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No, your cryptocurrency cannot work

No, your cryptocurrency cannot work

Whenever the topic of Bitcoin's energy usage comes up, there's always a flood of hastily-constructed comments by people claiming that their favourite cryptocurrency isn't like Bitcoin, that their favourite cryptocurrency is energy-efficient and scalable and whatnot.

They're wrong, and are quite possibly trying to scam you. Let's look at why.

What is a cryptocurrency anyway?

There are plenty of intricate and complex articles trying to convince you that cryptocurrencies are the future. They usually heavily use jargon and vague terms, make vague promises, and generally give you a sense that there must be something there, but you always come away from them more confused than you were before.

That's not because you're not smart enough; that's because such articles are intentionally written to be confusing and complex, to create the impression of cryptocurrency being some revolutionary technology that you must invest in, while trying to obscure that it's all just smoke and mirrors and there's really not much to it.

So we're not going to do any of that. Let's look at what cryptocurrency really is, the fundamental concept, in simple terms.

A cryptocurrency, put simply, is a currency that is not controlled by an appointed organization like a central bank. Instead, it's a system that's built out of technical rules, code that can independently decide whether someone holds a certain amount of currency and whether a given transaction is valid. The rules are defined upfront and difficult for anybody to change afterwards, because some amount of 'consensus' (agreement) between the systems of different users is needed for that. You can think of it kind of like an automated voting process.

Basically, a cryptocurrency is a currency that is built as software, and that software runs on many people's computers. On paper, this means that "nobody controls it", because everybody has to play by the predefined rules of the system. In practice, it's unfortunately not that simple, and cryptocurrencies end up being heavily centralized, as we'll get to later.

So why does Bitcoin need so much energy?

The idea of a currency that can be entirely controlled by independent software sounds really cool, but there are some problems. For example, how do you prevent one person from convincing the software that they are actually a million different people, and misusing that to influence that consensus process? If you have a majority vote system, then you want to make really sure that everybody can only cast one vote, otherwise it would be really easy to tamper with the outcome.

Cryptocurrencies try to solve this using a 'proof scheme', and Bitcoin specifically uses what's called "proof of work". The idea is that there is a finite amount of computing power in the world, computing power is expensive, and so you can prevent someone from tampering with the 'vote' by requiring them to do some difficult computations. After all, computations can be automatically and independently checked, and so nobody can pretend to have more computing power than they really do. So that's the problem solved, right?

The underlying trick here is to make a 'vote' require the usage of something scarce, something relatively expensive, something that you can't just infinitely wish into existence, like you could do with digital identities. It makes it costly in the real world to participate in the network. That's the core concept behind a proof scheme, and it is crucial for the functioning of a cryptocurrency - without a proof scheme requiring a scarce resource of some sort, the network cannot protect itself and would be easy to tamper with, making it useless as a currency.

To incentivize people to actually do this kind of computation - keep in mind, it's expensive! - cryptocurrencies are set up to reward those who do it, by essentially giving them first dibs on any newly minted currency. This is all fully automated based on that predefined set of rules, there are no manual decisions from some organization involved here.

Unfortunately, we're talking about currencies, and where there are currencies, there is money to be made. And many greedy people have jumped at the chance of doing so with Bitcoin. That's why there are entire datacenters filled with "Bitcoin miners" - computers that are built for just a single purpose, doing those computations, to get a claim on that newly minted currency.

And that is why Bitcoin uses so much energy. As long as the newly minted coins are worth slightly more than the cost of the computations, it's economically viable for these large mining organizations to keep building more and more 'miners' and consuming more and more energy to stake their claim. This is also why energy usage will always go up alongside the exchange rate; the more a Bitcoin is 'worth', the more energy miners are willing to put into obtaining one.

And that's a fundamental problem, one that simply cannot be solved, because it is so crucial to how Bitcoin works. Bitcoin will forever continue consuming more energy as the exchange rate rises, which is currently happening due to speculative bubbles, but which would happen if it gained serious real-world adoption as well. If everybody started using Bitcoin, it would essentially eat the world. There's no way around this.

Even renewable energy can't solve this; renewable energy still requires polluting manufacturing processes, it is often difficult to scale, and it is often more expensive than fossil fuels. So in practice, "mining Bitcoins on renewable energy" - insofar that happens at all - means that all the renewable energy you are now using could not be distributed to factories or households, and they have to continue running on non-renewable energy instead, so you're just shuffling chairs! And because of the endless growth of Bitcoin's energy consumption, it is pretty much guaranteed that those renewable energy resources won't even be enough in the end.

So there's this proof-of-stake thing, right?

You'll often see 'proof of stake' mentioned as an alternative proof scheme in response to this. So what is that, anyway?

The exact implementations vary and can get very complex, but every proof-of-stake scheme is basically some variation of "instead of the scarce resource being energy, it's the currency itself". In other words: the more of the currency that you own, the more votes you have, the more control you have over how the network (and therefore the currency) works as a whole.

You can probably begin to see the problem here already: if the currency is controlled by those who have most of it, how is this any different from government-issued currency, if it's the wealthy controlling the financial system either way? And you'd be completely right. There isn't really a difference.

But what you might not realize, is that this applies for proof-of-work cryptocurrencies too. The frequent claim is that Bitcoin is decentralized and controlled by nobody, but that isn't really true. Because who can afford to invest the most in specialized mining hardware? Exactly, the wealthy. And in practice, almost the entire network is controlled by a small handful of large mining companies and 'mining pools'. Not very decentralized at all.

The same is true for basically every other proof scheme, such as Chia's "proof of space and time", where the scarce resource is just "free storage space". Wealthy people can afford to buy more empty harddrives and SSDs and gain an edge. Look at any cryptocurrency with any proof scheme and you will find the same problem, because it is a fundamental one - if power in your system is handed out based on ownership of a scarce resource of some sort, the wealthy will always have an edge, because they can afford to buy whatever it is.

In other words: it doesn't actually matter what the specific scarce resource is, and it doesn't matter what the proof scheme is! Power will always centralize in the hands of the wealthy, either those who already were wealthy, or those who have recently gotten wealthy with cryptocurrency through dubious means.

