The irrefutability problem and cryptocurrency


Something that bugs me: there are all these articles that explain why cryptocurrency will fail, and they’re good — but they’re all so long. Dan Olson’s video on the subject was over two hours long, and it was great, but it takes dedication to get through it all, and it’s not fair — there’s an asymmetry problem here, just as there is with creationism, where the zealots only have to shout a short slogan (“you’ll get rich!” or “God did it!”), and then the smart people who actually know something have to slog through a couple of textbooks or a pile of papers to show definitively that they’re wrong. Once again, here’s a LONG interview with Nicholas Weaver to explain what’s wrong with cryptocurrency. He makes a prediction:

It will implode spectacularly. 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. Because, for example, the mining process is horribly expensive. We’re talking [a measurable percentage] of the world’s electricity consumption, most of that has not been paid for. So the mining companies for the most part have been taking the cryptocurrency and borrowing against the cryptocurrency that they create, rather than sell it, because the market’s actually very thin.

This means there’s a huge amount that is subject to potentially catastrophic margin calls. And that creates a feedback loop where the price drops a little, somebody’s forced to sell. That drops the price more. They’re forced to sell more. This creates a feedback loop that drives the price into the ground, catastrophically.

The previous times this has happened, we had the bubble at 100, powered by fraud at Mt. Gox. And that imploded down to 10. We had a bubble a 1000 powered by fraud, it imploded and went back down to 100. We had a bubble at 10,000 powered by Tether, it blew up and went back down to 1,000. And now we’re at a bubble where Bitcoin blew up to 60,000, fueled by Tether and falling. But I don’t think there’ll be a fifth bubble. Because basically, they will have broken all the suckers left to break. There’s only so many more suckers that can be brought into that space. Once you burn out a sucker, they don’t come back. They’re a non-renewable resource. So they’re going to end up running out of greater fools.

So I suspect that the cryptocurrency space will go fine absent regulation, until one day it goes and collapses greatly.

Unfortunately, that won’t change anything. If there’s one thing we should have learned from history, it’s that it doesn’t matter if bunkum is refuted by real world catastrophic consequences. Someone predicts the world will end on a specific date, the date passes, and their followers are unfazed. Undergo a pandemic, and the deniers will say it was just a bad cold even after a million Americans have died of it. Go ahead, say that Bitcoin is doomed to collapse, and the instant it fails there’s a train of True Believers who will announce another new cryptocurrency that they’ll claim is flawless…until it too goes boom.

I look forward to the day we can say “I told you so” and then watch befuddled as the idiots line up to do it all over again.

It’ll be…great?

Comments

  1. flange says

    My sediments exactly.
    I have the same problem understanding cryptocurrency that I have understanding religion. I suspect it’s a scam/pyramid scheme.

  2. Reginald Selkirk says

    Cryptocurrency is a classic speculative bubble, even more so than Tulip mania. The only legal reason people buy cryptocurrency is because they hope to sell it at a higher price later on. Other than that, it has no legal value, but it does have costs in all the calculations that are necessary to sustain the system.
    There are other reasons people buy cryptocurrency: to launder money from shady sources, to avoid taxes, etc. but those are not worth consideration for law-abiding citizens.

  3. says

    If there’s one thing we should have learned from history, it’s that it doesn’t matter if bunkum is refuted by real world catastrophic consequences.

    Totally. There was NESARA, the Iraqi dinar, GESARA, and…it’s all been folded into QAnon.

  4. christoph says

    As soon as I heard about Bitcoin it struck me as a pyramid scheme or other type of con.
    Also, I occasionally get spam emails trying to blackmail me into paying with bitcoin. Something involving porn sites and stealth activation of my webcam-problem is, my computer doesn’t have a webcam.

  5. raven says

    I never quite got cryptocurrencies and bitcoin etc.. either.
    I can understand the basics like block chain and using computers to issue coins.
    I don’t see why they have value though or are all that useful.

    They seem to be good for money laundering and income tax evasion.
    Other than that, dollars work fine for anything I need to buy.
    In my simple life, I don’t have to launder my money or try to evade income taxes.

