Crypto Decoded on NOVA PBS

Cafe Society
1

Well, I watched it, hoping to learn something about Crypto Currency and all that.

I’m more confused and ignorant than I was before. Didn’t really understand a damn thing. I kinda get the idea of secrecy and eliminating the ‘middle-man’. But my question still remains… What is the source of the ‘currency’? It just seems made-up, imaginary and phony. Or can someone just dump $10k from Well Fargo into a ‘wallet’ and start going stealth? And what’s the point? I started zoning out when they went into the math of the BlockChain. Don’t even wanna get started on NFT. That is a solid WTF for me.

Y’all can try to explain it to me, but I’m probably too stupid to comprehend it anyway.

2

It’s beyond me, too. As near as I can figure it out, it’s a ponzi scheme wrapped in smoke and mirrors.

3

My wife and I watched it last week; she has been confused about what cryptocurrency is, and how it works, so she was really hoping that the episode would help explain it. Nope; she (and I) are still pretty much as confused about it as we were before.

4

There’s a video on YouTube called Line Goes Up - The Problem with NFTs that tries to explain what crypto is, what NFTs are, and what people claim they can be used for (and what they end up being used for instead). It’s over 90 minutes in length. I found it to be very informative.

5

As far as I can tell, Crypto is a currency system that is separate from any country’s banking system, and the value of these currencies, and there are many, is based solely on demand. It’s not backed by precious metals, governments, corporations, or any physical assets.

The upside is that if the entire world’s economy collapses, which seems unlikely, crypto will still work because it’s independent of the national banking systems. But there is a downside.

The more people want it, the more the value increases. When people sell it, the more the value decreases… sometimes dramatically, as with Bitcoin, which was worth $63K per bitcoin a year ago, and is now worth $17K per bitcoin.

There is no such thing as a physical cryptocurrency. It’s just an electronic transaction. You can purchase items with cryptocurrency, but not many people will take them because of their volatility.

As far as NFTs go, I don’t understand what someone is buying, and I don’t know who would be dumb enough to buy one.

6

So, what is it?

7

For cryptocurrencies, there is no physical basis in value such as specie, nor the backing of a national bank (“fiat money”). Instead, cryptocurrencies value—such as it is—is in being a verifiable medium of exchange that is also technically anonymous. It does this by encoding every successive transaction in the blockchain through the use of a cryptographic hash, which is just a one-way encoding algorithm. (The details of the hash algorithm aren’t really important; just realize that as more exchanges happen, they are ‘mined’ (i.e. hashed)). The mining activity actually comes with a fee (a coinbase) which increases the total amount of bitcoin. Because of this hashing, Bitcoin and other cryptocurrencies are virtually impossible to counterfeit; it is like making exchanges under the auspices of a regulated bank but without having to deal with the bank.

Why is this valued? It allows you to make exchanges outside of normal currency regulations. You can ‘transfer’ funds internationally, or pay for things without paying a sales tax, et cetera, and because it isn’t regarded as an actual currency exchange governments don’t really have specific laws regarding ‘crypto’ until it is converted into actual money. You can also conduct various illegal or extralegal exchanges with it, or blackmail someone into emailing you Bitcoin in exchange for unlocking their computer that you jailed with malware. But for the most part, it is valued like a commodity, i.e. something to speculate upon regardless of its intrinsic value.

However, although you can ‘own’ the wallet containing the cryptocurrency anonymously, when you go to exchange it with some kind of actual currency you are going to have to reveal your identity to someone, be it a bank, and exchange, et cetera, so as a scheme for laundering drug money or bankrupting an evil corporation it doesn’t make much more sense than Hans Gruber steeling $600M in German bearer bonds; regardless of where you transfer the cryptocurrency, when you try to cash it in someone is going to ask where you got all of this money. Unless you are able to buy real estate, luxuries, or groceries with cryptocurrency you are still going to have to turn it back into dollars or euros or Kruggerands or whatever. And while people often seem to think that Bitcoin and other cryptocurrencies are “untraceable”, the truth is quite the opposite; while the wallet owner may be anonymous, the transactions are not, and it is quite possible for a forensic accountant to back out where the ‘money’ has been and to a large extent who has been touching it. There are cryptocurrencies that are actually more anonymous than Bitcoin and which obfuscate exchanges, but that degrades the ability to verify the authenticity of the currency via a blockchain.