The only redeeming feature of proof-of-stake (and many other proof schemes) over proof-of-work is that it does indeed address the energy consumption problem - but that's little comfort when none of these options actually work in a practical sense anyway. This is ultimately a socioeconomic problem, not a technical one, and so you can't solve it with technology.

And that brings us to the next point...

Yes, cryptocurrencies are effectively pyramid schemes

While Bitcoin was not originally designed to be a pyramid scheme, it is very much one now. Nearly every other cryptocurrency was designed to be one from the start.

The trick lies in encouraging people to buy a cryptocurrency. Whoever is telling you that their favourite cryptocurrency is the real deal, the solution to all problems, probably is holding quite a bit of that currency, and is waiting for it to appreciate in value so that they can 'cash out' and turn a profit. The way to make that value appreciation happen, is by trying to convince people like you to 'invest' or 'get in' on it. If you buy the cryptocurrency, that will drive up the price. If a lot of people buy the cryptocurrency, that will drive up the price a lot.

The more hype you can create for a cryptocurrency, the more profit potential there is in it, because more people will 'buy in' and drive up the price before you cash out. This is why there are flashy websites for cryptocurrencies promising the world and revolutionary technology, this is why people on Twitter follow you around incessantly spamming your replies with their favourite cryptocurrency, this is why people take out billboards to advertise the currency. It's a pump-and-dump stock.

This is also the reason why proponents of cryptocurrencies are always so mysterious about how it works, invoking jargon and telling you how much complicated work 'the team' has done on it. The goal is to make you believe that 'there must be something to it' for long enough that you will buy in and they can sell off. By the time you figure out it was all just smoke and mirrors, they're long gone with their profits.

And then the only choice to recoup your investment is for you to hype it up and try to replicate the rise in value. Like a pyramid scheme.

The bottom line

Cryptocurrency as we know it today, simply cannot work. It promises to decentralize power, but proof schemes necessarily give an edge to the wealthy. Meanwhile there's every incentive for people to hype up worthless cryptocurrencies to make a quick buck, all the while disrupting supply chains (GPUs, CPUs, hard drives, ...), and boiling the earth through energy usage that far exceeds that of all of Google.

Maybe some day, a legitimate cryptocurrency without Bitcoin's flaws will come to exist. If it does, it will be some boring research paper out of an academic lab in three decades, not a flashy startup promising easy money or revolutionary new tech today. There are no useful cryptocurrencies today, and there will not be any at any time in the near future. The tech just doesn't work.


Moderation note: Because of the hype and manipulation issues explained above, I will be very strictly moderating these comments. Anything that vaguely looks like shilling or bad-faith arguing will be deleted unceremoniously, and the poster reported. That includes complaints about the moderation policy. It's up to you to make it obvious that you are discussing in good faith.

@dm17
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dm17 commented Dec 15, 2021

I don't get how that is the logical conclusion. Doesn't the government require more tax money to regulate stuff? Aren't they in a deep enough hole already? Everyone just needs to get a garden and work on real things. Not banning concepts encoded into blockchains. The ignorance of not being able to see this is the issue... As long as that ignorance exists - and it will due to a widespread delusions and breakdown of the fabric of society - then such nonsense concepts will exist. And money laundering will just find another outlet.

@mk-pmb
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mk-pmb commented Dec 15, 2021

Some of the better technical alternatives are only theoretical though, would be possible in an ideal world. Political problems make some of the good solutions unusable for some parts of mankind, so for them, crypto currencies are the current-best actually available solution. That's probably why they use them.

@assignonward
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assignonward commented Dec 15, 2021

So, what I would like to see evolve is cryptocurrency as personal debt. Same tech as proof of stake, except the primary stakeholder in each currency is an individual, or small business or other organization. You control "your coin" and issue it with a non-legally binding intent to return value when holders of "your coin" redeem it with you. Like the gold/silver standard U.S. dollar was, in theory, a promise by the government to exchange the note for a certain quantity of metal. The multitude of coins become fungible, instantly globally exchangeable, auditable, trackable, and each can establish their value through a history of providing value in exchange for redemption.

It's a bit "out there" from the current standard of: "I'm launching a new coin, we've got $200M in backing and blah blah blah." How do you expect anything to change if it's all backed by the same patterns and systems that startup companies hoping to become the next Unicorns are launched, and owned and controlled, today?

@pateljoel
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pateljoel commented Dec 15, 2021

@dm17 OK, So I understand your solution is to ignore them then? I'm not sure if doing nothing would reduce the harm they are currently doing right? This is getting too big to ignore and at some point, I believe this will force governments to act on this, so I disagree, there is a possibility for some governments to ban, regulate or at worst, accept them (shame on them!).

As much as I want to work on other things, the ransomware, exchange hacks, money laundering and financial harm this is doing to people around me unfortunately makes this is really hard problem to ignore for them. Educating the public about this is also an option which is why i'm talking to my friend about this. Since as you and the author said there is no good or usefulness in this at all then the next step only makes sense to my points above.

@mk-pmb I can accept we don't live in an ideal world and I believe I asked if there are any that are close to this goal that exists. I am OK if there aren't any.

@assignonward This seems interesting ideally, I believe some governments / banks have been talking about CBDCs (Central Bank Digital Currencies) not sure if this is similar, hopefully they shouldn’t have any startup backing which would irritate me greatly. I haven't seen any recent ICO's popping up and the SEC in the US has started looking at and banning ICO's to protect the consumer, so I believe there is some change happening there.

@dm17
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dm17 commented Dec 15, 2021

It seems like you didn't understand what I wrote somehow... Cryptos are about to get a lot bigger - because there is massive fiat being printed and because fiat currencies are failing and cryptos are going to blow up as a supposed alternative. It is an ideal global currency and the global governmental efforts basically shut down every country on the same day last year - if you recall. These same organizations have written extensively for decades that they want a one world currency that is 100% trackable: a digital currency. Even in India have they been able to successfully ban certain cash from circulation.
You want the government to somehow enforce that people can't use computers in some very specific ways when in every major American city they can't enforce against petty crime anymore? "As much as I want to work on other things..." The state of the world in 10y from now is going to shock most people - especially those who think they can stop "financial harm" to the majority using some combination of government, technology, and coercion. You're in an airplane with all engines & controls broken and you're worried about what kind of drinks the flight attendants are allowed to serve. It doesn't matter.

