip bulbs were good for money laundering, we'd be up to our ears in them still.

    • Is the "greater fool" model (Score:5, Informative)

      by drnb ( 2434720 ) on Sunday May 22, 2022 @11:17PM (#62557602)

      Any growth is at the cost of another buyer, isn't that a Ponzi scheme?

      No. A Ponzi scheme generally involves some sort of dividend payments, not simply price appreciation. With Ponzi there is no real business generating income to pay that dividend. There is some wort of pyramid scheme where earlier investors are paid dividends with money from the capital investment of more recent investors.

      Crypto more closely fits the "greater fool" model. In this model the buyer recognizes that the investment has no real intrinsic value, or a value that s ridiculously oversized compared to whatever minor income there is. That the price is pretty much base on speculation and that you would have to be a fool to buy it. In this case the buyer is trying to time their buying and selling so that they can cash out before the price collapses. In other words I am a fool for buying this but I strongly believe that an even greater fool is around the corner and I can cash out before it collapses.

      In short, Ponzi is more about an income stream that is payed out to owners. Greater Fool is about rising asset prices that are not really justified by anything, not even some credible new business plan, nothing, the prices is just speculation based on trading observations.

      • Re: (Score:2)

        by rastos1 ( 601318 )

        In this model the buyer recognizes that the investment has no real intrinsic value, or a value that s ridiculously oversized

        How does that differ from buying art? Is there any intrinsic value in portrait of Marilyn Monroe from Andy Warhol sold recently for $195M ?

        • Re: (Score:2)

          by narcc ( 412956 )

          Is there any intrinsic value in portrait of Marilyn Monroe from Andy Warhol

          Yes. That remains true even if it's being put to nefarious use.

      • They're the penny stocks of the internet age.
  • It's far from useless. I've used it many times to buy medicine from India, since it's cheaper to shoot them some bitcoin than pay $50 for a bank transfer. Bitcoin in particular is becoming more useful every day.

  • Money is printed as debt, to make it correspond to real wealth, and avoid deflation. However, when real wealth is crypto, and blows up as predicted here, its like tens of millions of home vanish, leaving the printed money behind. Huge inflation comes.

    But honestly, I believe the idea behind crypto, or non-copyable tokens, is the tech future, but as the conceptual foundation for a new sustainable society based on improvement but not copies and growth. Im talking about software programs and advanced systems th

    • Re:The problem is with the current monetary system (Score:5, Insightful)

      by Brain-Fu ( 1274756 ) on Sunday May 22, 2022 @11:18PM (#62557606) Homepage Journal

      "No copy" is how physical objects work. One cannot duplicate a carrot. You can grow more carrots at the cost of more time labor and resources, but the carrot in your hand cannot itself be copied for free. Same goes for metal bullion. And cars. And everything physical. I could see the argument that cheap 3d printed plastic trinkets are close enough to "copyable" that we may as well say they are, and I offer that this is precisely why they are cheap.

      What makes data truly unique and amazing is that it does not follow the "no copy" principle. It is incredibly useful in every domain, AND it can be freely shared by everyone! A new solution to a hard problem can be instantly distributed world wide and the benefits utilized immediately by everyone. Nothing in the history of the human race has been so abundant and useful at the same time. It is so novel, in fact, that even those of use who were born into a world of ubiquitous cell phones are still having a hard time really grasping the nature of this treasure.

      And here we are, trying our darndest to break the primary feature of computers, and institute data that reliably enforces "no-copy." We think that THIS is how we really make computers valuable. We limit the supply, because whenever you do that, competition kicks in and value goes up, and the haves get to dominate the have-nots just like in the good old days. And THAT is going to build a vibrant economy?

      The only reason we need this "no-copy" business is because we are still living in the past. Problems of human psychology are pushing us to that end, not problems of reality. I am not advocating for an elimination of money or capitalism or anything stupid like that. But I AM pointing out that "no copy" is not some revolutionary new thing that will shatter economic inequality. No-copy is old-school, and if it hasn't created utopia by now, it sure isn't gonna.

      Our time would be better spent figuring out how to better integrate "abundantly copy" into our electronic economy. If anything can provide better economic equality and widespread benefits across social classes, it's that.

      • First, yes copying is what made this classical information revolution, as well as its problems. Are you old enough to remember Napster and the P2P fun? The power of copy caught industries off guard. Of course all of classic computation is based on copy and erase.

        And lets give props to the copy principle in nature, reproduction, and the evolution by natural selection that created is, by copying successful genes.

        But there is a yin to this yang in our upward spiral, and so a second tech revolution is coming.

        In

        • I think your cultivated capacity for abstract thought has absconded with your grasp of reality.

