So I have yet to see what utility crypto provides besides "transactions are irrevocable and semi anonymous". (as a miner you are just a tulip farmer and are gaining only temporarily). Do you know of any? Smart contracts provide a way to do some limited forms of escrow.
So if you want to buy something online, presently:
You can use a credit card. A temporary virtual one. If the transaction isn't satisfactory you almost always get your money back simply by complaining. Fees are approximately 3% though hidden from you. A record of the transaction is held by your bank and can be obtained by investigators with a court order.
You can use crypto. Transactions are irrevocable and it is possible to get your money stolen from various forms of phishing or hack. Crypto may decline in value in real time while you are making the purchase. Fees can be tens of dollars including both exchange fees and transaction fees. The recipient may be using a temporary receiving address, so even if you use an exchange that keeps a record, investigators with a court order may not know what the money was used to purchase.
Basically, I don't know what legitimate use crypto has for those who aren't trying to break the law in some way. Whether the law is restricting contraband items (drugs and weapons and stolen information) or taxes or international funds transfers.
As a consequence, at some future point, Western governments may outright ban crypto exchanges. This has already happened before - look what happened to e-gold. They can't ban crypto directly, but banning the exchange of currencies controlled by western government for crypto and vice versa would crash it's value and reduce the number of users to a tiny number of people willing to go through the risks and hassles of evading the ban.
Here's a legitimate application, buying PornHub Premium. https://news.bitcoin.com/pornhubs-premium-services-crypto-payments-13-digital-assets-supported/.
Online payment processors are an oligopoly and can at any moment revoke a businesses ability to receive online payment even if they're not breaking the law. Thus what business is and is not permissible online is entirely up to the whims of this oligopoly and the law. Crypto provides a way around this.
Basically, I don't know what legitimate use crypto has for those who aren't trying to break the law in some way. Whether the law is restricting contraband items (drugs and weapons and stolen information) or taxes or international funds transfers.
Or banning prediction markets. A prediction market would have allowed business owners last year to effectively insure themselves against lockdowns.
If you buy a drug on Hydra there's independent quality testing. If you buy a generic drug or supplement in an US pharmacy under the watch of the FDA there isn't i...
Thanks! If I read your reply correctly, then those are reasons why the extreme growth scenario that I’m worried about is unlikely and why, therefore, my conditional question is unimportant. They’re also similar to the reasons why I didn’t invest into crypto until 2016. I took it for an obvious speculative bubble about to pop, one with no commensurate underlying value.
I suppose my default assumption should still be that most of the current crypto price and market capitalization is purely speculative. But the more boom and bust cycles the market continues to...
The most obvious use case is as a store value; "digital gold" as Peter Thiel likes to call it. Bitcoin is limited in supply and has enough network effect behind it to succeed in the long term, other cryptocurrencies much less so regardless of any technical advantages. I don't see crypto getting banned because A) there is too much institutional investments in it and B) it's not a threat to Western governments any more than gold is.
The main problem with deflation is mainly not about holding M1 but promises of payments that are denoted in the currency. When currency inflates it's relatively easy to raise the salary of employees to match the value of the currency. On the other hand when deflation happens, making salary cuts is much harder.
It's possible to write laws that force salaries to be payed in the currency that's preferred by the government for most legal employment.
You can write laws that make loans in crypto currencies not legally enforceable which prevents a lot of current loans that are backed by the governments power to seize future earnings of a person.
That said, even if you want to use crypto for denoting future payments of money using a stable coin like reserve makes much more sense then using bitcoin.
Thanks! Yeah, I don’t imagine that a currency that deflates will be used for everyday payments like salaries. Stablecoins or fiat seem more appropriate for that. But that doesn’t undercut the worry that a currency that deflates may be preferred over reinvestment and hence stall innovation – the scenario I sketch above. Or does it?
There were a few good points distributed over many answers and comments, so I’ll collate them here. I’ll ignore answers to other questions, such as “Is it likely that cryptocurrencies will get big?” I’ve paraphrased all of these.
Question
Question
Did I forget any?
Some cryptocurrencies, notably Bitcoin, are designed to be deflationary.