@shikari7
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shikari7 commented Dec 16, 2021

@dm17 that is nonsense that "fiat are failing". People have been saying that for 100 years ever since we went off the gold standard. Cryptocurrency (not "crypto" because that is cryptography) are the only actively traded asset in the world that have ZERO intrinsic utility.

No yield. No return. Not insured. Not backed by anything.

Zero sum. aka Ponzi scheme. All Ponzi schemes collapse eventually. The only money going into the system comes from more fools rushing in to buy it. That's Zero sum. It's not a viable currency or asset. It's literally digital monopoly money. When you buy a 'bitcoin' (or any other cryptocurrency) all you 'own' is a random number stored in a database.

Regulation (when it finally comes) will break it. Blockchain is 30 year old technology still looking for a viable use case. It's incapable of reversing transactions. Well, modern finance (400 years of history) require the ability to reverse transactions. It's anonymous. No records of who owns what wallets. Once that is required, the Tether fraud blowing up the bubble will immediately come to an end and it will all crash.

@assignonward
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assignonward commented Dec 16, 2021

@shikari7 I agree that cryptocurrency is a zero sum game, even worse for proof of work due to the energy requirements, but it does serve many practical purposes already (see the Linux foundation's material about B2B blockchain applications in supply chain, hyperledger etc.). Fiat currency is also a zero sum game, but it serves the purpose of shaping people's behavior.

Although cryptocurrency is currently mostly greed driven, based on people wanting to strike it rich, it also is shaping people's behavior and can find a utility similar to fiat currency in the future. I think you are right that stronger regulation is coming, just as gambling is regulated. I don't think regulation will ever completely shut down the use of all cryptocurrency.

As for not being able to reverse transactions, show a little imagination. The original transaction is recorded permanently on the blockchain, as is the reversal of the transaction. Both records have to be paid for, which is a problem for proof of work chains with their high recording costs, but not for low energy chains like proof of stake and similar.

@dm17
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dm17 commented Dec 16, 2021

@shikari7 I don't disagree, but many people will be made to think & distrust their own local fiats. Some will surely fall. But I don't actually think USD will - but even the mainstream is pushing USD hyperinflation in many places now. Whereas it is actually supply chain failures causing most of the effects they're claiming are hyperinflation. So that was my point - people fleeing and converting their wealth into nonsense that pumps things like cryptocurrencies.

@mk-pmb
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mk-pmb commented Dec 18, 2021

Edit: I had a brainfart. (Can't mark my own post as off-topic.) @shikari7 wrote:

Cryptocurrency (not "crypto" because that is cryptography)

I've read that the block chaining is done using cryptographic signatures, and the proofs (of stake or work) are done using cryptographic hashes.

@assignonward
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assignonward commented Dec 18, 2021

@shikari7 blockchains are created using cryptographic hashes. A cryptographic hash is a "one way" conversion of any size of data into a short sequence of bits. When a block of data is hashed with a given algorithm, the hash is always the same, but it is very hard (near impossible for a good hash algorithm) to reverse the calculation and compute the data from just the hash. It is also near impossible to create a "hash collision" where a different block of data generates the same hash, but partial collisions are possible, which is what proof of work is based on.

For proof of work, you take a block of data, add a "nonce" to it, then compute the hash. You keep guessing nonces until you find one that results in a hash that ends in a string of 0s. The longer the string of 0s you want at the end of the hash, the more nonces you will have to try to find a string that long, on average - each one has the same small probability of being a nonce which will give you that many 0s at the end of the hash. This is how they scale difficulty for proof of work, they adjust the number of 0s required at the end of the hash until it takes the pool of miners approximately 10 minutes (for BTC) to guess a nonce. When there are so many miners that they are guessing the nonce too quickly, the algorithm requires a longer string of 0s in the proof of work hash result which slows them down.

A crypto signature is a proof that the holder of a secret (the private key) used that key on some data: "signed" the block. Incidentally, the signature is usually applied to a hash of the data, since it's quicker to compute the signature on a short hash than a large block of data. Using the public key that matches the secret private key, you can decrypt the signature, then compute the hash on the block to verify that the decrypted signature matches the hash of the block - proving the block is signed. This is how you "own" cryptocurrency, it is assigned to the public key of your wallet. Then, when you want to spend it, you use the private key of the wallet to sign the transfer record giving the currency to another wallet.

A blockchain can hold records of cryptocurrency transactions, or not. All a blockchain is is a series of blocks of data where each block includes the hash of the previous block. A change to any data in any block will change its hash, which then changes the hash of every block that follows it.

256 bit hashes are popular these days, but basically any size is theoretically possible. The key is that the hashing algorithm is known, repeatable, and has been shown to be secure from short-cut collision computation. The older MD4 and MD5 hashing algorithms have been shown to be somewhat easier to compute collisions for than their length can theoretically be, but newer algorithms like SHA2 and SHA3 are still believed to require guessing 2^length nonces (on average) to generate a "length" sized collision in them. 2^256 is a really big number.

@shikari7
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shikari7 commented Dec 18, 2021

@mk-pmb @assignonward in the same way we don't call bread "flour" nor should we call cryptocurrency "crypto"

https://www.theguardian.com/technology/2021/nov/18/crypto-cryptocurrency-cryptographers

@shikari7
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shikari7 commented Dec 18, 2021

@assignonward proof of work is terrible yes but has nothing to do with it - all cryptocurrency are zero sum in exactly the same way and to the same degree. 100% and the only source of any yield or return is new "investors". That means they are all zero sum. 100% speculation.

Cryptocurrency are the only actively traded asset in the world for which this is true.

hyperledger is not a use case for a blockchain. hyperledger is a type of blockchain similar to how Oracle or MongoDB are types of database.

In fact, blockchain is just a type of database.

You confuse intrinsic utility with utility. We don't say we use wheat because of it's utility, we say we use wheat because of it's intrinsic utility. That is to say, wheat has an intrinsic use case BEFORE we ever use it. Because it's so useful for making food. In the same way, we don't use dollars because they have utility - because it's easy to get dollars from the ATM or easy to spend them or exchange or whatever - we use dollars because we pay our taxes with it and because dollars are backed and insured by the issuing nation (true of all fiat).

I'm talking about intrinsic utility. Gold has intrinsic utility in industry and decorative purposes. Oil. Lumber. Art. Vintage cars. All these things have intrinsic utility (use cases that form creative or artist purposes). Inherently. All of this comes before FOREX, ATM machines, the grain exchange, banks, wire transfers, etc.

Cryptocurrency has NO intrinsic utility. It's no more than digital monopoly money. There is no getting around this. The technology used to store or trade it is irrelevant and that technology could just as easily be used with dollars or any asset that actually does have intrinsic utility.

Fiat is not zero sum. Fiat REPRESENTS a creative / productive concern. The issuing nation. And fiat is insured and backed. The issuing nation is actively producing goods and services. Cryptocurrency represents nothing. So you are wrong on that too. The dollar has value because people have confidence in the United States. The Euro has value because people have confidence in the EU. The Peso has value because people have confidence in Mexico. Those levels of confidence vary for a multitude of reasons at any time, which affects the value of those currencies,

Cryptocurrency represents literally nothing.

Also, cryptocurrency is not decentralized. And replaces democratically elected elites with self-appointed, opaque and unaccountable elites.

Too many tech people get caught up in the technology without looking at whats inside. And with cryptocurrency, there is literally nothing inside. When you buy a 'bitcoin' you literally 'own' a random number. That's it. It's that stupid.

When regulation arrives, it's going to force the same rules that apply to all finance. And blockchain for example, will break because it's literally unable to reverse transactions, for starters. You are right this may matter less for proof of stake, but proof of space, work etc will break. And those aren't going away of their own volition.

Also wallets will no longer be anonymous. Delays and audits will be forced to occur to prevent fraud just like regular transactions. And so on. This will neuter cryptocurrency as a use case for its primary purpose, which is ransomware, money laundering and tax evasion. And when the Tether fraud is uncovered finally, that and the regulations will blow a hole in all the pump and dumps that are going on. See e.g. https://twitter.com/doctorow/status/1467858411207331840?s=20

This means the cryptocurrency bubble will collapse as all Ponzi schemes do. Some people will come out ahead but most will lose their investments and be harmed. Like all Ponzi schemes do.

Cryptocurrency is 100% greed driven. There is no getting around this. You should watch these two videos:

TED talk: https://youtu.be/UK0ATammdRo

If Crypto Was Honest: https://youtu.be/GUs5y9leCyA

"Like all good currencies, #Rogecoin should be hoarded forever."

@shikari7
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shikari7 commented Dec 18, 2021

@assignonward do let me know what the material difference between Monkey Jizz and Bitcoin is:

https://www.vice.com/en/article/n7nw4k/unbelievable-monkey-jizz-cryptocurrency-turns-out-to-be-a-scam

@assignonward
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assignonward commented Dec 19, 2021

@shikari7 None. It is the same as the difference between the Zimbabwe dollar and the U.S. dollar. They are worth what people, collectively, believe they are worth. Belief, or lack thereof, in that value affects how people behave when you offer it to them. There are legions of troops, courts, etc. who will back up that belief in the U.S. dollar, but ultimately: its value is that which people have assigned to it.

Bitcoin is operating a much more successful Ponzi scheme than Monkey Jizz, for the time being. Same can be said of the U.S. dollar vs. the Zimbabwe dollar.

When people believe a thing has value, then it has value, and people will trade other things they value for it. That value can be translated to food, shelter, entertainment, whimsy, weapons, police and military actions on nation-state scale, whatever. All it takes is for people to believe.

@assignonward
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assignonward commented Dec 19, 2021

@shikari7 "Cryptocurrency has NO intrinsic utility." It has the same intrinsic utility as wire transfers of funds. It operates on a different infrastructure that, so far, has successfully functioned without threat of enforcement by courts or police action. Legal regulation of cryptocurrencies may soon change the nature of that success, but as I said before, I doubt it will extinguish their utility altogether.

"Cryptocurrency represents literally nothing." It represents whatever people say it represents, just like a slip of paper with a portrait and some numbers on it.

"And replaces democratically elected elites with self-appointed, opaque and unaccountable elites." See, and this is where I believe there is room for innovation in the present implementation. The same tech which allows opaque and unaccountable elites to "control" large cryptocurrencies can empower smaller entities, even individuals, business people, hobbyists, reasonably educated children, to control their own cryptocurrencies and exchange them with other transparent and accountable people's cryptocurrencies. http://assignonward.com/IslandLife.html

"And blockchain for example, will break because it's literally unable to reverse transactions, for starters." If you're this inflexible in your thinking, don't bother making argument. As for not being able to reverse transactions, show a little imagination. The original transaction is recorded permanently on the blockchain, as is the reversal of the transaction.

"Also wallets will no longer be anonymous." Wallets never were anonymous, they were obscure, but they are far FAR more traceable than cash transactions ever were. My buddy Cory "gets it" better than most. Every old trick in the book which has been used to manipulate stocks for decades has been applied to all the cryptocurrencies, and let run unchecked due to that lack of regulation. Sooner or later the regulation will come, but like the stock markets, it's not going to be 100% effective, not even close.

"Cryptocurrency is 100% greed driven." Nothing is absolute, but do you even read what I write? it's all just a short scroll up: cryptocurrency is currently mostly greed driven, based on people wanting to strike it rich

@shikari7
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shikari7 commented Dec 19, 2021

@assignonward

None. It is the same as the difference between the Zimbabwe dollar and the U.S. dollar. They are worth what people, collectively, believe they are worth. Belief, or lack thereof, in that value affects how people behave when you offer it to them. There are legions of troops, courts, etc. who will back up that belief in the U.S. dollar, but ultimately: its value is that which people have assigned to it.