          It can easily happen to people who work in a field where they do a lot of abstract thinking. One's neurons spend all their time processing along those lines, and it alters how one sees the world. Makes one see parallels that aren't actually meaningful, and connections that aren't actually there. Some of the most brilliant people int he world can wind up believing patently absurd things like "mathematical entiti [wikipedia.org]

          • Re: (Score:2)

            by noodler ( 724788 )

            This isn't an emerging expression of some basic principle of reality that needs to exist in every context in order for useful things to happen

            Not in every context, no.
            But you could argue that any system can only keep its composure if it doesn't take up or release too much information. That is a hard reality. Information management is one of the most important features of being a system.

      • Re: (Score:2)

        by noodler ( 724788 )

        Our time would be better spent figuring out how to better integrate "abundantly copy" into our electronic economy. If anything can provide better economic equality and widespread benefits across social classes, it's that.

        One big problem with 'abundant copy' is that it removes a lot of the incentives that drive innovation.
        If you were to work out the solution to a difficult problem and it cost you 20 years of your life, you'd want a reasonable compensation for your work.
        With "abundant copy" the whole world would profit from your life's work, but you would die a poor man.

        Now, the question is, will you still embark on your 20 year long journey to find the solution to this difficult problem after you realize you won't get anythi

  • If not for the fact that they're generating ever-increasing amounts of atmospheric pollution for literally nothing. It's not even pollution inflicted on the world as a Faustian bargain for something real; it's nothing at all.

    • If not for the fact that they're generating ever-increasing amounts of atmospheric pollution for literally nothing.

      Not for nothing. Every so often, there's a lucrative ransomware deal.

    • Terra was proof of stake, just for the record.

    • If not for the fact that they're generating ever-increasing amounts of atmospheric pollution for literally nothing

      While this is undeniably true, and blockchain is useless, we should also look at gold and diamond mining. The majority of both of these supposedly precious items is stored in vaults, unused. Society doesn't need more gold or diamonds.

  • Obviously, Bitcoin and any cryptocurrency that uses huge amounts of energy should be eliminated as soon as they can be. Maybe one day they'll be the illegal black market currencies.

    However, I wouldn't want to sour the reputation of all cryptocurrencies or, worse, all digital currencies. Reasonably light digital currencies can serve a purpose. I, myself, have an experimental digital currency designed with a mesh network that maintains an entire economy--not just currency transactions. It includes an iden

  • Bitcoin still has some chance (Score:3)

    by mamba-mamba ( 445365 ) on Monday May 23, 2022 @12:06AM (#62557656)
    Bitcoin still has some non-zero chance of replacing the dollar as the world reserve currency. If that happens the value of bitcoin will be (all_the_money_in_the_world) / 22 million.

    That is why I own a small amount of bitcoin. It is the ultimate tail risk hedge.

    But all the guy's criticisms seem to be on point. Nobody accepts bitcoin or treats it like money. Prices are actually denominated in dollars and converted to bitcoin at time of purchase (to minimize exposure to bitcoin's price volatility).

    In order for bitcoin to become money, some entity would need to actually offer some good or service priced in bitcoin, and that good or service would need to be sufficiently important to the world economy that it could act like a floor under the price of bitcoin. Like if Venezuela, Iran and Russia got together and started selling oil futures denominated in bitcoin. Something of that nature. Then if bitcoin ever got below a certain level, an arbitrage operation would be possible to buy bitcoin and then sell oil futures or whatever and make money.

    It is foolish to think that the US dollar will remain the world reserve currency forever, but nobody knows just when it will be dethroned or what the successor will be. Being right on what will happen but wrong on the timing doesn't really help you when it comes to investing. You have to get the timing right, too.

    One thing I will point out is that bitcoin could succeed as a reserve currency without forcing everyone to start using wallets and private keys themselves. On-chain transfers would remain akin to wire transfers. Most people would not hold bitcoin in a private wallet but in a bank. The banks (and credit card companies) would have private wallets. And would continue to operate as trusted third parties in most transfers which would be off-chain. Banks and credit card companies would settle up with each other periodically using on-chain transfers.

    In this way, bitcoin could end up essentially cancelling the ability of every country to do monetary policy. The money supply would be fixed and outside the control of the federal reserve and other similar institutions.

    Small probability. Non-zero probability. Will only happen if the US totally screws up its fiscal and monetary policy (which the US is well on the way to doing).

    • Bitcoin failed as a currency ages ago. LN isn't going to fix the problem. Bitcoin is just a red herring, anyway. Most of the world's development on blockchain and blockchain-related projects is focused on other projects.

  • Ever other article I read about cryptocurrency has been about somebody STEALING it or having it stolen from them. I'm not interested. At least if somebody manages to steal my credit card, the bank has to fix it; with crypto, there's nobody ready to help me get my money back.

