Scott Sumner has an interesting argument that it's not a bubble.
Similar for the so called 'tech bubble' around the start of the millennium: if you bought all the tech stocks back then and held them until today, you would have made an OK return.
(Of course, many companies have gone out of business, but there were a few outsized winners to make up for it.
Any individual tech stock was extremely risky, but the overall sentiment that 'tech is the future' was right on the money.
If anything, it's not the high valuations of the 'dot-com bubble' that seem off, but the low valuations of the bust.
And that's exactly what you would expect when extrapolating from the economic argument above!
To come back to the analogy with dot-com companies:
In a field where a winners might give you outsized 100x returns, you expect perhaps 99 out of 100 companies to be total garbage losers that go bust. So that the average return from investing in all companies in that field is something normal.
Otherwise, rational investors will keep pumping money into that field and funding more and more companies until that's true.
Same here: even if you believe that in 20 years cryptocurrencies will dominate the world economies (just like 20 years after the dot-com boom and bust, internet companies like Amazon and Google dominate economies), still most almost all cryptocurrencies will fail.
The political risks, that you are alluding to, fit this argument just like any other risk would.
Thanks to eg bitcoin futures, it's not relatively easy to go shortsell (something like) bitcoins, so I expect the market price to be roughly in line with the best forecasts possible.
(Only 'roughly', because the market for bitcoin is still pretty tiny, and not very developed, compared to eg US inflation forecasting markets like https://fred.stlouisfed.org/series/T5YIE )
There is a very strong incentive for Bitcoin proponents to push this narrative but it doesn't stand up to scrutiny.
Proof of Stake is more secure than Proof of Work because it's not possible to use external resources to take control of the system. The cost of hijacking PoS is exponential, not linear.
With PoW, someone who has no stake in the network could buy or rent mining hardware using fiat and take control of the network for a linear cost - This is because, unlike cryptocurrency tokens, hardware is not a scarce resource; it's always possible to produce more of it.
With PoS, the only way to take control of the network is to buy more than 50% of all tokens. The cost of acquiring 50% of all tokens is non-linear since tokens become more expensive as the attacker purchases more. This is because the attacker will generate continuous demand against fixed supply of tokens; in accordance with the law of supply and demand, the price will keep increasing as they buy more tokens. Also, the incentive to follow through on the attack decreases as the attacker accumulates more tokens.
This is interesting. I am curious, which PoS coin implementations do you like?
If an attacker wanted to not raise the price of a coin, couldn't they use crypto OTC markets to buy large amounts while not raising the price (i've seen OTC at least marketed that way)?
Aren't cryptocurrencies also only a scarce resource if they have a hard supply cap? Or do you figure in something like inflation vs coin burning to this as well?
I do understand your point that the incentive to follow through on the attack decreases as the attacker accumulates more tokens, since it would be in their interest for the network to function properly at that point due to how many tokens / how much stake they have in the network.
The only reason I could see the attack making financial sense at that point would be if it was a competitor who was trying to kill a competing PoS network and it was worth it to them to do so in order to promote their own network (or maybe it could be a government trying to protect their fiat currency)?
>> This is interesting. I am curious, which PoS coin implementations do you like?
I've been involved with Lisk (LSK) for several years. It's Delegated Proof of Stake though so you can use your LSK to vote for block forgers who offer a good % share of their block rewards and earn interest that way.
>> If an attacker wanted to not raise the price of a coin, couldn't they use crypto OTC markets to buy large amounts while not raising the price
Yes, that can happen in theory but in practice it's not feasible. In DPoS especially, whales would rarely agree to sell more than 50% of their own stake because if they did they could lose their forging delegate spot (which yields higher rewards than just voting). Because the blockchain is public, delegates all watch each other's on-chain activity and they can lose votes if they try to sell too many tokens (doesn't matter if it's OTC or exchange).
>> Aren't cryptocurrencies also only a scarce resource if they have a hard supply cap? Or do you figure in something like inflation vs coin burning to this as well?
If there is inflation, it doesn't affect the security of the blockchain because the attacker must acquire 50% of all tokens in any case. The more tokens there are in total, the more tokens the attacker needs to buy to get to 50%.
>> The only reason I could see the attack making financial sense at that point would be if it was a competitor who was trying to kill a competing PoS network and it was worth it to them to do so in order to promote their own network
Early days of any blockchain are always more risky. That said, the early days of most PoW blockchains are even more precarious than those of PoS. This is because with PoW, the community has no say over who can start forging blocks on its new blockchain (anyone who owns some crypto mining hardware can compete to produce blocks on potentially any PoW blockchain).
If just a tiny % of Bitcoin's miners were temporarily repurposed (e.g. minor software changes) to mine any new PoW blockchain, those miners could easily take over the new blockchain and create any transaction they want. With PoS, in the early days, the community gets to decide who will receive the initial tokens; so outsiders cannot highjack the network unless then find a way to buy more than 50% of the tokens from existing token holders.
Also, most of the drawbacks that Andreas mentioned in the video are not related to PoS in general; perhaps it is more specific to certain older implementations of it. Most current PoS blockchains do provide guarantees of immutability since all transactions must be signed and the signatures must match sender public keys.
Coinbase is actually like Vanguard. It offers "investment funds".
Main difference: Instead of ETFs, you buy the different crypto coins.
The similarities are actually extensive:
1. People go to Coinbase mainly to invest their money. Sure, maybe, one day, in the distant future, perhaps, coins will be used for commercial purposes; but now and in the foreseeable future they are investment (speculation) vehicles
2. Vanguard has a direct relationship with consumers; you can open an account, wire money, and buy Vanguard funds. Same with Coinbase (and not the case with stock exchanges as some have suggested)
3. There is a certain amount of trust in the brand that makes people want to buy the funds/assets or wire their money to these brands. But that has limited power (see point below)
4. Vanguard's products are commodities, just like crypto coins are (you can buy the same bitcoin in many places, and you can buy essentially the same S&P 500 ETF from many platforms)
The difference is that Vanguard is successful thanks to a focus on low cost funds; Coinbase still rides first movers advantage. But inevitably it'll have to compete on cost.
Vanguard is managing $6+ T of actual assets; that's many times the total market cap of all cryptos.
And now here's the question: if they had the same valuation, would you put your money on Vanguard or Coinbase?
>Vanguard is managing $6+ T of actual assets; that's many times the total market cap of all cryptos.
Well, 3 times more.
>And now here's the question: if they had the same valuation, would you put your money on Vanguard or Coinbase?
Depends on what the bet is. For growth of stock price? Obviously coinbase. The company that is more likely to last another hundred years? Probably Vanguard.
But what I find interesting is that his vision was way off- crypto is nowhere near replacing credit cards, now or in the future.
But he did build a huge company because crypto became a speculative asset bubble instead.