Author Topic: Can somebody explain the benefits of holding crypto to me like I'm five.  (Read 8034 times)

DaKini

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And then everyone just upgrades to SHA512
This will not save you from a broken algorythm. And certainly not from quantum-computing.

SuperSecretName

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Did you know there is a .1% chance the US defaults on it's debt, according to CDS markets?
(e.g. if costs 10bps to insure against default)
http://www.worldgovernmentbonds.com/cds-historical-data/united-states/5-years/

I'd put quantum worries, breaking SHA-256, and there being no viable alternative, at about the same.

Mr. Green

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And then everyone just upgrades to SHA512
This will not save you from a broken algorythm. And certainly not from quantum-computing.
We started upgrading to SHA512 years ago because of the inevitable failure of 256. That was several years before I quit and I quit for good in 2017. I'm kinda shocked to hear Bitcoin (or anyone for that matter) is still using 256.

MilesTeg

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This is not accurate.

If SHA-256, the cryptographic algorithm of bitcoin, gets broken, the world has bigger problems.  It is used by the military and government.  And then everyone just upgrades to SHA512.  Or an asteroid hits the earth.  Not high on my list of concerns.

We've already been there (multiple times actually). For example, SHA-1 (a 160bit hash function ) was in wide use until the 2000s but has since been recognized as no longer secure and organizations migrated to SHA-2 and other functions over time. It's not the major catastrophe you envision -- a hashing algorithm becoming obsolete is not a problem for most use cases because it's trivial to upgrade to a better version and you aren't attempting to use it to create a permanent record of transactions. This is not true for Bitcoin.

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Re: 51% attack, putting aside the practicality of pulling it off, there are two things that can happen.  1 - The 51% holder can censor transactions (e.g. not include what you want), 2 - they can double-spend their own coins.  They can't take yours, and they can't rewrite history.  And if you try to take 51% off the nodes, you will just hard fork bitcoin, and be on your own network with no one else.  Congrats.

Regardless, if someone were to try a 51% mining attack, they'd be better suited just to mine bitcoin for the profits instead of wasting tens of billions of dollars.

This is factually incorrect. Depending on the amount of nodes you control, you can do everything from double spend, block mining, prevent transactions from occurring, steal coins, delete transactions, and several other malicious actions all of which collapse the house of cards.

It's also not as impractical as you want to believe. Bitcoin Gold and Etherium have already experienced 51% attacks where the malicious actors were able to steal 10s of millions worth from other participants. A motivated person or organization only needs a couple million in "capital" to deploy enough hardware to do this for a significant amount of time. As the prices go up so does the ROI of such attacks. They are only going to get more common.


Glenstache

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I'm personally reminded of the 1999 dot-com stock prices.

SuperSecretName

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Re: 51% attack, putting aside the practicality of pulling it off, there are two things that can happen.  1 - The 51% holder can censor transactions (e.g. not include what you want), 2 - they can double-spend their own coins.  They can't take yours, and they can't rewrite history.  And if you try to take 51% off the nodes, you will just hard fork bitcoin, and be on your own network with no one else.  Congrats.

Regardless, if someone were to try a 51% mining attack, they'd be better suited just to mine bitcoin for the profits instead of wasting tens of billions of dollars.

This is factually incorrect. Depending on the amount of nodes you control, you can do everything from double spend, block mining, prevent transactions from occurring, steal coins, delete transactions, and several other malicious actions all of which collapse the house of cards.

It's also not as impractical as you want to believe. Bitcoin Gold and Etherium have already experienced 51% attacks where the malicious actors were able to steal 10s of millions worth from other participants. A motivated person or organization only needs a couple million in "capital" to deploy enough hardware to do this for a significant amount of time. As the prices go up so does the ROI of such attacks. They are only going to get more common.

no.  just no.


the_gastropod

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I'm personally reminded of the 1999 dot-com stock prices.

The implication being that there's a valuable chunky center in the middle of the bubble. Not sure if this is what you intended, but I just can't disagree more.

