Bitcoin

[Sarah]

NFTs are another thing I just don't get. My understanding is that they are like numbered limited edition LPs. All identical, but unique because of the number, and you can't just keep reproducing them because of the number.

Or worse... there are exceptions such as CryptoPunks, but in most cases buying an NFT artwork isn't actually buying the artwork itself, even for digital art (i.e. not stored on the blockchain; because it doesn't have the capacity for large images) instead you get ownership of a link to the image on a server somewhere. Does that make any sense? It's easy to argue that it doesn't, since usually anyone can visit the link and copy the artwork, the link can rot and some NFTs don't confer ownership of the digital art itself (as also tends to be the case with NFTs of physical artworks) or even usage and exploitation rights for the artwork.

Steve Mould has made this video in which he seems sympathetic to the view that the value of NTFs might be somewhat justified as a means of supporting artists, despite their technical limitations:
https://youtu.be/IZaTd0hDtkI

Ubisoft tried selling NFTs of identical items for the video game Ghost Recon Breakpoint; which was a complete failure. Here's a good video about that:
https://youtu.be/Z36q407Rze0

Many of the NFTs featured in news stories on a weekly or daily basis are collections of "profile picture" art that are generated in their thousands with multiple defined variations; often using randomisation algorithms that provide little or no artistic merit. The quantity available in a collection is typically limited by code and "burning" any unsold allocation. The pictures that are fortunate enough to be "minted" with rarer traits can attract higher values. Some of these collections such as the Bored Ape Yacht Club have become high profile and change hands for silly money (or make headlines when they're stolen, such as happened to Seth Green amongst others); whilst many others lose money for their "investors" or are blatant scams. In many cases NFT collections have launched promising to provide real-world benefits that will never be delivered. There are countless examples of "rug pulls" in which the organisers or promoters quickly sell their holdings, crash the price and escape with large profits - usually with very little chance of ever being held meaningfully accountable for their involvement.

[Chadwick]

Sounds to me like you understand it perfectly.

The thing I would add about crypto currencies is that they are significantly more volatile than most conventional currencies.

I still absolutely cannot get my head around 'mining' for bitcoin. Massive warehouses of computers whirring away trying to find.... what? And how does what they find have any value, or get converted into bitcoins?

[Sarah]

I think 'mining' is more of an analogy. They're doing work (calculations that maintain the blockchain) and newly minted coins are given as a reward.

[macliam]

Are magic beans still a thing?

[Chadwick]

I think 'mining' is more of an analogy. They're doing work (calculations that maintain the blockchain) and newly minted coins are given as a reward.

Where do the new coins come from. I know they don't physically exist, I mean where does the value come from? Is someone paying the 'miners' to do the work? Or is it just that if you churn through x million transactions, the system will just print some more money and credit your account?

[Sarah]

I understand the payout is effectively automatic, however it's not guaranteed. The "work" involves random factors, so actual earnings can only be estimated and it's also competitive, so the lion's share of rewards are paid to nodes with the greatest 'hash rates' (computing power, etc). The amount of newly minted bitcoin available to reward 'miners' is fixed and decreasing over time to enforce scarcity; eventually (apparently by ~2140) essential blockchain work will simply earn fees.

https://www.investopedia.com/tech/how-d ... ining-work

[pabenny]

Where do the new coins come from. I know they don't physically exist, I mean where does the value come from? Is someone paying the 'miners' to do the work? Or is it just that if you churn through x million transactions, the system will just print some more money and credit your account?

You're into the whole philosophy of money now. Conventional money (known as fiat money) has value because issuing governments say so, and because we all accept that an intrinsically worthless piece of paper issued by the Bank of England can be exchanged for goods, and the recipient can in turn exchange the paper for more goods, etc.

In Zimbabwe, the government has subverted this by (literally) printing more bank notes. More money without more goods available results in prices rising (inflation), government prints more notes, more price rises, etc.

Bitcoin seeks to prevent this price spiral by having a pre-determined finite number of BTC and by making the process of creating new BTC difficult. I don't know whether other crypto-currencies have similar limitations.

And mining - think of gold prospecting as much as mining.

[Sarah]

"Celsius is Collapsing... Here's Why"
https://youtu.be/d5ll3ByaoHE

"The Implosion of Celsius Network - Halted Withdrawals"
https://youtu.be/EzBYQ72w-uI

If anyone here deposited with Celsius, I hope you got out in time!

[Chadwick]

So Bitcoin is basically people swapping usable cash for something that doesn't really exist? In the hope that they can later sell the nothing at a profit? Like a share in a company, except that there is no company and your share doesn't give you any voting rights or dividends. The value of your investment is not based on the performance of any person/company/entity/product - it is merely someone else's opinion of how much they want to spend on a bit of nothing.

If you invest enough time and money in a bank of computers to track all the transactions, you can earn some nothing for free (other than the cost of the computing). But there is only a limited - and decreasing - amount of nothing to be earned this way.


I suppose it's a bit like investing in fine wine. Your dusty bottle of vintage wine is worth a fortune right up until the moment you open it, at which point it is worthless. Its value is not based on its utility, but on what the next person might pay for it when you sell it.

Or debts. That's perhaps a better example. A debt has a value, but if you expend effort recouping the money, you eat into the value. But you can sell the debt on to someone else so that they notionally have the value. It's worthless, but valuable.


It still sounds like the emperor's new clothes to me.

[Sarah]

Yes the value of many crypto coins is primarily a reflection of sentiment. Bill Gates criticised them as such again yesterday.

"Bill Gates Blasts Crypto, NFTs as Based on ‘Greater-Fool’ Theory"
https://www.bloomberg.com/news/articles ... ool-theory

There is also crypto backed by other assets; in some cases the backing assets include other crypto and in some cases the house of cards is falling apart...