Incorrect. Zimbabwe and US dollars are not the same because they each represent the productivity and credibility of their issuing nations, which are materially as well as perceptively different. Cryptocurrencies have no productivity. They have no inherent use case for producing goods and services. Issuing nations do produce goods and services. Therefore all cryptocurrencies are the same with no intrinsic utility. Therefore there is no use case to drive demand. With cryptocurrency, the only reason Bitcoin is worth more than Monkey Jizz is because of perception. Not because of any material difference. Without intrinsic utility, you have a Ponzi scheme. Digital Monopoly money. You cannot get around this.

Cryptocurrencies are just random numbers. Their value comes 100% from perception. They do not have any inherent use case or represent anything creative. You cannot get around this either.

This means there is no material difference between Bitcoin and Monkey Jizz. Literally and Figuratively.

  • Stock represents a creative concern, which is paying salaries and creating goods and services and often pays dividends
  • Fiat represents a creative concern which is creating goods and services
  • Wheat has an intrinsic use case
  • Cryptocurrency represents nothing and has no inherent use case

So again, cryptocurrency is the only actively traded "asset" in the world with no intrinsic utility. This means it is zero sum. The only source of return is more investors.

Bitcoin is operating a much more successful Ponzi scheme than Monkey Jizz, for the time being. Same can be said of the U.S. dollar vs. the Zimbabwe dollar.

Again, fiat is not a Ponzi scheme. You've already been debunked on this. Also, we're not measuring the "success" of Ponzi schemes, the topic here is that all cryptocurrencies are Ponzi schemes of varying sizes.

When people believe a thing has value, then it has value, and people will trade other things they value for it. That value can be translated to food, shelter, entertainment, whimsy, weapons, police and military actions on nation-state scale, whatever. All it takes is for people to believe.

You confuse (as many do) value (which is a belief) with intrinsic utility. Intrinsic utility comes FIRST.

  1. Wheat has intrinsic utility
  2. Intrinsic utility creates Demand
  3. Demand creates Supply
  4. Supply and Demand create Value

Same for Gold. Lumber. Oil. Etc.

By your logic, a Ponzi scheme has intrinsic utility. It does have value - because people believe it - but since it has no intrinsic utility and does not directly represent anything that does (like fiat), it is a Ponzi scheme that will collapse as soon as people realize the fraud.

"Cryptocurrency has NO intrinsic utility." It has the same intrinsic utility as wire transfers of funds. It operates on a different infrastructure that, so far, has successfully functioned without threat of enforcement by courts or police action. Legal regulation of cryptocurrencies may soon change the nature of that success, but as I said before, I doubt it will extinguish their utility altogether.

Incorrect again. Wire transfers are in no shape or form intrinsic. You again confuse utility with intrinsic utility. By your logic, the grain exchange is the source of intrinsic utility of wheat.

"Cryptocurrency represents literally nothing." It represents whatever people say it represents, just like a slip of paper with a portrait and some numbers on it.

Value without intrinsic utility is Ponzi scheme. A slip of paper with a portrait and some numbers on it directly represents a creative concern, producing goods and services and backed and insured by that creative concern. Cryptocurrency represents nothing. It's just a random number with no use case. Digital Monopoly money, You've been debunked on this again.

Cryptocurrency is the equivalent of the serial number on a gold bar. Minus the gold.

"And replaces democratically elected elites with self-appointed, opaque and unaccountable elites." See, and this is where I believe there is room for innovation in the present implementation. The same tech which allows opaque and unaccountable elites to "control" large cryptocurrencies can empower smaller entities, even individuals, business people, hobbyists, reasonably educated children, to control their own cryptocurrencies and exchange them with other transparent and accountable people's cryptocurrencies. http://assignonward.com/IslandLife.html

What you are proposing is just more cryptocurrencies. We already have thousands of them. To take your logic to the logical conclusion, every one of us should have our own cryptocurrency. That's the only way to get full accountability and transparency. However obviously that's not scalable and would still not be decentralized because in order to do business with others one would have to get an exchange to be willing to accept my EricTokens for your tokens - and charge a fee for every transaction. Those exchanges would control the markets, could be prejudiced without accountability or transparency, etc so then we're back to where we are now with cryptocurrency, only even worse.

"And blockchain for example, will break because it's literally unable to reverse transactions, for starters." If you're this inflexible in your thinking, don't bother making argument. As for not being able to reverse transactions, show a little imagination. The original transaction is recorded permanently on the blockchain, as is the reversal of the transaction.

You don't understand how blockchain works. Even if blockchain could reverse a transfer or simply enter another identical but reversed transaction, there is no bank to force this. And no exchange can force this without terminating their business. We've already seen this - massive bitcoin theft a few months ago the only reason it was (partially) returned was that the exchange ASKED them to return it. So again, the whole system is going to be broken by regulation.

"Also wallets will no longer be anonymous." Wallets never were anonymous, they were obscure, but they are far FAR more traceable than cash transactions ever were. My buddy Cory "gets it" better than most. Every old trick in the book which has been used to manipulate stocks for decades has been applied to all the cryptocurrencies, and let run unchecked due to that lack of regulation. Sooner or later the regulation will come, but like the stock markets, it's not going to be 100% effective, not even close.

Wallets are anonymous. The ADDRESS of a wallet is not anonymous but the OWNER is. So many crypto bros confuse this. We're not talking about cash transactions so don't even try to muddy the waters with that.

"Cryptocurrency is 100% greed driven." Nothing is absolute, but do you even read what I write? it's all just a short scroll up: cryptocurrency is currently mostly greed driven, based on people wanting to strike it rich

Cryptocurrency is 100% greed driven. That's because it has no intrinsic utility. This means it is 100% speculation. Speculation is greed. So don't try to play word games. You said "currently mostly" - I'm saying that's platitude nonsense. There is nothing that's going to change cryptocurrency from being digital monopoly money (random numbers) to something with intrinsic utility which means it will always be 100% speculation. There is no getting around this.

