Crypto absolutely has value, and the price of Bitcoin will never go to zero. NFTs are useful.
That's because the value these things provide is money-laundering, bypassing of international financial regulations and tax fraud.
Yeah that's a superb value proposition right there, and definitely something we want to keep free and available /s
The current system is flawed in many, many ways, but none of it happened arbitrarily; the restrictions we have are the because malicious actors abused the system.
> For example, illegal transactions, scams and gambling together make up less than 3% of volume.
Note that:
1. This quote is talking specifically about bitcoin, not crypto overall
2. This paper is written by a notable crypto skeptic, so he's not using bro logic. He found the main usage by volume is speculation, with very little illegal activity.
In fact, the US underground economy is 11-12% of US GDP[1], which is a much worse proportion than bitcoin.
1. >flows to addresses which have been identified as illegal
These are only identified as illegal. First off, only a small number of adressess has been marked as illegal, since it doesn't make much sense to have everyone know the dirty deals you're making, most of the real illegal traffic is not there. Also a large number of DN markets uses 1-time wallets, so it's impossible to identify those.
2. Most of the traffic analysis is based on private to/from exchange and exchange to/from exchange data. As exchanges require a KYC, it can be assumed that most of the exchange routed transactions aren't illegal, or first go into a mixer if they are coming from an exchange, decreasing the odds that it can be classified as illegal.
3. Analysis was done in a crypto bubble market, where everybody and their moms were trading it on a daily basis to earn money.
In conclusion - the paper is bull. Yes, a large amount of usage is speculation, but illegal activity is way larger than assumed in the paper. But also, when you remove trading/gambling for speculative profits, what usages remain?
Mostly illegal ones, small amount of legal ones and a few believers.
The paper is not so simplistic as you make it sound.
1. They analyzed clusters of addresses, not individual addresses, so one-time addresses are accounted for (unless the vendor never collected their payment from the DN, in which case they gave away the drugs for free)
And anyway since 5 years ago all the DNMs use monero, not bitcoin, so talking about DNMs in the context of bitcoin is an anachronism. If you use a traceable currency with a public ledger for drugs, you're not very bright.
2. Volume associated with a mixer is classified as illegal in the paper, so it's part of the 3%. Bitcoin mixers are not plausibly deniable the way Tornado Cash is (because of UTXOs) - mixers still leave an obvious trail.
3. The analysis covers data from 2015-2021, so it covers two halving cycles.
> flows to addresses which have been identified as illegal
transactions, scams, and gambling together make up about 4% of the volume at the
beginning of our sample in 2015. By the end of of our sample in the middle of 2021,
this fraction has fallen to less than 0.4%
Illegal activity is 0.4% in a bull market and 4% in a bear market. Overall it averages to the headline 3%. You can infer speculation volume goes up 10x in a bull market.
As the other comment said, "illegal transactions" makes no sense. Al Capone's bank account did not receive directly millions from racket and drug selling. Everything in there was clean. Where did it come from ? Accounts that are also thought to be clean. Otherwise, if there were direct proof of illegal transactions, he'd have been arrested earlier.
The whole point of it is _not_ to get caught. In a space like cryptocurrencies where creating a new wallet to launder your money through and no longer have anything associated with evil_wallet_of_bad_illegal_man (which had all its funds sent to a tumbler and came back to the new account anyways). The whole point of underground transactions is to not be tracked.
is using bitcoin to transfer some of l your wealth out of country to avoid currency controls fraud? I don't think so but IANAL
I read that crypto is also being used for rapid cross country remittances, which may be totally legal.
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Don't think I'm a crypto fan. The value is all based purely on shared beliefs. At least government fiat is backed by the taxing authority (while undermined by the printing authority)
If it's being used instead of some other wire transfer in order to dodge government rules on capital controls etc, then yes it's used to evade the legal system and thus also fraud. The fees are not incredibly low nor is the service particularly user friendly or reliable compared to something like Western Union. Bitcoin et al is not providing a useful alternative to existing, legal services. They do of course provide an alternative for other services.
"main usage by volume being speculation" doesn't help the case. A little bit of speculation helps price discovery. A lot leads to tulips etc, and is very dangerous.
Fun fact: so are Rolex watches and so many other luxury nonsense products with a high price. Wear one on each arm. Travel via airplanes across borders. Sell the watches. Now you have a lot of untraceable cash. Fly back and forth for business purposes seven times in one week. Maybe bring more expensive watches, perhaps that $200,000 USD Patek Philippe is a great way to get that payoff across borders.