    Since I don’t get why they exist in the first place, I’m not in any position to predict whether or not they will last or implode.
    Fortunately, either outcome won’t have any effect on my life.

  6. Reginald Selkirk says

    @5 – I’ve gotten those as well. They were quite explicit about having video from my nonexistent webcam of me masturbating to porn I don’t watch on my computer.

  7. PaulBC says

    I am with Paul Krugman on this. Nobody pushing cryptocurrency can explain what problem it is intended to solve that electronic transfer of fiat currency does not already solve–to be clear, what problem cryptocurrency solves if you are not trying to launder money or else have a libertarian kneejerk against any government involvement in financial transfer.

    So I don’t know why you need a long explanation of why it will fail. The burden of proof is on those who claim is has some intrinsic value. There are plenty of things to invest in. Pick one with a positive explanation of what it’s good for.

  8. says

    It feels like every time I look away for a moment, and there’s yet another crypto crash.

    Also, LOL at this part:

    the 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.

    Smart of them to get their money upfront and in USD.

  9. Akira MacKenzie says

    Just an observation: it wasn’t too long ago when these crypto-looks were devoted to being on the gold standard because our “fiat currency” was nothing but worthless paper.

    Just what precious metal is bitcoin backed by, again?

  10. rorschach says

    Bitcoin transfers are slow, and this won’t get better. Bitcoin is an energy nightmare, with mining (processing transactions) taking up the energy use of not so small countries. Bitcoin is supposed to be backed by USDT, which is a Ponzi scheme, a whiff of which we saw this week with the UST and Luna fiasco. Then there is the technical analysis picture of the actual BTC/USD chart, and there is no significant support until the 200-weekly SMA at around 21800.
    BTC was tracking stocks for the last 2 years, now that inflation is out of control and Powell is finally hiking rates, I can’t see a return to 65000, the bias is to the downside.

  11. says

    As my cousin ‘the snark’ says, “Well, if you won’t fall for the sucker play that is cryptocurrency, you can always buy one of Malaria Trump’s non-fungible tokens for tens of thousands of dollars.”

  12. PaulBC says

    There are serious environmental concerns about water desalination but it is a much better energy use than cryptocurrency. I wonder if the excess heat from coin “mining” could be used to desalinate water.

  13. Captain Kendrick says

    It will fail once people NEED that money. The only reason it hasn’t crashed yet is because, relatively speaking, economic times are good. Bitcoin didn’t start until 2009 — just as the Great Recession was ending. And by 2015, the economy was humming along again, and cryptocurrency went along for the ride. Even with inflation, things are really bad yet, but that could be changing real soon, if people start to lose their jobs and need to make rent/mortgage payments with whatever they have, they are going to try real hard to exchange all that cryptocurrency into a currency that is accepted by landlords and mortgage companies. Then shit is going to get real.

  14. Nerd of Redhead, Dances OM Trolls says

    Cryptocurrancy set off my scam sensors. It had the smell of a pyramid scheme with modern buzz words.

  15. rorschach says

    @16 “It will fail once people NEED that money.”

    Correct. The money is not there on the exchanges.That’s because it’s a Ponzi scheme. If everyone tries to cash out their coin tomorrow, you’ll see a lot of exchanges having “technical difficulties”. But they did let the Luna whales sell their coins for BTC at 32000-35000-., only the retail traders got fried.

  16. KG says

    Just what precious metal is bitcoin backed by, again? – Akira MacKenzie@11

    Oo, oo, I know this one – unobtanium!

  17. rorschach says

    “Actually, all we need is for Elon to get involved.”

    Crypto does not need Elon Musk to fuck it up. But admittedly, he is quite the master fucker upper in all sorts of other fields.

  18. larpar says

    Elon is involved. Dogecoin. And I think some of financing for Twitter involves crypto.

  19. Dunc says

    I love crypto. With all that’s going on in the world these days, I really need a good laugh from time to time.

  20. Captain Kendrick says

    @19 “That’s because it’s a Ponzi scheme. ”

    It’s worse than a Ponzi scheme. Even when Bernie Madoff was convicted, they were able to recover some of the losses for the victims — over $4 billion was distributed, at least according to the Justice Dept.

    When crypto crashes, there won’t be anything to distribute — it will be worthless. Just like Confederate dollars at the end of the Civil War.
    In fact, less than worthless, since we all are paying a price if you factor in the wasted CPU cycles that consumed tons of carbon-based energy to “produce” worthless shit.

  21. says

    I watched a video by someone arguing that NFTs as a concept were essentially boosted to popular culture by people who used to launder money via art auctions but needed a new scam. If that’s true I wonder how long dirty money can prop up a system like crypto. My guess is the peak has come and gone unless they can convince another round of celebrities like Matt Damon and Larry David to sell out (though Larry David’s commercial might be sardonic performance art).

  22. unclestinky says

    A nice and fairly succinct outline of soem other bitcoin issues – https://paulbutler.org/2022/the-problem-with-bitcoin-miners/

    Key excerpt for non-link-clickers –
    “As of writing, there are 1,960,775 bitcoin remaining to be mined. If RIOT could sustain their 1.7% share of the mining market, they would earn 33,333 of those bitcoin. At today’s cost of $30,000 market price, all of those bitcoin would be worth just under $1B. RIOT’s market cap is currently just above $1B. Even in a fantasy world where RIOT could sustain its market share and never pay for electricity, hardware, staff, etc., it would still be a more expensive way to own a stake in the pool of unmined bitcoin than just spending the same money on bitcoin today”.

  23. DanDare says

    #5 “Also, I occasionally get spam emails trying to blackmail me into paying with bitcoin. Something involving porn sites and stealth activation of my webcam-problem is, my computer doesn’t have a webcam.”
    Me too. Once a month or so in escelating mouth frothing.

  24. devnll says

    Crypto is a scam, no doubt. But its no more a scam than baseball cards, or any number of other things I could name: you created a product with no functional value, introduced artificial rarity, hoped it would catch enough attention to become “cool”, and waited for human nature to take its course. The problem with crypto is that there are too many ways to make everyone else pay for “printing the baseball cards”; through the environmental costs of the power generation, for example. But as far as “it doesn’t really exist” or “it has no intrinsic value”; baseball cards, I’m telling you.

    As for the theory that we’ll eventually run out of suckers… man, what planet is that guy living on, and can I come visit?

  25. PaulBC says

    devnll@31

    As for the theory that we’ll eventually run out of suckers… man, what planet is that guy living on, and can I come visit?

    Ponzi schemes actually do fail because you run out of suckers. If you need 2 new investors coming in to pay “dividends” to each current investor, the number required grows exponentially and rapidly exceeds the population of the planet.

    Suckers are reusable to an extent, but suckers with money may not be easy to find.

  26. devnll says

    Fair point. What I meant is that the particular con / scheme / currency might fail because it has already consumed all of the available suckerdollarspace… but those people don’t stop being suckers who can get dragged into the next con / scheme / currency.

  27. bcw bcw says

    Hey a two-fer for you – Cynthia Lummis giving the U of WY graduation speech.
    First a bitcoin is the future pitch and then at 50:08 goes anti-trans and gets booed.

  28. says

    A company called Wealthsimple is pushing crypto in Canada with an ad about the wheel, and those who were skeptical about it.

    It debuted a bit over a month ago, so I wonder how effective it is now. It’s effective at annoying me for sure.

  29. chrislawson says

    In Oz, the murdoch press has been publishing stories every 2 or 3 days about how cryptocurrency is about to rebound. They take a 2-3% rebound in one cryptocurrency on one day and ignore the 50% drop in the last few weeks. Do I think Murdoch has a lot of money in crypto? Not likely. Do I think Murdoch would tell his editorialists to inflame a genocide if it would net him an extra $1?…

  30. chrislawson says

    PaulBC@35–

    The logical endpoint of that quote is that in the future, all commerce will be criminal.

    The neoliberal dream.

  31. unclefrogy says

    @31
    I take your point but I do not think baseball cards fall into the same category as crypto.
    They are a collectable based on a marketing ephemera about baseball and the players. They were a gimmick to increase the sale of mostly chewing gum the connection to baseball is probably main reason as well as the rarity of such ephemera surviving. he collectable market is a strange one that is no doubt and baseball cards are very much connected to that sports most fanatical fans.
    I suspect many who are involved trading crypto think they can time the market and get out before it crashes and make a profit some may but most wont I hope some of the none winners will be Russian criminal billionaires

  32. John Morales says

    Two reasons to get cryptocurrency:
    – to buy, wait, sell it for $profit when it goes up;
    – to transfer money outside Sauron’s Eye regulatory agencies.

    The first, very doable, if one has the cash already.
    And if one gets the timing right, of course.
    (And if one doesn’t forget the wallet’s password!)

    The second, well… thing is, it’s by design a public, distributed ledger.
    So, yeah. Not that hidden, the footprints.
    So, doable, but fraught.

    But then, as long as it runs, there are those who do in fact $profit — the ones who run and facilitate the thingie, those in the middle.

    (And, hitherto but less so over time, the miners. Who get to ignore most externalities)

  33. says

    Hashing to detect errors goes way back in computing. Probably the most significant deployment would be TCP checksums and other check-bits from the period. The Soviet main classified encryption algorithm, GOST used blocks encrypted with cipher-block chaining as a message integrity checksum. The guys at AT&T research did a digital notary service in the late 80s that authenticated a bit pile by publishing a running hash in the NYT. Blockchain was ignored the first time.

    I was involved in a startup effort in 2018 and it was crazy how many people were saying “slap some bitcoin on it and we will throw bags of money your way.” Well if you don’t understand, why bother? Hehehe they became the NFT market. God bless ’em.

  34. says

    I suspect some percentage of crypto fans are into it because computers=the future, and since crypto is based on computers it must be the future.

  35. says

    Then there’s the “presumed scarcity” problem. If you really feel like delving into history (and snickering), look at the effects on economies when new “currency backing” resources suddenly poured in. One obvious example is “gold and silver from the New World” in sixteenth-century Europe, which turned Spain into more than “first among equals.” And that’s just an easy-to-access-in-a-decent-public-library† example; the influx of colonialist seashells into indigenous populations that used “cowrie” and similar backings for value is quite parallel.

    Which leads one to wonder just how truly secure the scarcity basis for the backing of cryptocurrencies really is, especially given ever-more-powerful (and at the same time ever-more-resource-efficient) computing power. <sarcasm> If we can get to the moon based on an army of women doing Sterling’s approximation, who says that an army of women operating cell phones containing more computational power than the entire Apollo program can’t get to a cryptobro’s hoard? </sarcasm> And that’s before considering the possibility of a Cousin Fred†† demonstrating that there’s a mathematically-simple means of cracking the “unbreakable” Vigenere cipher… as has happened more than once…

    † Because the vast majority of what’s on the ‘net that isn’t directly linked to rather abstract/abstruse scholarship is unreliable, contradictory, and suffuesed with hidden agendas as soon as it touches either “cultural development” or “economics and finance.” (Or “military affairs,” but that’s for another time.)

    †† Friedrich Kasiski, a number of generations back, was a mid-distance cousin.

  36. PaulBC says

    Long before cryptocurrency existed, I remember wondering if the heat produced by computers could be recovered for other purposes. E.g., an electric stove, an electric home heater, or an electric hairdryer produce nothing but heat, and do so inefficiently. All they are doing is taking “useful” energy generated at a power plant transmitted long distances with additional loss, and turning it into unrecoverable entropy.

    The funny thing about computation is that all of the energy it uses is ultimately released as heat*. If our space heaters, stoves, hair dryers, probably some industrial processes as well were actually computing on the way to making this heat, we’d be getting computation as a free byproduct.

    To be clear, I consider cryptocurrency “mining” no less absurd than Douglas Adams’s solution to leaf currency inflation (burning down forests). But if we’re doing it anyway, I wonder if some industry could arrange its energy use so the crypto coins were a free byproduct of some energy-intensive process.

    Of course, this might affect scarcity and devalue the coins, so maybe waste just has to be part of it.

    I also second Jaws@43 on the point that we might even need the computation we think, and if so, entire currencies could be devalued by the discovery of a new algorithm.

    *This can be eliminated theoretically with reversible computation.

  37. consciousness razor says

    PaulBC:

    But if we’re doing it anyway, I wonder if some industry could arrange its energy use so the crypto coins were a free byproduct of some energy-intensive process.

    I’m sure the process of mining could be made less inefficient because the heat could potentially be useful for doing something else. But that’s a long way from saying that you’re getting coins as “a free byproduct.”

    You need to be able to maintain a relatively cool, climate-controlled room full of expensive computer equipment. Of course, those are the sorts of things that fail due to high temps, as well as extremes of high or low humidity.

    But from there, it is true that you do have some heat and could find some way to do something more useful with it. (Presumably, we’re not supposed to think of “useful” in the bullshit crypto miner sense of scamming-others-is-useful-to-me, but something that a normal/decent person could reasonably believe is a genuinely, tangibly useful output/activity of some kind.)

    Alternatively, you could just use a simple space heater, a heat pump, or some such thing. At any rate, if this thing can do the job of a hair dryer (or whatever), then I guess the obvious question is still going to be why you’re not just using a hair dryer. That’s simple, cheap, easy to maintain or replace, doesn’t require nearly as much labor or special resources to produce to begin with…..

    So, it’s not like a person who already has some preexisting need for a heat source (for industry, residential/commercial heating, etc.) would choose anything like that “for the sake of efficiency” and it just so happens to spit out coins as a side effect and “for free.”

    Instead, it sounds like the sort of person who might be interested is someone who’s already mining, and they want to find a way to reduce the real, physical costs associated with that process. (And the heat is the thing that you’re getting for free, so to speak … for certain values of “free” which don’t actually mean “it costs nothing.”)

  38. PaulBC says

    cr@45 I agree there are some hitches (aside from cryptocurrency “mining” being a dumb idea from the get-go when fiat currency works fine).

    But the idea I had was more along the lines of a hairdryer that contained a CPU instead of a heating coil. The cooling fan blows the excess heat out of a nozzle like any other hairdryer. It would download something to calculate while you dry your hair. It then uploads its partial result when you’re done. It wouldn’t have to be crypto. Ideally it would not, in fact. It could be like the distributed SETI or protein folding screensavers they had over 20 years ago.

    There’s another obvious issue, namely that a heating coil is a lot cheaper and more reliable than a CPU. But if the computation is valuable enough, you could offer to replace them free. I don’t think it is impossible in theory to have very energy-efficient computation along with heat generation you’d be doing already (as opposed to the other way around).

    Maybe not workable, just one of those things that has been knocking around in my mind since the mid-90s.

    (Presumably, we’re not supposed to think of “useful” in the bullshit crypto miner sense of scamming-others-is-useful-to-me, but something that a normal/decent person could reasonably believe is a genuinely, tangibly useful output/activity of some kind.)

    No, but that idea is a good match for my thoughts @15 about water desalination. If you could use the excess heat to distill salt water, whether this was really efficient or not, you could sell it as bottled “crypto water” and who knows, it might be worth more in real money than the “coins” you are producing. Somebody get Joe Rogan on the line!

  39. consciousness razor says

    Rob:
    Well, not exactly, although “not okay” is pretty normal for me to be honest. But thanks for asking. Sorry if you were worried.

    Mainly, I just haven’t had a lot of spare time, and whenever I did, not much to say.

  40. consciousness razor says

    PaulBC:

    But the idea I had was more along the lines of a hairdryer that contained a CPU instead of a heating coil.

    Okay, but that is also officially a Dumb Idea™ if the problem to be solved is how to heat stuff, because there are much better ways of doing that.

    But of course you can make the process of doing a computation less-bad (which is assuming you already needed to compute something) by somehow making use of the heat. It is definitely a heat source, no doubt about it. However, those are not generally hard to come by, and this isn’t a good one compared to the numerous alternatives.

    There’s another obvious issue, namely that a heating coil is a lot cheaper and more reliable than a CPU. But if the computation is valuable enough, you could offer to replace them free.

    Sorry, I’m not following…. Who is going to replace what for free, since the computation is valuable enough to whom? I thought we were talking about something like a “smart” hair dryer (also a pointless gadget if you ask me), not back to crypto mining…. So, I guess the company selling the hair dryer will replace it for free, because the company also gets those valuable computations the consumer is doing for them while drying hair. Alright, then why would a hair dryer company want those computations so much? What is the thing computing anyway? And how does the consumer benefit from this arrangement? I mean, the whole plan here is just not clear to me….

    But also, why would that mean we shouldn’t go with a cheaper and more reliable alternative anyway? Is the idea supposed to be that (with crypto, not just generic computing) there’s some potential to scam some people out of some money, because we shouldn’t consider that unacceptable? Why should I think that?

    I mean, suppose it’s a cult, so you need to convince someone who’s an outsider and not already a devout believer, using some fairly solid reasoning/evidence…. Is there a sale pitch which could work for that sort of person, or will they be more or less unreachable?

    If you could use the excess heat to distill salt water, whether this was really efficient or not, you could sell it as bottled “crypto water” and who knows, it might be worth more in real money than the “coins” you are producing.

    Maybe, if you asked the right person in Silicon Valley, they would say it’s a fantastic plan. But outside of that? I doubt it.

  41. PaulBC says

    cr@49

    Okay, but that is also officially a Dumb Idea™ if the problem to be solved is how to heat stuff, because there are much better ways of doing that.

    If you’re in a house or apartment with only electric utilities (no gas) then an electric heating element may in fact be the best way to heat stuff aside from moving or retrofitting your residence. It’s also unlikely you have a gas-powered hairdryer (disclosure: I just let my hair dry on its own).

    An electric heating element simply moves current through a resistor, doing nothing but generating heat. If it was moving the same current through a computational circuit, it would generate the same amount of heat per kilowatt, but would do something else in the process. I grant that it may not be worth the trouble to recover this freebie, but it’s not imaginary and it does not require consumers to change their behavior other than using a hair dryer with a different heating element.

    Alright, then why would a hair dryer company want those computations so much?

    Why does it have to be a hair dryer company? McDonald’s early franchise system was described (e.g. in Fast Food Nation) as a real estate holding company that makes hamburgers. Businesses can do more than one thing. They can also do one thing well and outsource other things. E.g., Amazon started out as a bookseller, became a huge retailer, and now maintains a server cloud AWS that may have been motivated by corporate needs but is now a business in its own right renting servers.

    It could be a company interested in some batch computations (e.g. signal analysis, computational chemistry, operations research), not hairdryers. They could also sell time rather than use it themselves.

    I am not very serious about my proposal, but based on different objections. Corporate data centers are capable of an enormous amount of computation already, and use energy much more efficiency than consumer level computation. This is less likely to be true of “coin mining” servers, which do not have the R&D investment or careful geographic placement of a company like Google (I know I’m supposed to say Alphabet). I’m sure that these operations would be very wasteful even if they were calculating something worthwhile.

    So most likely, the amount of computational power that could be extracted from residual consumer use (forget about hair dryers, how about cell phones, tablets, and laptops) isn’t worth the complication (and security compromise) for companies with data centers. Individual researchers such as SETI or protein folding projects did use consumer devices back in the day, but it was only cost effective with donated time.

    Personally, I’d be happy to have a home that was heated by running servers. If I ever have time to get back to my hobbies, I have pretty much endless needs for computational power to do combinatorial searches, not “coin mining.”

  42. Kagehi says

    @9

    Nobody pushing cryptocurrency can explain what problem it is intended to solve that electronic transfer of fiat currency does not already solve

    Sadly, I can think of one, and only one, legit “problem” being solved by it, and in the long run its going to just cause more harm – providing a way to get paid for a) online content that banks have decided they don’t approve of, even if its legal, and b) getting paid as a sex worker, when, again, banks will halt all processing on your account, or other’s accounts, if you get paid with a credit card, and they find out what you are doing.

    But, this is the “only” legit use I can think of. Otherwise.. if it didn’t cost idiotic amounts to operate in general, and it was actually backed and guaranteed, like by the government, like normal currency, so theft, if/when it did happen didn’t result in you losing everything, the added security… might be useful…. But, at the current cost in resources, its insane.

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