The Tether fraud is going to be uncovered. That and regulation are going to put a stop to the pump and dump schemes (as I noted above with that tweet), which are the only things keeping the bubble growing.

And as I noted elsewhere, the technology is not suitable for real world use (the max bitcoin transaction rate is 3/second globally) and where the ideas are good (and do not conflict with regulation) there is nothing stopping that tech from being digitally useful with real currency or assets.

What's taking you so long to watch those videos and provide feedback? Here's a highly technical commentary, in case you are technical:

https://youtu.be/xCHab0dNnj4

@mk-pmb
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mk-pmb commented Dec 19, 2021

Edit: Apology for above brainfart. (Can't mark my own post as off-topic.) @shikari7 I totally agree. Thanks for the analogy, it literally opened my eyes. Earlier, I had somehow misread it to be about whether to put a space after crypto. Sorry for the noise. I'll try mark those posts as off-topic.

@assignonward
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assignonward commented Dec 19, 2021

"they each represent the productivity and credibility of their issuing nations" And, how would this be different from the productivity and credibility of the issuing individuals, small businesses, etc. ?

"What you are proposing is just more cryptocurrencies." I am proposing cryptocurrencies backed by the productivity and credibility of issuing entities - much the same as how credit cards have been issued for 40+ years, but this go around without the mega-corporations, court systems, and police involvement - that's a lot of overhead to cut out, and while that overhead gives people the "warm fuzzies" that bad actors will be punished, so they can trust the system, who are the real bad actors in this world: the people you trade with every day, or the mega corporations, courts, and police?

"Cryptocurrencies are just random numbers." "Cryptocurrency is the equivalent of the serial number on a gold bar. Minus the gold." If this is what you think then you should stop raging against them and go learn something about how cryptographic hashes and key pair signatures work. If they were just random numbers, all the Bitcoin ever mined would have been stolen and spent thousands of times over. It's easier to print counterfeit U.S. currency than it is to spend somebody else's bitcoin, or forge your own outside the accepted protocol.

"Stock represents a creative concern, which is paying salaries and creating goods and services and often pays dividends" At least it is supposed to. Since the advent of online trading most popularly traded share valuations have become completely unhinged from actual valuations, future prospects or anything more tangible than the name Monkey Jizz.

"By your logic, a Ponzi scheme has intrinsic utility. It does have value - because people believe it" and it does, right up until people quit believing in it. If people lose faith in the value of the U.S. dollar, make a run on the banks, pull all their deposits at once, what happens? We have regulations and systems in place to slow that down now, prevent it from happening as quickly and dramatically and long lasting as it did in the 1930s, but essentially the system is still vulnerable to a loss of confidence crash, because that's all that backs a fiat currency: confidence. Confidence that if you don't pay your taxes the courts will strip you of title to your real estate, garnish your wages, seize your assets, etc. and if you don't follow the court orders, the police will enforce them. There's no value there, only threat of pain. When people lose their confidence in the value side of any currency, it becomes worthless.

"A slip of paper with a portrait and some numbers on it directly represents a creative concern, producing goods and services and backed and insured by that creative concern." That's your delusion, not mine.

"Intrinsic utility comes FIRST." - that's your delusion, somewhat shared with Karl Marx, and we all see how well his theories have turned out in real world practice. Yes, intrinsic utility has value - but only when people want it. Witness the value of a tanker full of crude oil in March 2020, all the food with all that intrinsic value which was left to rot in the fields or otherwise disposed of due to failures in demand forecasting during the weirdness following the pandemic. Asparagus may be a valuable commodity, nutritious, some say delicious, but when there's more of it than people want at a particular moment in time, that intrinsic utility doesn't just go to zero, it becomes a liability with a cost of disposal. Canadian maple syrup is the opposite - it has little more intrinsic value than beet sugar with a bit of flavoring and coloring in it, but people want it and will pay huge multiples of that intrinsic value to get it. This is literally the basis of all business success and failure: matching a supply of goods or services with a demand for them that exceeds the cost of delivery - and what is that cost of delivery? Not so much about any intrinsic value or expense as it is: what the suppliers can get away with charging their customers. Capitalist price competition is mostly a delusion - collusion, price fixing, fat margins, market protection legislation - those are far more common in the real world.

"However obviously that's not scalable and would still not be decentralized because in order to do business with others one would have to get an exchange to be willing to accept my EricTokens for your tokens - and charge a fee for every transaction." You've got Eric tokens, I've got Joe tokens, we exchange them for value with others who recognize the productivity and credibility with which we have backed those tokens over time, just as they recognize a credit score and extend credit in the current system, except: Eric, Joe and every other token out there is open for anyone to audit, anyone to judge for credit score, not just three mega-corporations who provide tiny little pictures of a credit history. If, for whatever reason, you want some Joe tokens and you have Eric tokens that I would value for exchange, we can do that trade directly, without central exchanges. We would need some mechanism to evaluate the value of each other's tokens, but that can be anything at all, not just a giant central database. It's absolutely distributed, decentralized, scalable, and the required fees for exchange to support the technology are tiny fractions of a cent. But, as long as you think cryptographic signatures are nothing but random numbers, you'll never understand how this could be.

"The Tether fraud is going to be uncovered." - No doubt there's plenty of that going around right now, just like insufficient backing funds in banks, accounting fraud in publicly traded companies, outright Ponzi schemes in mutual funds, and there always will be: as long as there is a lack of transparency in the system. That doesn't mean that every stock, bond, mutual fund, or investment proposal is crooked and corrupt, and it doesn't mean that every cryptocurrency need be either. For all the scary garbage that we are fed by mainstream media at every opportunity, the bulk of people are actually good, mostly honest, particularly when they think other people are watching, and society runs as well as it does because of that fact.

@pateljoel
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pateljoel commented Dec 19, 2021

@assignonward So what is the TL;DR here? Some cryptocurrencies have value because of their utility? Over the thousands of coins out there, there must be some that have utility right?