Bitcoin is not deflationary. It is slightly inflationary, much less inflationary than fiat currencies, but it is not deflationary.
Fascinating, thanks! I found this article. Is that roughly what you’re referring to? It sounds like the author would agree that it is deflationary so long as the user base grows faster than the supply. In that case, my scenario above should self-correct eventually, unless a more deflationary coin catches on.
I should probably mention Ben Goertzel's SingularityNet, a marketplace for AI services that's being built on the Cardano platform.
Ben seems to think that this is the kind of environment in which AGI will arise, and that decentralizing it will help the odds of keeping the AGI aligned with the interests of its owners. This completely fails to connect with any of my intuitions about how AGI will be built, nor any of my intuitions about the alignment problem, but Ben has been into AGI for a very long time (He created the term "AGI", (with consultation from others)) (you can read MIRI's interview with him here, and it's good), so I would be willing to sit and listen to him for a long while.
That might happen if more more companies follow the examples of MicroStrategy or Tesla and invest their spare cash into a cryptocurrency.
The incentives of most CEO's (who aren't founders) are against this. There's little to be gained personally by investing in crypto but if they lose a billion in value by investing in Bitcoin that opens them up to a leadership challenge for having been stupid.
Yeah, but that’s just a network effect where when a critical mass of them start doing it, it becomes normal and they are more at risk of being called stupid for not investing enough.
The Bitcoin rally from Tesla's investment didn't last long, instead TSLA dropped like 15% over the last 3 weeks. Personally I was not thrilled with this move coming from Tesla as an investor.
I wish this question was more like this -- "Conditional on cryptocurrencies growing by another 1.5+ OOMs in the next five years or so, what happens to the global financial system and world economy? Anything bad?" The specific scenario you sketch is just one way of answering this question, but not the only way probably.
One other thing that could happen, maybe, is that world governments act to nationalize or otherwise control the cryptocurrencies. I've been told that major governments have the power to do this if they wanted to. This could maybe lead to heightened risk of war.
Another possibility -- the dollar is the reserve currency of most of the world, IIRC. I've heard that that's important, though to be honest I don't really know why. But if it's important, and it changes (and e.g. Bitcoin becomes the more common reserve currency) then maybe the US would lose some of its power, maybe the US debt would start being harder to service, etc. Idk.
Very good! I’ve incorporated the question, but I’d like to keep the post focused on AGI timelines. :-)
Summary: Deflation (or so I heard) is considered harmful because it stifles growth. Central banks have been fighting it to keep economies healthy. Cryptocurrencies can be designed to be deflationary. If the market capitalization of cryptocurrencies becomes big, central banks may have no way to contain the deflation. This may be catastrophic in many ways – but might it also slow AGI development and buy safety research more time?
I’ve been wondering what the “crypto endgame” may look like. Crypto may just turn out to have been a bubble or may continue for decades unchanged at its current limited level of significance. But we’re probably sufficiently prepared for those scenarios already.
Instead the crypto market capitalization might take off at a superlinear pace. Bitcoin is currently on rank 14 among the world’s currencies and holds 0.7% of the aggregate value of all of them. All cryptocurrencies together hold about 1.1% of the world’s monetary value.
The crypto space is rife with network effects. Or it is one huge network effect. These are wont to show superlinear growth if they show any growth. Superlinear growth often doesn’t last long enough to be significant, but in other cases it does. So maybe crypto’s market capitalization will grow by an order of magnitude or more within a few years, so before AGI is developed. That might happen if more more companies follow the examples of MicroStrategy or Tesla and invest their spare cash into a cryptocurrency. Phil Bonello, director of research at Grayscale, also mentions a scenario in which governments start buying crypto and thereby force all other governments to follow suit. I don’t know the reasoning behind that, so I don’t know how forcible that effect will be, but it doesn’t seem to be hard to come up with plausible growth scenarios. (At least if you’re incentivized to come up with them the way Grayscale is.)
Some cryptocurrencies, notably Bitcoin, are designed to be deflationary. If companies across the board find that they generate greater profits by investing all their spare cash into deflationary cryptocurrencies rather than reinvesting into their own production, innovation may stall. (Isn’t that one of the typical reasons why deflation is considered harmful?)
So that brings me to my questions: