A Skeptic's View of Crypto (from the Point of View of Monetary Economics) | Summary and Q&A

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November 2, 2018
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a16z
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A Skeptic's View of Crypto (from the Point of View of Monetary Economics)

TL;DR

Cryptocurrency, such as Bitcoin, presents technological innovations but fails to address fundamental problems and risks associated with traditional currency.

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Key Insights

  • ✋ Cryptocurrency, such as Bitcoin, requires significant resources and has high transaction costs, contradicting the goal of a frictionless and efficient monetary system.
  • 🔒 The reliance on algorithms and technology instead of reputation and trust creates potential security and regulatory challenges in the cryptocurrency system.
  • 🖤 The lack of inherent value and limited real-world applications make it uncertain whether cryptocurrency can truly become a widely accepted and valuable form of currency.
  • 👶 Cryptocurrency offers the potential for a decentralized and trustless system, but it also introduces new risks and challenges that need to be addressed.
  • 🖐️ Bitcoin's first mover advantage and the perception of value play a significant role in its current market position.
  • 🪡 The benefits of cryptocurrencies, such as the blockchain technology, may have broader applications beyond currency but need to be examined further.
  • 🤑 Cryptocurrency has not yet demonstrated its ability to function as a widely accepted and valuable form of money.

Transcript

I'm here I'm here to be the wet blanket to be the the skeptic and I'm in a funny position here because obviously I'm not a technologist and people who are are you know wildly impressed they think that the both the algorithms underlying cryptocurrency and the system that the founder of crypto of Bitcoin whoever he was created are extremely ingenious... Read More

Questions & Answers

Q: What problem does cryptocurrency aim to solve?

The problem of trust and reliance on centralized institutions in traditional monetary systems. Cryptocurrency uses advanced algorithms and decentralization to create a digital currency that eliminates the need for intermediaries.

Q: Can the high costs associated with cryptocurrency transactions be resolved?

It is unlikely that significant reductions in transaction costs can be achieved without sacrificing the security and integrity of the cryptocurrency system. The inherent design of Bitcoin, for example, makes it difficult to avoid these high costs.

Q: What is the value proposition of Bitcoin compared to traditional forms of currency?

Bitcoin's value proposition lies in its decentralized and immutable nature. It aims to provide a secure and efficient medium of exchange that is not subject to government control or manipulation.

Q: Is the lack of government backing a fundamental flaw in cryptocurrency?

The absence of government backing raises questions about the stability and trustworthiness of cryptocurrency. While governments can sometimes abuse their power, they also enforce regulations that maintain trust and stability in traditional monetary systems.

Summary

In this video, the speaker discusses the concept of cryptocurrency, specifically focusing on Bitcoin. They question the fundamental problem that cryptocurrency is trying to solve and present arguments against its widespread adoption. They argue that the costs associated with using and creating cryptocurrencies, as well as the lack of intrinsic value, make it an inefficient and risky alternative to traditional forms of currency. The speaker also highlights the importance of reputation in the current monetary system and questions whether the technology behind cryptocurrency can adequately replace the trust and stability provided by banks and governments.

Questions & Answers

Q: What is the problem that cryptocurrency is trying to solve?

The speaker questions the fundamental problem that cryptocurrency, specifically Bitcoin, is attempting to address. They argue that the current monetary system, based on reputation and repeated transactions, already functions well, and it is unclear what problem cryptocurrency is trying to solve.

Q: How does the history of money demonstrate a trend towards increased invisibility and ease of transactions?

The speaker explains how the history of money has shown a progression towards making money increasingly invisible and frictionless. They discuss the shift from metallic money, such as gold and silver coins, to paper money and eventually pure fiat money. The goal has always been to lower transaction costs and reduce the resources used in producing the medium of exchange.

Q: How does cryptocurrency compare to traditional forms of currency?

The speaker argues that cryptocurrency, such as Bitcoin, is a step back into the monetary past rather than a step forward. They highlight the high costs associated with using and creating cryptocurrency, as well as the lack of intrinsic value. They question the wisdom of abandoning the current system based on reputation and trusted institutions in favor of a purely algorithmic-based system.

Q: Is cryptocurrency a solution to potential hyperinflation or government mistrust?

The speaker acknowledges that hyperinflations do occur, but argues that they are rare and often associated with broader political and social collapse rather than solely government mistrust. They assert that severe monetary problems are typically political problems, and cryptocurrency is unlikely to offer a resolution in these cases.

Q: Can technological advancements improve the effectiveness and efficiency of cryptocurrency?

The speaker discusses the potential for technological solutions to address the high costs associated with using and creating cryptocurrency. They question whether these improvements would merely lead to an increase in cryptocurrency supply, rather than solving the underlying issues. The absence of a tangible anchor or intrinsic value also raises doubts about the long-term viability of cryptocurrency.

Q: How does the lack of intrinsic value impact the value of cryptocurrency?

The speaker argues that cryptocurrency, unlike gold or high denomination notes, lacks a real-world use or conversion option, which limits its value. They suggest that the value of cryptocurrency is solely dependent on people continuing to believe in its value, making it vulnerable to sudden drops in worth.

Q: Could cryptocurrency be seen as an alternative to traditional banking institutions?

The speaker questions the ability of cryptocurrency to replace the trusted middlemen institutions, such as banks and governments, that currently ensure the stability and trustworthiness of the monetary system. They emphasize the importance of reputation and repeated transactions in maintaining and preserving trust.

Q: How does the speaker view the potential applications of blockchain technology beyond cryptocurrency?

The speaker indicates being more open-minded about the broader applications of blockchain technology. They mention the possibility of using blockchain to verify medication prescriptions at drugstores, although they prioritize other concerns when it comes to medication. However, they express a need for more persuasive examples of blockchain usage outside of cryptocurrency.

Q: Is cryptocurrency currently being widely adopted as a form of currency?

The speaker argues that cryptocurrency, particularly Bitcoin, shows no signs of becoming widely adopted as a form of currency. They contend that it is not functioning as money and, instead, appears to be a regression into a less efficient and more risky form of currency.

Q: What are the costs associated with using and creating cryptocurrency?

The speaker highlights the high costs of using and creating cryptocurrency. They discuss the amount of real resources, particularly computing power and electricity, that are expended in generating cryptocurrency. Additionally, the implementation of the blockchain, the technology underlying cryptocurrency, is complex and expensive.

Takeaways

The speaker's main argument against cryptocurrency, specifically Bitcoin, is that it fails to address a fundamental problem in the current monetary system. They question the need to abandon trusted institutions and reputation-based transactions in favor of an algorithmic-based system. The high costs associated with using and creating cryptocurrency, as well as its lack of intrinsic value, make it a less efficient and secure alternative to traditional forms of currency. While the potential applications of blockchain technology are more open to discussion, the viability of cryptocurrency as a widely adopted form of currency remains uncertain.

Summary & Key Takeaways

  • Cryptocurrency, like Bitcoin, requires significant resources to create and has high transaction costs, which contradicts the goal of a frictionless and efficient monetary system.

  • The reliance on algorithms and technology instead of reputation and trust creates potential security and regulatory challenges in the cryptocurrency system.

  • The lack of inherent value and limited real-world applications make it uncertain whether cryptocurrency can truly become a widely accepted and valuable form of currency.

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