@shikari7 I agree with the Tether fraud in your statement is going unravel a lot of these coins, but this statement "Cryptocurrency is 100% greed driven." is only true with those damn cryptobros.

I only want to send crypto to my family members and friends, I also prefer to purchase items with crypto rather than a card since the banks keep blocking my card, or is that not utility either?

@shikari7 I wonder how do you feel about CBDCs / Stablecoins like USDC? perhaps regulation is what is needed first, or are you in favour of a complete wipeout or shutdown of this?

@assignonward
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assignonward commented Dec 19, 2021

@pateljoel There's not a simple TL;DR - there's a lot of people in the world and we're all different, different needs & wants & values on those. The utility of any currency, crypto or otherwise, is that it's relatively easy to trade for those needs & wants. What's new in crypto is the relatively low cost of trading, ubiquity of the infrastructure available to trade on, and direct nature of the trading compared to passing through the traditional Visa or MasterCard or similar network layered on traditional banks.

With cryptocurrency, you are the bank - you choose where and how to hold your value (secret keys), some people just accept whatever interface an exchange like Mt. Gox or Coinbase shows them, quoting the late Neil Peart: "If you choose not to decide, you still have made a choice." Elon Musk: "If you're not controlling your own keys, you're not holding your own cryptocurrency."

We deal with two banks lately, let's call them "good bank" and "bad bank" - we'd drop bad bank if we could, but there are circumstances that compel us to do about $500 per month cash flow through bad bank. Last Friday, as we traditionally do most Fridays, we bought about $80 worth of groceries at the same grocery store we usually shop at. Tried to pay with our "bad bank" card, like we normally do, and: Transaction Denied. Tried three or four more times, always denied. Paid with "good bank" card and left. 30 minutes later, a series of texts show up on my phone: "Fraud alert, blah blah, respond with Y to accept this transaction." No unusual activity on the card, just a random pain in the ass fraud alert that, if we didn't have alternate funds, would have left us sitting at the grocery store for some unknown amount of time hoping that the text message gets through so we can get our food. Bad bank is bad.

My TL;DR is: if you're dealing person to person with people / businesses you trust, there's no "Bad Bank" you have to loop into the transaction, dial their customer service phone tree, pray you get a resolution before the store closes and you have to leave without your food, etc. If the two parties are ready and willing to exchange value in their own cryptocurrencies, or any cryptocurrencies that they mutually recognize, then it's between them and the miner network of the currencies they are dealing with. The kicker is: the parties can control their own miner networks, if they want to. There's no inherently enhanced utility of the Ethereum proof of stake network vs any other (proven) proof of stake system. Only the perceived value of the Ethereum name / identity which puts people at ease more quickly. Get past that, get to independent audits of transparent systems and you can get away from the arbitrarily high gas fees "due to network demand."

@dm17
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dm17 commented Dec 19, 2021

@assignonward You really waste a lot of time... And your TL;DR is longer and complex that it should be if you understand it. "With cryptocurrency, you are the bank" -> No, you can't just redefine words on the fly as you go like this... But I realize it is a nonstop phenomenon in conversations with Marxists like yourself. You can't just say "I'm a bank cuz technology" -> banks have certain properties & cryptocurrency holders do not have those same properties. Thus you must use a different word (if you want to be honest about it). Of course "the ends justify the means" when you believe you have a key to salvation... This key to salvation is a private key and salvation is joining the chain-gang on your public blockchain! @shikari7's breakdown is decent and your replies don't really seem like they're replies to his words.

In no way am I tell you not to trade & not to participate in new cryptocurrency technologies. I'm just explaining to you why I would never. I believe it is immoral. But in a world without morality - where banks & technologies can be "good" and "bad" (rather than the people representing them) - I realize this may not compute. Many people are unable to see morality; they are blind to it. They state something is good or bad without ever explaining why and breaking it down to fundamentals - or immaterial concepts. But this is delusional. If you want to use immaterial concepts in your arguments but deny the immaterial, then it is incoherent.

@assignonward
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assignonward commented Dec 19, 2021

@dm17 interesting that you label me a Marxist - I think (and have repeatedly stated) Marx missed it, by a wide margin. I neither seek to follow Marx nor hold his writings as anything but historical curiosities.

Bank is bank. Gold is gold. Mining is mining. But in the world of cryptocurrency all these words have been reassigned to new things which are, as you say, very different from the old meanings. To do otherwise is to completely lose people when trying to explain new concepts. It is the same with psychologists and engineering, words like stress and fracture don't really translate across the fields, but they are close enough so people use them anyway.

@shikari7 plainly misses fundamental points: impossible to reverse a transaction on blockchain? No more impossible than voiding a transaction at a grocery checkout. The original record and the reversal, or void, both remain permanently on the record - end of story, transaction is "as if" it never happened, but of course it did, and the record reflects that. If you want things that did in fact happen to disappear completely? You're not living in the real world. Cryptokeys are just random numbers? If that's the depth of your understanding, then I understand perfectly why you find no value in them, like the "irreversability of transactions" you would be wrong on a very basic level, but as long as that is your understanding, then I see some very basic reasons underlying your higher level opinions.

As for personally trading in the current cryptocurrency markets, I too believe them to be a Ponzi scheme, not worthy of my participation. I held one bitcoin from $4 in value up to $250, years back. More recently I opened a Coinbase account and took their $40 incentives through their learn and earn, just to see how the software is working - but the bulk of the marketplace out there today looks more like a Casino than anything worthwhile to me.

At the same time, I recognize the power and value of the underlying technology, I see real world applications already today that do derive value from these technologies, improving transparency and efficiency in real business transactions that translate to increased profits for both parties, and the loss of profits to middlemen who are becoming obsolete. What I want, and if this is what you call Marxist then I understand that label - inaccurate as it may be, is for those same efficiencies in transactions to translate all the way down to anybody who owns a smartphone or home computer that is connected to the internet.