Are Bitcoin and other cryptocurrencies ‘Ponzi schemes’? Not in and of themselves; as a medium of exchange they are just as ‘valid’ as national fiat currencies, i.e. they are worth what people are willing to exchange for them based upon a general consensus or fiscal index. However, because of all of the market speculation they tend to become even more inflated than national currencies, and there is no way for any government to really control or regulate them other than to pass laws making it illegal to exchange them for their own national currency. However, I wouldn’t go putting all of your investments in ‘crypto’ because there is absolutely no guarantee that the entire world won’t wake up tomorrow and decide that your “KittyKoin” crypto that you just invested your life savings in is just a big joke by an odious billionaire playing a giant practical joke and now all you have is a hard drive with a bunch of meaningless random codes on it.

Cryptocurrencies also have numerous downsides. With physical currency, there is the cost of printing or minting, and digital fiat currency of just maintaining traceability of transactions; while these are not inconsequential costs, they are relatively small in the scheme of the overall value they represent. For cryptocurrencies, however, the longer they are in circulation the more complex the hashes become and therefore result in geometric growth of the energy to process them. They also require high performance computing hardware; if you are wondering why graphics cards have become so precious in the last decade, this is a primary reason because the GPUs in these cards are ideal for ‘mining’ cryptocurrencies. Eventually these schemes will all become non-viable as the energy requirements to maintain them take more value than the coins themselves represent.

As for non-fungible tokens (NFTs)…I have no explanation. They’re “digital assets” that not only have zero physical manifestation but often don’t even represent anything of ostensible value. It is like someone played “Second Life” and said to themselves, “What if we could take the digital things we make here and sell them in the real world?” As far as I am concerned NFTs are completely a Ponzi scheme. But then, people spend thousands of dollars on shoes that they’ll never wear for fear of creasing the leather, so I’m guessing that we’re rapidly approaching the Shoe Event Horizon anyway. At least NFTs don’t take up any space or produce physical residues.

Stranger

8

Stranger, how many times did Gilligan fuck you out of getting off that island? :slightly_smiling_face:

9

Except if the entire world’s economy collapses, nobody is going to bother maintaining a global computer network, and your cryptocurrency is going to be stored on an isolated computer in the subbasement of Vault 74, past the molerats, centaurs, Securitrons, laser defense system, and a giant armored Deathclaw that was genetically modified by rogue Brotherhood of Steel scientists into an invincible killing machine. And once you finally get it, you discover they only thing you can buy with it are bent tin cans because nobody is going to trade you valuable bottecaps for your worthless code.

I had my own private hut, servants to keep me fed and supplied, and zero competition for the attention of Ginger and Mary Ann. Why would I ever want to leave the island? What, to go back to lifetime tenure, grading papers and submitting grant proposals?

Stranger

10

It’s a place to put money outside of standard banking systems. In the case of Bitcoin, you put in cash and get a certain amount of bitcoins based on their current value, which fluctuates based on supply and demand. It’s intangible and not backed by anything. I can’t explain it any better than that.

11

Looks like you understood it just fine.

12

Something which is now (potentially, depending on whether it recovers and when they may need to access it) biting a number of athletes in the ass, as apparently a few high profile names have been recently taking part of their salary payments in bitcoin.

13

It’s a digital ledger. Literally just a list of transaction records that say, in effect, something like “Dr. Strangelove hereby transfers 1000 bitcoin to Gatopescado.”

That it. There’s no actual “coin,” physical, digital, or otherwise. Just a record that at some point, bitcoins were transferred to a secure identifier that you control. When people talk about “losing bitcoins”, they’re really talking about losing access to the identifier that was the recipient of some transactions. There’s no actual bitcoins on a hard drive anywhere.