Memory is a funny thing. We tend to forget about all the ridiculously-hyped things that amounted to a hill of beans. Things like the segway, 3d printers, virtual reality, 3d televisions, moviepass, theranos, WeWork, the Apple Lisa, the Zune, etc. I suspect cryptocurrency will in hindsight better fit among this group than among one of the greatest inventions in human history—the Internet.

Glenstache

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On the 1999 stock prices, I was thinking more of the limitless funds that went into internet advertising and other startups with no real market valuation behind them.

As to the 51% attacks, I thought this collection of analyses by MIT was pretty interesting. It is effectively an economic analysis of what it would take to make the 51% attacks no longer profitable based in part on analysis of actual attacks as case studies.
https://dci.mit.edu/51-attacks

caleb

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Re: Can somebody explain the benefits of holding crypto to me like I'm five.
« Reply #108 on: August 19, 2021, 03:03:58 PM »
Here was Neel Kashkari's explanation this week: https://www.barrons.com/articles/feds-neel-kashkari-says-crypto-is-95-fraud-hype-noise-and-confusion-51629286755

“So far what I’ve seen is …95% fraud, hype, noise, and confusion.”

“I’ve not seen any use case—other than funding illicit activities like drugs and prostitution—that is legitimate so far that Bitcoin solves."

Accrual

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Re: Can somebody explain the benefits of holding crypto to me like I'm five.
« Reply #109 on: August 19, 2021, 04:39:13 PM »
ELI5: because the price may go up.

caleb

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Re: Can somebody explain the benefits of holding crypto to me like I'm five.
« Reply #110 on: August 19, 2021, 09:39:35 PM »
Earlier this summer I went down a half hour rabbit hole with a good crypto-booster friend.  This is a thoughtful guy (PhD, works in in VC now).  Here's how it ended up after endless back and forth around the "What is the value added?" question:

Me: Are you confident that crypto will outpace the stock market for the next 10, 20, 30 years?

Him: That's not the question.  The question isn't whether it's the odds-on outcome.  The question is whether the risk is worth it.  The odds are against it, but the payoff for success is high enough to justify the early buy in.  It very well may fail, but if it succeeds the payout is enormous.

Me, unspoken: How do you assess the appropriate buy-in for a concept that the boosters ultimately admit will likely fail, and where even the success of the concept is fragmented across hundreds or even thousands of currencies?

Me, now speaking: So, it sounds like you're all in on this.  What percentage of your portfolio is crypto?

Him: 6%

-----

Sometimes I get the sense that lots of the crypto-boosters want to have the conversation at a volume that exceeds their financial conviction.

talltexan

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Re: Can somebody explain the benefits of holding crypto to me like I'm five.
« Reply #111 on: August 20, 2021, 07:14:29 AM »
These contradictions are a necessary part of the crypto experience, I wrestle with them myself:

  • Me: I'm confident that Bitcoin will be at a lower price in the future than it is today (yet I continue to hold some)
  • Me: I'm confident that Bitcoin will out-return all other assets (yet I try to be disciplined about rebalancing out of it when I have gains)
  • Me: Bitcoin's value is that it can enable transactions (yet I acknowledge that the price uncertainty and transaction costs are larger than almost any reasonable alternative)

Psychstache

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Re: Can somebody explain the benefits of holding crypto to me like I'm five.
« Reply #112 on: August 20, 2021, 07:19:16 AM »
Earlier this summer I went down a half hour rabbit hole with a good crypto-booster friend.  This is a thoughtful guy (PhD, works in in VC now).  Here's how it ended up after endless back and forth around the "What is the value added?" question:

Me: Are you confident that crypto will outpace the stock market for the next 10, 20, 30 years?

Him: That's not the question.  The question isn't whether it's the odds-on outcome.  The question is whether the risk is worth it.  The odds are against it, but the payoff for success is high enough to justify the early buy in.  It very well may fail, but if it succeeds the payout is enormous.