Crypto and NFTs are just easier, less risk, less chances of being caught.
Maybe we should talk diamonds. Inherently worthless objects, easy to hide and transport, easy to make part of jewelry, and thus free to transport almost anywhere. Yet that one tiny rock can cost tens of thousands and will allow the corrupt politician to sell for cash money perfectly fine.
Problem with that though is finding a buyer, let’s say I buy 2 rolexs for 50k, I want to pay off my dealer in Ireland, so I fly there with my two watches.. how do I sell them? Do I just hawk em in a pawn shop, if so would I still get back my 50k?
I buy 50k in bitcoin on a US exchange and send it to someone in Ireland and they transfer it to their exchange and cash it out do they get back exactly 50k?
Sometimes.. sometimes more, sometimes less.
The point is there is a crypto exchange they can cash out at, in fact many.. and usually the prices are similar across exchanges.
John’s pawn shop doesn’t offer the same price for the Rolex as Patricia’s pawn shop.. anyway.. not really important in the grand scheme of things.
Bitcoin bad mmmkay ;)
Even if the market price of crypto is magically stable and the exchanges are perfectly in sync, you're still paying the big-ask spread plus the fees to send the crypto itself.
I suspect in most cases Wise or similar would be cheaper and safer.
> Even if the market price of crypto is magically stable and the exchanges are perfectly in sync, you're still paying the big-ask spread plus the fees to send the crypto itself.
Today, I can buy USDC/USDT in the US, head to any country in SE Asia and sell it locally there, paying less in fees than I would with USD. No KYC on the receiving end.
Wise is a pain the KYC ass and has a lot of limits.
Diamonds are anything but "inherently worthless". Their exceptional hardness affords them many interesting industrial applications. And trying to write off their asthetic value as "not worth" requires a definition of "worth" that is at the very least extremely unintuitive.
E.O. Wilson once said of communism, 'Great idea, wrong species.' Whether or not that was true of communism, it seems true of crypto. It has brilliant technical ideas and clever solutions to problems with traditional currencies, but the result is a system that doesn't work in practice because of how human individuals, communities, and social systems function.
> The current system is flawed in many, many ways, but none of it happened arbitrarily; the restrictions we have are the because malicious actors abused the system
This seems like a good example of the just-world fallacy.
The current system absolutely has many arbitrary restrictions. The problems those restrictions allegedly solve don't have only one possible solution, but that's what we got stuck with.
Is it really accurate to call things “arbitrary”? Usually if you look at any safeguard you’ll find a real historical problem it was designed to reduce. Sometimes that’s something best solved otherwise – the drug war provides many examples of that - but I’d usually describe those as ineffective rather than arbitrary.
The distinction matters because it raises the question of that process repeating again. Since it’s not random, the same forces will push in the same direction unless those problems can be recognized and countered in a different means.
I think an outcome that could have gone another way but for some random historical circumstance counts as arbitrary.
For instance, do you think our regulatory framework would look the same today had Prohibition not happened? That's a case where the State created a problem (black market funding large scale organized crime) and then added yet more rules to try and fix that problem.
Edit: so one could argue that we "need" those regulations because of crime, but another could say if we eliminate the prohibitions funding those crime syndicates, then the problem is equally solved. Doesn't that make those regulations kind of arbitrary?
The common definition of “arbitrary” has a connotation of randomness to it. My point was that this isn't random but directed, and that if you don't understand who those rules serve you'll just end up repeating it in a different form or having the old rule adapted for new purposes, similar to how various measures originally intended to prevent alcohol or drug money being laundered were repurposed as part of the War on Terror but they all stemmed down to the base problem of law enforcement wanting a way to trace previously anonymous cash flows.
Since this was a very vaguely defined claim, it might be more useful if you had something specific to talk about.
> The common definition of “arbitrary” has a connotation of randomness to it. My point was that this isn't random but directed
Yes, it's directed at solving a problem, but the specific solution we arrived at is somewhat random. I'm not sure how to make this clearer.
If you take any set of historical problems and the regulations that were intended to address them, do you agree that a different set of regulations could have solved the same problems? If different ones would also have worked, then aren't the ones we ended up with somewhat arbitrary?
Bitcoin is a useful mechanism for exchanging value, but NFTs have yet not shown any utility. The difference is that a currency only needs to solve scarcity and double spend, which blockchains accomplish, but ownership of property requires physical and/or legal protections, which they do not. Once you introduce an organization that enforces property rights there's no reason to use an expensive blockchain instead of a cheap Merkle tree.
>...but ownership of property requires physical and/or legal protections, which they do not.