The “magic” of the blockchain is how it stays consistent even with malicious parties trying to change transaction records to point to them, instead. But if you can believe that a secure ledger is possible, the rest comes naturally.

If every record is a transaction, then who had all the money in the first place? In some cases, the founders of a given cryptocurrency just granted themselves a large sum by putting in a record that says “So-and-so is now the proud owner of 1,000,000 blipcoins”. Beyond that, there’s mining. Mining is just the way that computers verify transaction records. And as a reward, occasionally someone gets granted a sum of money–again, just another record that say “What’s-his-face is hereby granted 1 blopcoin as a reward for verifying records.”

Because all transactions are either transfers or explicit creation, there’s always a known, fixed amount of “coins” at any given time. That makes them a scarce good just like gold or seashells, and thereby being useful (for some definitions of useful) as a currency.

14

so other than you mining this code on a computer it’s no different than the idea of "credit "on a credit card …you only have as much as someone or thing tells /says that you do

except for crypto, you can sell the card for what the market says it’s worth …

15

But is there anything preventing any random person from starting a new blockchain?

From what I’ve heard, some people don’t trust national currencies, they say, because a nation can just print up more money whenever they want; the supply is potentially unlimited. Crypto currencies, they say, are better because the supply of any particular coin is limited. National currencies are an act of faith; crypto is a commodity with a finite supply.

But is there any limit on the number of blockchains? Crypto seems to be akin to saying “any country has a limit on the number of dollars (Pounds, Euros, beads) that it can issue, but anybody who wants to can start their own country.”

16

Let’s compare Crypto to the gold standard of mediums of exchange… gold.

Gold is a natural MoE, because it is inherently scarce, portable, durable and difficult to fake.

Crypto is an artificial MoE, and it is designed to be scarce, portable and difficult to fake. Is it durable? It depends on a lot of infrastructure to exist, so I would say no.

In either case, if people simply decided that they no longer accept these things as mediums of exchange, their values would crash, and anyone who put resources into them with the expectation of exchanging them for something in the future would be screwed.

17

And shiny. Don’t forget shiny.

People want gold. They want to make jewelry out of it and wear it or give it to people they want to have sex with. Gold is a commodity, and its base value comes from the fact that it’s a commodity. If gold ceased serving as a medium of exchange, it may lose some of its value, but it’ll still be worth a lot, because people will still want to own it for its own sake.

Nobody wants crypto.

18

From what I can see (and I’m not too bright), crypto is just another embodiment of the “greater fool” principle. Talk up your old horse long enough and in a convincing manner and SOMEONE is going to decide it’s worth more than you are asking for it.

19

I don’t feel sorry for anyone who “invests” in cryptocurrency and loses money. It’s pure gambling, and I could never see myself buying it, even if I had millions of dollars to invest. My stepson bought some no-name crypto last year and held onto it for a few months. He netted $15K in profit when he sold it. So if you are smart/lucky enough to time it right, you can make money in crypto. If some “high profile names” agreed to accept crypto in place of cash for their salary, they deserve what they get.

20

You’re putting a lot of work on the word “specific.” Lots of laws apply to crypto transactions, including securities, commodity, and currency transaction regulations. Crypto bros pretend they don’t apply because that makes it easier for them to live in their fantasy world. Crypto protocols do sometimes make it more difficult to enforce those laws, but that’s not what you said.

Is this true? Because I thought that the energy invested in crypto was also a function of having large numbers of miners working simultaneously to solve the problems and mine the coins, which are effectively distributed randomly. When the coin prices are high relative to the probabilistic cost of mining them, more people start mining. If the price of crypto drops, the less efficient miners will drop out (since they can’t win enough random drops to pay for their electricity) and the fewer remaining miners will be winning more coins with less energy invested overall. It should, as I understand, be self-balancing, to a point.

There isn’t. Ethereum, Ripple, DogeCoin, etc. were all random people starting new blockchains. You can’'t just start a new blockhain for Bitcoin though.

The supply of a particular coin is limited as you say. The supply of cryptocoins as a group is unlimited. With that information, how do you value a particular cryptocoin?