Me, unspoken: How do you assess the appropriate buy-in for a concept that the boosters ultimately admit will likely fail, and where even the success of the concept is fragmented across hundreds or even thousands of currencies?

Me, now speaking: So, it sounds like you're all in on this.  What percentage of your portfolio is crypto?

Him: 6%

-----

Sometimes I get the sense that lots of the crypto-boosters want to have the conversation at a volume that exceeds their financial conviction.

To me, that at least makes sense* given the VC component. The idea of investing various small positions into high variance boom/bust opportunities sounds very VC like.

*the overall decision making process, not crypto specifically. IMO, investing in crypto would be the equivalent of getting in on a dog wedding planning startup.

boarder42

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Re: Can somebody explain the benefits of holding crypto to me like I'm five.
« Reply #113 on: August 20, 2021, 07:42:47 AM »
Earlier this summer I went down a half hour rabbit hole with a good crypto-booster friend.  This is a thoughtful guy (PhD, works in in VC now).  Here's how it ended up after endless back and forth around the "What is the value added?" question:

Me: Are you confident that crypto will outpace the stock market for the next 10, 20, 30 years?

Him: That's not the question.  The question isn't whether it's the odds-on outcome.  The question is whether the risk is worth it.  The odds are against it, but the payoff for success is high enough to justify the early buy in.  It very well may fail, but if it succeeds the payout is enormous.

Me, unspoken: How do you assess the appropriate buy-in for a concept that the boosters ultimately admit will likely fail, and where even the success of the concept is fragmented across hundreds or even thousands of currencies?

Me, now speaking: So, it sounds like you're all in on this.  What percentage of your portfolio is crypto?

Him: 6%

-----

Sometimes I get the sense that lots of the crypto-boosters want to have the conversation at a volume that exceeds their financial conviction.

To me, that at least makes sense* given the VC component. The idea of investing various small positions into high variance boom/bust opportunities sounds very VC like.

*the overall decision making process, not crypto specifically. IMO, investing in crypto would be the equivalent of getting in on a dog wedding planning startup.

Agreed look at the big guys talking about this musk cuban etc. These are just small bets they are making not significant portions of their portfolios. 6% seems abit high to me. But when they make statements it makes those who are all in feel justified

ChpBstrd

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Re: Can somebody explain the benefits of holding crypto to me like I'm five.
« Reply #114 on: August 20, 2021, 01:03:20 PM »
Earlier this summer I went down a half hour rabbit hole with a good crypto-booster friend.  This is a thoughtful guy (PhD, works in in VC now).  Here's how it ended up after endless back and forth around the "What is the value added?" question:

Me: Are you confident that crypto will outpace the stock market for the next 10, 20, 30 years?

Him: That's not the question.  The question isn't whether it's the odds-on outcome.  The question is whether the risk is worth it.  The odds are against it, but the payoff for success is high enough to justify the early buy in.  It very well may fail, but if it succeeds the payout is enormous.

Me, unspoken: How do you assess the appropriate buy-in for a concept that the boosters ultimately admit will likely fail, and where even the success of the concept is fragmented across hundreds or even thousands of currencies?

Me, now speaking: So, it sounds like you're all in on this.  What percentage of your portfolio is crypto?

Him: 6%

-----

Sometimes I get the sense that lots of the crypto-boosters want to have the conversation at a volume that exceeds their financial conviction.

To me, that at least makes sense* given the VC component. The idea of investing various small positions into high variance boom/bust opportunities sounds very VC like.

*the overall decision making process, not crypto specifically. IMO, investing in crypto would be the equivalent of getting in on a dog wedding planning startup.

Agreed look at the big guys talking about this musk cuban etc. These are just small bets they are making not significant portions of their portfolios. 6% seems abit high to me. But when they make statements it makes those who are all in feel justified
A dirty secret of the internet is that it's a video game where players work for attention and influence. Just as video gamers behave differently in real life vs. in the game context, when we're on the internet we often code-switch into extremist all-in reckless people. That gets more attention. There are people on WallStreetBets actually risking six-figure amounts on trash stocks because posting those screenshots is how one gets attention.

