Where's the value in crypto? What's the purpose? Decentralisation? Democratisation? And then you have to use wallets, exchanges...
There's literally no value in crypto currency, but trust. Like plain old money, which is highly regulated, so much more stability to use it in real economy. So why should I use crypto currencies? And which one, given that everyone can create their crypto currency?
Crypto is a decade-long exercise in teaching programmers why the mechanism used to update numbers in databases is the boring part of a money system, and why governance, policy-making and physical territory control are relevant.
What it really does is highlight inadequacies in education and discourse, and how intransparent "how things really work" (and by extension, what the tough problems are) can be even to intelligent people.
Bottom line: Technology is just a tool and an ineffective substitute for the human aspects of "society". Those who tend to think otherwise may be highly trained but still rather naive, under-educated and operating outside their element --- ideal marks for a good con artist.
Here are three things that are extremely valuable about blockchain technology:
* Financial infrastructure that is transparent and does not rely on corporate CEOs being honest: Enron, Lehman Brothers, and now FTX have shown that global regulators cannot be trusted to protect ordinary people when institutions are corrupted from the top. DeFi markets are fully transparent—with code and data being open and replicated thousands of times over—and users maintain custody of their assets at all times.
* Instantaneous settlement for payments and trades: With blockchain tech, vendors and merchants don't need to wait for credit-card payments to be deposited in their bank accounts—tokens are transferred in real-time. Traders don't need to wait for the proceeds of their sale to be wired to them two days after the trade takes place—settlement happens instantaneously with each DeFi trade. In some developed parts of the world, these settlement delays are slowly being fixed, but blockchain technology does this out of the box, today, and works everywhere.
* Security and automatic transfer of lending collateral: Overcollateralized DeFi loans hold collateral on-chain, and will instantly liquidate any outstanding loan that dips below the collateralization ratio. This is one reason that even through all the recent turbulence in crypto markets no one who leant money through DeFi on an overcollateralized basis—including, for instance, to Celsius—has lost money. (Note however that the courts have not yet ruled as to the disposition of these DeFi loans in bankruptcy cases.)
I think it's also important to differentiate between "crypto" and "blockchains".
Cryptocurrencies are a type of application that can run on blockchains, and they play an important role by creating a unified market to reimburse providers for delivering the computation and storage services that blockchains depend upon. I would agree with those that believe that they have been overhyped, however.
The point made in this article applies to your first point - companies like FTX playing fast and loose can tank your value even if you are playing as your own bank. Not using their custody doesn’t fully protect you from their actions.
Cryptocurrency does not settle instantaneously, in fact credit cards are usually faster. Nobody is “waiting” for settlement. The transaction is done very fast.
Defi collateralised loans have actually had several instances of losing money and whole schemes failing - ‘whales’ holding illiquid assets have taken out massive loans with no intention of repaying, and the collateral is sometimes only “over” on paper.
> Not using their custody doesn’t fully protect you from their actions.
Sure, but this is market risk, not counter-party risk, and is unmitigated in traditional markets as well. Just look at how Apple stock was affected by Lehman Brothers’ failure.
> Cryptocurrency does not settle instantaneously, in fact credit cards are usually faster.
Come again? If you pay me for goods using crypto, I can spend that money immediately, pending finalization.
> Nobody is “waiting” for settlement. The transaction is done very fast.
Can a merchant spend its customers’ money immediately after running the credit card? No.
Money from a credit card transaction processed on a Friday will hit the merchant’s account on Monday or Tuesday.
> Defi collateralised loans have actually had several instances of losing money and whole schemes failing - ‘whales’ holding illiquid assets have taken out massive loans with no intention of repaying, and the collateral is sometimes only “over” on paper.
OK. Yes, if your underlying collateral is worthless, or if there isn’t a meaningful pricing mechanism or liquid market in which to sell the collateral, automatic liquidation of the loan won’t work, and a different approach must be taken.
Like with anything in the world, there are some basic preconditions required for the thing to work. “This technology is inappropriate for these particular use cases” is not a very strong argument against it.
That being said, I am unaware of these particular cases that you are referring to. If you could point them out to me, I would appreciate it.
Yep, but with cryptocurrency the entire market is a shitshow. Unless you can somehow prevent these folks from playing their games, you haven’t improved upon the situation you complain about.
> Can a merchant spend its customers’ money immediately after running the credit card? No.
I see you’ve never used Square, the answer is “Yes”
> Particular cases
There was the near-collapse of Solend, and shenanigans around it earlier in the year. Looks like they had another problem with bad debt due to oracle manipulation recently too. BendDAO, had issues earlier in the year.
Moola Market and Mango Market both experienced some sort of collateral manipulation attack that drained reserves.
New Free DAO lost a million or so in a flash loan attack…
There have been a lot.
Thanks for sharing these cases. And you are right to point out that they represent a real problem in DeFi currently, which is that some protocols are poorly designed.
These examples are best categorized as hacks, though, which are important to distinguish from losses incurred due to bad debt.
The distinction is important because the question at stake is whether DeFi in general has value. If you look at more mainstream protocols like Aave, you don’t see these same problems. In the mid- to long-term, after the technology has stabilized, all the benefits of DeFi will accrue to users without the risks that you are pointing out.
With regards to Square: yes, you can get your money wired to you at the end of the day—if you are willing to pay an extra 1.5% fee.
This is more akin to very expensive financing—having an annualized interest rate in excess of 300%!—than “instantaneous settlement”. It’s also not standard. Square’s standard settlement process is as I described:
With BTC/ETH/USDC it takes seconds. The whole process is entirely transparent. It doesn't get blocked if you reach some threshold. And the fees are smaller than with the traditional banking system.
And unlike with banks, anybody is allowed to open a new wallet. You don't have to get approval, which is difficult if you live in the streets or in a 3rd-world country.
I'm not endorsing the rest of crypto but having a trusted and transparent ledger for large transactions is nice.
I am skeptical of all the crypto schemes, and this is the only use case I find convincing. The small producer in China is paid by the American company via a digital currency. Faster, easier, cheaper.
Continued use of such a medium could over the long-term conceivably lead to widespread adoption, regulation, and a global currency. Fiat is disadvantaged when transactions cross borders.
I think we'll look back on this period as a painful learning process, which will set back such a digital currency by years. Perhaps it is inevitable, though, that some people will in the short-term exploit such situations for personal gain at the expense of the rest of us. Now we have to sort out the mess and wait.
It seems that both in the adtech (Facebook etc.) and crypto spaces, our industry has disgraced itself. We are at an incredible moment in history when our skills are pivotal - we're building the infrastructure of the modern world. We need to use our skills to improve things. The most obvious way to improve the situation is to carefully choose who we work for.
At first I was excited to hear more about the process of “sending money” you had mentioned, but then I read your post, and realized that there weren’t any money involved, but “BTC/ETH/USD”...
Not sure about the others, but it takes a very long time to send Bitcoin (tens of minutes) if you care about waiting for one or more confirming blocks which most people do.