    Some apparently very smart people have been robbed, or managed to lose the credentials to their crypto wallet, and I don't need that kind of hassle.

    • Maybe you should be a little skeptical about the reporting?

      Yes, on a public blockchain, nobody is going to roll back transactions if they steal your shit. But it's a lot harder to steal your shit. People get conned/scammed/wiped out all the time using traditional banking systems; just look at all the folks who have had bogus cards taken out in their name, home equity loans taken out against their property, etc.

      • But it's a lot harder to steal your shit.

        It is? Relatively few people are invested in crypto even today, lots and lots and lots of people are in various currency. It's also a lot easier to lose "everything" with crypto with a breach.

        You see, "bogus cards taken out in their name", that's generally fixed by making a report. The credit card company has to eat the loss. Same deal with home equity loans. The loans fall apart once you demand to see the documentation with YOUR signature on it. They have to eat the loss. Etc...

        It's more like "they

        • Re: (Score:2)

          by N1AK ( 864906 )
          You need to keep in mind that the companies issuing credit cards are making considerable profits even after covering loses from various frauds etc. The net benefit might be in your favour, but that profit is coming from the people using their services in one way or another. With that said, your point about the risk of losing everything with Crypto and of having no one to go to for compensation is true and something anyone holding Crypto should consider.

  • there have been predictions since bitcoins were created that they are worthless / will implode, etc.

    Every single time, it has always returned. And now it's bigger then ever (not withstanding the recent downturn and Terra crash, etc).

    It's now firmly embedded in the public mind due to all the news stories about it. So I expect even if bitcoin drops to 1 dollar, it will be only a matter of time before people start getting interested again. If there are no stories about crypto currencies, eventually the public

  • Complex game of humanity. (Score:5, Insightful)

    by Shemmie ( 909181 ) on Monday May 23, 2022 @02:28AM (#62557802)

    Those who haven't invested in crypto are free to come out with takes like this, as they please.

    Those who have invested heavily in crypto would probably be unwise to point out its failings.

    It's hard to trust a system when the only people using it have no other choice but to laud it, to get more people using it, to increase the value of their own investment. It feels like a 'scheme' of sorts.

  • Bruce Schneier says pretty much the same thing (Score:5, Informative)

    by sidetrack ( 4550 ) on Monday May 23, 2022 @03:37AM (#62557840) Homepage

    Bruce Schneier (author of many books on crypto and security - including "Practical Cryptography" and "Secrets and Lies") said a lot of the same things on The Changelog podcast a couple of days ago: https://changelog.com/podcast/... [changelog.com]

    In a set of comments starting at 17m 30s : e.g. "the whole blockchain is largely a myth for most users" "the notion that it's private isn't true, bitcoin is built on a whole bunch of lies".

  • Every economy needs energy and the economy with the highest average energy return on energy invested (or EROEI) will have an advantage. A higher EROEI means less raw materials put into getting the energy, fewer people working in the energy industry, less land used for energy, and generally anything of value consumed to get energy. We could measure EROEI in any of a number of ways, such as perhaps how much freshwater is produced.

    Many of the impacts on EROEI depend on more than just thermodynamic efficiency

  • Cryptocurrencies are totally foolish speculation, as in tulip mania, a frightful waste of scarce energy, and a gift to criminals. I once compared bitcoin to digital silver, in the sense that it is a scarce resource. I now think a better analogy is digital cocaine.

  • If there is (Score:3, Interesting)

    by dan325 ( 1221648 ) on Monday May 23, 2022 @11:55AM (#62558618)

    real utility for cryptocurrency, I have yet to see it. As far as I can tell, people are drawn to it for two reasons: 1) to increase their personal wealth by "investing" in it, and 2) money laundering.

    Unlike the author, however, I don't, see any reason to think it will collapse on its own. It's propped up by kleptocrats like the Russian oligarchs and other corrupt petrostate leaders. If you want cryptocurrency to go away (and you do), you need to go after the kleptocrats. The world needs to stand up to petrostate corruption. Let those guys run free and you end up with Vladimir Putin--and bitcoin. And that's not even considering the environmental impact which of course is terrible. It's such a gratuitous waste to vent so much carbon into the atmosphere for something with zero utility--worse than zero, really, considering the criminal activity.

    It doesn't follow, however, that because cryptocurrency is useless that blockchain is also. Blockchain can be deployed in a huge number of ways; currency just happens to be its first application--and a lousy one. It is still an open question whether any of blockchain's other applications will succeed or whether they will be beneficial to society, but those questions are entirely unrelated to cryptocurrency. I think blockchain probably will prove to be useful in other areas, but it will take several years to reach critical mass.

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