Financial.Velociraptor

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Re: Can somebody explain the benefits of holding crypto to me like I'm five.
« Reply #115 on: August 20, 2021, 06:04:11 PM »
<snip>
Him: 6%

My take is everyone should have enough to participate materially if crypto goes to the moon and not so much that it derails your financial plans if it goes bust. 

For me, that was about $5,000 in basis.  Now worth a little over $24,000.   My allocation as of today's close?  6.08%

I think your friend has it right.

Juan Ponce de León

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Re: Can somebody explain the benefits of holding crypto to me like I'm five.
« Reply #116 on: August 20, 2021, 06:15:12 PM »
I find it's very hard to keep the asset allocation of my crypto low as it rapidly outperforms all other assets.

Glenstache

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Re: Can somebody explain the benefits of holding crypto to me like I'm five.
« Reply #117 on: August 20, 2021, 10:36:19 PM »
I find it's very hard to keep the asset allocation of my crypto low as it rapidly outperforms all other assets.
How many people have to invest 6% to maintain an upward growth trajectory?

Juan Ponce de León

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Re: Can somebody explain the benefits of holding crypto to me like I'm five.
« Reply #118 on: August 20, 2021, 11:37:59 PM »
I find it's very hard to keep the asset allocation of my crypto low as it rapidly outperforms all other assets.
How many people have to invest 6% to maintain an upward growth trajectory?

Eleventy billion.

caleb

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Re: Can somebody explain the benefits of holding crypto to me like I'm five.
« Reply #119 on: August 21, 2021, 07:39:06 AM »
<snip>
Him: 6%

My take is everyone should have enough to participate materially if crypto goes to the moon and not so much that it derails your financial plans if it goes bust. 

For me, that was about $5,000 in basis.  Now worth a little over $24,000.   My allocation as of today's close?  6.08%

I think your friend has it right.

I don't disagree with the idea of buying a little bit.

I know guys who have 10% of their portfolio in classic cars.  They can't articulate the fundamentals of why a repainted 1950s Oldsmobile is a particularly good investment either, but they want it to be a good idea.

But to me there's a big difference between "this is an interesting idea that could possibly pan out and is worth a few bucks to see what happens," versus "crypto is going to revolutionize the economy and will displace national currencies within five years."  I see a lot of the former behavior, and a lot of the latter rhetoric.

the_gastropod

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Re: Can somebody explain the benefits of holding crypto to me like I'm five.
« Reply #120 on: August 21, 2021, 10:36:14 AM »
Yeeeep. Agreed. I take that mess about as seriously as I do people who earnestly suggest allocating a small % of income to buying lottery tickets. Sure, it could pay off, and there are plenty of examples of it doing so, but…

Rosy

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Re: Can somebody explain the benefits of holding crypto to me like I'm five.
« Reply #121 on: August 21, 2021, 12:18:33 PM »
Sure looks like a financial survival lifeline if you live or become stranded in Afghanistan.

https://www.cnbc.com/2021/08/21/bitcoin-afghanistan-cryptocurrency-taliban-capital-flight.html

GASP: Not one word in the entire article about drugs - imagine that. Instead, it is about real people and legitimate use cases.

boarder42

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Re: Can somebody explain the benefits of holding crypto to me like I'm five.
« Reply #122 on: August 21, 2021, 06:46:15 PM »
Sure looks like a financial survival lifeline if you live or become stranded in Afghanistan.

https://www.cnbc.com/2021/08/21/bitcoin-afghanistan-cryptocurrency-taliban-capital-flight.html

GASP: Not one word in the entire article about drugs - imagine that. Instead, it is about real people and legitimate use cases.