@dm17
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dm17 commented Dec 19, 2021

@assignonward Sure, but you recommended his writings as useful to study in this thread more than a couple of times. Marxist/Communism/Leftist/Globalism/Technocracy/Equity/Progressivism share a lot of the same nonsense, tactics, and promoters these days.
Bank has guns, do you have guns? Bank has government backing - do you?

"Cryptokeys are just random numbers" -> Yes, but you're reading it on another level. You're in the concept. In reality, you print out this seemingly random string of numbers on paper and it serves no real function. People are in the digital world and don't understand what value even is anymore because they're so detached from the real world. I don't like getting bogged down in these minutiae; my original post has all unanswered questions as far as I can see in this thread. One of my points, for example:
--there is way more fiat that crypto (market cap, etc).
--this fiat can be printed at will
--this fiat can be used to buy cryptocurrencies

And there are so many more avenues for attack / manipulation, but if my above example doesn't make the weaknesses of cryptocurrency vs "old money" and "old games" obvious, then I don't know what to say to help you see it.

@assignonward
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assignonward commented Dec 31, 2021

@dm17 just because something is recommended as useful to study doesn't mean it's worth following.

"In reality, you print out this seemingly random string of numbers on paper and it serves no real function." but the numbers are far from random, they are a digital proof that something has not been "spent" yet - only the holder of the secret number controlling the value can "spend" the value associated with that string of far-from-random numbers.

From earlier: "No yield. No return. Not insured. Not backed by anything." - and this is the magic of crypto vs state (police, courts, etc.) backed fiat. They're both fiat, people love to hate fiat, but fiat has worked pretty well for 100+ years - the biggest problem I see today is that the rich continue get richer, but that's not new to fiat, or even unique to this millennia - it borders on a natural law, one that I believe civilization would benefit from restraining, but that's my view - not that of the 0.1% and up most wealthy who are defacto mostly in control.

Crypto is "working" with no backing, no insurance, no enforcement. THAT is the power, and I'd say the ability for anyone to create and use their own fiat is an untapped level of that power that could be disruptive, revolutionary, and potentially even beneficial to the less than super-wealthy, for once.

The many avenues for attack / manipulation are mostly thwarted by transparency, vigilance, and development of automatic agents recognizing the attacks in progress.

@int3nse-git
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int3nse-git commented Mar 26, 2022

All these people holding USD bashing on crypto, they must just want to cash out! They're incentivized to do so, to make money, you know! The more USD you have, the easier it is to make it! Truly a socioeconomic problem. My point is, there's not a difference. You talk about problems that aren't unique to cryptocurrency. These are problems with currency.

@mk-pmb
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mk-pmb commented Mar 26, 2022

All these people holding USD […], they must just want to cash out!

Was this meant as irony? Because indeed, if you're clever, you only hold a limited amount in USD and invest the excess in something that at least compensates inflation.

@shikari7
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shikari7 commented Apr 10, 2022

Blockchain is a solution looking for a requirement. It's uses outside of crypto/NFT/web3 casinos are almost nonexistent. It's been around since the 80's and if there was a strong use case, we would know by now.

@pateljoel I see no purpose for USDC or CBDC. The $ is already digital and anything (legal) that can be done with USDC or CBDC can already be done (legally) by the $. If it hasn't been implemented for the $ yet, it's ONLY because the implementers of whatever this feature is with cryptocurrency are trying to avoid the laws around taxes or money laundering and it's probably illegal anyway. And for good reason, the 500 years of history of finance demonstrates that magic tokens like cryptocurrency always create a bubble of pure fraud.

Also note @assignonward cryptocurrency is patently NOT decentralized. https://bitcoinera.app/arewedecentralizedyet/

I recommend everyone watch this presentation by Nicholas Weaver @ Berkeley: Blockchains and Cryptocurrencies: Burn It With Fire (Nicholas Weaver)

https://youtu.be/xCHab0dNnj4

Also this TEDx talk why Bitcoin (and by extension all cryptocurrency) are Ponzi schemes.

https://youtu.be/UK0ATammdRo

@shikari7
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shikari7 commented Apr 10, 2022

Hey @pateljoel - to catch up to your other thoughts - I hear you about wanting to use crypto to send to family and friends or buy things. Watch the videos I linked above please, and let me know your thoughts, would love to chat with you about it. And see below on the morality of it.

About your question re: utility - no, how you spend crypto and what tools you use, or are able to use instead of a credit card, is not "inherent" utility. Wheat has inherent utility because it has productive use cases such as for food. Gold, same. Oil, same. Steel or iron or lumber, same. Even stock has intrinsic utility - usually it generates dividends and it represents a creative concern that is producing goods and services and paying wages. Crypto has none of that. It's just a random number stored in a database that for some reason (deceptive marketing, technology hand waving and people like Mark Cuban who is invested in it and knows the only way he can get a return is to convince more people to buy it) people think has value. Why would a number stored in a database in and of itself have value? Every grain of wheat has value intrinsically. Random numbers do not.

A lot of people think because it's "so easy" or "so cheap fees-wise" to use crypto that that is it's utility. No, that is strictly a factor of the technology and tools. Do you really think that if crypto were the only game in town, that the fees would stay low? Remember nobody has any influence on the self appointed elites controlling crypto. And when money is involved and there are no checks or balances, corruption is the only game in town. Secondly, the tools and tech used to exchange gold are not why gold has value. The grain exchange is not why wheat has value.

I like what @dm17 said - I feel the same - cryptocurrency is immoral.

I've been tempted many times going back to ~2012 to 'invest' or set up a miner - but I always come around to the fact that it's a Ponzi scheme and any participation in that Ponzi scheme supports that Ponzi scheme, which when it collapses (as they inevitably always do) is going to HURT A LOT OF PEOPLE. Some will (and have) come out ahead but they only come out ahead at everyone else's expense since it's a ZERO SUM SYSTEM.

@eqn-group
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eqn-group commented Jul 8, 2022

Monero ?

@BeholdersEye
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BeholdersEye commented Aug 18, 2022

Bitcoin: That and ten minutes will get you a block, friendo.

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