This is not true for digital property. Digital property is just as "made up" as the NFT that proves its ownership. People hear "NFT" and for some inexplicable reason jump to physical art.
If the network believes, by whatever consensus methods for proof of ownership that are employed by this network, that you own one coin then those same methods can be used so that the network can believe that you own a certain digital asset. That ownership is just as real as the ownership of a coin.
What people get confused with is the concept of copying or using (both are actually the same problem) this asset. But, this is not an NFT problem, it is a digital problem. All digital assets have this problem, if you give me the asset I can copy and use it without your consent.
Example: I can trivially copy the entire Netflix catalogue on my hard-drive. Since those bits land on my system to be shown on a screen they can just as easily land on my HD as an mp4 file. Are we on any disagreement that Netflix owns those shows? No. But once made available to me, I can use them however I want. Ownership and "use" are to unrelated things when it comes to digital.
Why would anyone care about digital ownership? The only reason anyone cares about bitcoin is you can translate it in to physical ownership of things later.
Digital ownership is enforced by the code that’s interpreting the data, so the app publisher is the organization responsible for enforcing property rights. Tokens signed by an app-trusted key solve the problem with almost zero resource cost.
Digital ownership is enforced by laws and nothing else. There is no amount of code that can technically prevent me from copying any data that lands on my system.
>Tokens signed by an app-trusted key solve the problem with almost zero resource cost.
This ensures safety against access and not against copying. Of course I can not copy assets I don't have access to but the same is true for NFTs.
I’m not aware of any legal protections available to the person holding the private key that last signed an NFT. Digital property rights are enforced by client apps / DRM as well as legal trade agreements, but legal enforcement will be based on traditional registrations and won’t cover on-chain NFT transactions. You can buy my house’s NFT, but I will still legally own my house. Since, as you point out, DRM can always be broken, there is effectively no enforcement of NFT property rights at all.
Please refer back to my original comment about people hearing NFTs and for some reason which I fail to understand jump to "physical property". NFTs do not work for physical property but they do for digital.
Enforcement of digital rights is actually easier via NFTs than contracts/client apps etc. because NFTs mathematically can prove ownership (courts just have not caught up yet).
Gambling. Crypto is globalized gambling. It's a money laundering vector, for sure, but for the same reasons crypto competes poorly in the transaction market it's close to a last resort for high-volume launderers.
Completely and utterly unlike and in no way whatsoever similar, at all, to stock markets, futures exchanges, CFDs, options, CDOs, etc, etc, etc.
Crypto is just a speculative digital asset. Sure it's been a playground for all kinds of scams and charlatanry, because there's no oversight, just as stock markets once were (and still can be in some areas eg pink sheets), but crypto is not a scam in itself.
Notably unregulated gambling available without oversight and also readily available to addicts and children. Helpful in smashing down that redundant bureaucratic red tape the gambling industry so desperately is in need of at the small price of destroying, debilitating or general increase in suffering in peoples lives.
> The current system is flawed in many, many ways, but none of it happened arbitrarily; the restrictions we have are the because malicious actors abused the system.
And from that you can tell you live in a nice country with reasonable laws. You can't fathom that not all countries are like that.
That is a fault of their own systems, not the system I live within.
If people in Venezuela want to use bitcoin, they can go ahead. That doesn't mean we should embrace is in the Western world. It's a net negative for us.
The western system sucks too. In the US it's still federally illegal to buy weed and it can be very difficult to get abortion pills depending on your state. Darknet markets are desperately needed
Financial regulations differ. For example, in a certain country at this very time, transferring money for another country's defense fund is punishable by 20 years of hard labor in very very cold places. The system where governments have complete control over money transfers is only a few decades old. Before that, people actually had some freedom in how they spend their money.
Bitcoin has theoretical value. However, how many people are in bitcoin because of said reasons? I'd argue less than 1%. The other >99% are in it to make money out of thin air. So indeed, the value will never go to zero but the current nominal value of bitcoin is orders of magnitude higher than the intrinsic value.
You identified a source of genuine (if perhaps undesirable) value for cryptocurrency, but not necessarily bitcoin.
And is BTC goes close enough to zero, double spend protection becomes increasingly tenuous, and the incentive to switch to something else gets stronger.
That's because the value these things provide is money-laundering, bypassing of international financial regulations and tax fraud.
Yeah that's a superb value proposition right there, and definitely something we want to keep free and available /s
The current system is flawed in many, many ways, but none of it happened arbitrarily; the restrictions we have are the because malicious actors abused the system.