Yep I base most of my investment decisions on failed states. And what helps them succeed. Man how'd I miss this I a use for bitcoin. Clearly the wave of the future. Can't wait til all states fail and Bitcoin is left standing. Excellent strategy. I think I'll put my money in dirt though. It worked really well when polar ice caps were gone and we lived in water world.

Padonak

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Re: Can somebody explain the benefits of holding crypto to me like I'm five.
« Reply #123 on: August 22, 2021, 11:03:41 AM »
I have a theory that Bitcoin and other cryptocurrencies exist because there is a huge appetite for risk which isn't satisfied by other investment (and gambling) options available, especially outside of developed countries.

Index funds are too boring.

Real estate requires a large minimum investment and dealing with maintenance, tenants and lower liquidity if you want to sell.

Individual stocks can be fun (see wallstreetbets) but as an active trader you have to pick them first, then constantly follow the news and tweak your portfolio. There are only so many "cool" stocks like Tesla available to investors. Not enough for all the people worldwide hoping to get rich quick. Even the stocks that are available, can be hard or impossible to trade in many countries.

Derivatives (e.g. options) are too complicated and require understanding of complex math beyond most people's ability.

Poker: adjusted for IQ, probably the lowest paying profession.

Casinos (online and offline): banned and restricted in many parts of the world. "The house always wins" is easier to understand and simulate/backtest that the greater fool principle.

Forex and commodity trading: the concept of "zero sum game" is easier to understand than the greater fool principle.

Also unlike crypto, none of these options offer easy 24/7 trading over the internet no matter where in the world you are from and currently based.



« Last Edit: August 22, 2021, 11:31:28 AM by Padonak »

Rosy

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Re: Can somebody explain the benefits of holding crypto to me like I'm five.
« Reply #124 on: August 22, 2021, 12:00:44 PM »
Sure looks like a financial survival lifeline if you live or become stranded in Afghanistan.

https://www.cnbc.com/2021/08/21/bitcoin-afghanistan-cryptocurrency-taliban-capital-flight.html

GASP: Not one word in the entire article about drugs - imagine that. Instead, it is about real people and legitimate use cases.

Yep I base most of my investment decisions on failed states. And what helps them succeed. Man how'd I miss this I a use for bitcoin. Clearly the wave of the future. Can't wait til all states fail and Bitcoin is left standing. Excellent strategy. I think I'll put my money in dirt though. It worked really well when polar ice caps were gone and we lived in water world.

You know when I lived in Texas we had family who became oil millionaires overnight by putting their money in dirt - true story.

The referenced article is interesting for many reasons, it states that 60% of the population of Afghanistan is under the age of 25.
It made me wonder what sort of new state they will build and speculate:)
about how such a state might integrate crypto in the future and if so what consequences and benefits that will have.

One intriguing point is this:
Quote
Afghan entrepreneurs Elaha and Roya ... founded the Digital Citizen Fund, an NGO that helps women and girls in developing countries gain access to technology.

The organization has eleven, - women-only IT centers - in Herat and another two in Kabul, where they teach 16,000 females everything from essential computer skills to blockchain technology.
Before classes were suspended earlier this week, creating a crypto wallet was also part of the curriculum.

Elaha Mahboob tells CNBC that some students have chosen to secure their money in crypto accounts and a few have specifically started investing in bitcoin and ethereum in order to achieve their long-term financial goals.

“This is especially important as they don’t have to worry about not having access to their money, because major banks in Afghanistan have closed,” Mahboob said.

A few Digital Citizen Fund participants have left the country and used the crypto accounts they made in class as a way to transfer their money out.

I thought there were several other worthwhile developments for discussion in that article.

forgerator

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Re: Can somebody explain the benefits of holding crypto to me like I'm five.
« Reply #125 on: August 22, 2021, 05:22:52 PM »
DeFi yield farming / staking is a very decent option to earn passive income now and makes the yields from dividend stocks and interest bearing assets seem like chump change. Unfortunately it is too complicated of an asset class to participate in and average Joe will never invest time to understand it, not in it's current un-user friendly form at least.