Fanatical devotion to a particular ideology, whether political or religious, can make you stubbornly blind to other people’s points of view.
That’s one reason why the cryptocurrency markets went down. There were some very smart people who could see what was happening, but they couldn’t get their message out. Someone called it “a conspiracy of noobs,” but the coiners of that phrase were mostly kids and other people who don’t know much about how things work, and maybe haven’t thought much about the world at all.
I’m not saying I agree with everything the people who did try to get the word out have to say. But I do think there is something wrong with our society when people in this situation can’t get their voices heard.
In most of the crypto world you are either a big winner or a big loser. And the very few who try to be the best in both categories end up getting crushed by their mistakes and bad decisions.
You can’t build a house out of sand, but it doesn’t stop people from trying.
By now, maybe you have heard that cryptocurrencies have fallen out of favor. “Too many people lost too much money.” “The hype was all it’s cracked up to be.” “The market is just an unregulated Wild West where anything goes and nothing matters.”
Sometimes I feel like I’m living in that kind of world.
The story of the last few months has been told often, from numerous angles. I won’t repeat much of it, because there is little to add.
What I’ll do, instead, is point out some things about crypto markets that are not widely understood.
For one thing, cryptocurrencies are not just a financial instrument; they’re also a social experiment. The design of the network doesn’t affect its value or utility, but it does affect who participates. If you want to see what happens when everyone competes, you don’t need to look further than crypto markets.
Crypto markets show us how markets work in principle and how they don’t work in practice. There are some things you can count on and some things you can’t–or only barely.
In crypto markets every participant is a programmer and every transaction is a trade-off between cost and benefit. In the early days when speculation dominated, there was an expectation that everything would always be for sale for cheap and for profitably bought at high cost. The result was a massive accumulation of poorly valued assets with no one to bid against them; this led to the Great Crash of 2018. When smart people started experimenting with different designs for algorithms, new protocols emerged that made speculation more expensive without making it
When you trade in a market that suddenly seems to have no fundamentals, it’s hard to be a neutral observer. You have to make choices about which news is important and which isn’t.
I think of cryptocurrency markets as a giant sandbox for inventing money. If you are an investor, your job is simply to figure out what will work in the sandbox and buy it. As an investor, that is your job: you create value by working out what to do next in the sandbox.
So why did the price of Bitcoin plunge more than half in just a few days? I think there are a lot of traditional explanations, like people’s growing distrust of the biggest cryptocurrency, or China’s move to shut down exchanges. But for me, the most interesting one is that Bitcoin is not actually a currency. It’s not something that you can hold and use to buy things. Instead, it’s a speculative investment asset.
It was invented in 2008 by an anonymous person who called themselves Satoshi Nakamoto. The fact that they took so long to come forward suggests they have pretty good reasons for keeping their anonymity.
Bitcoin is an experimental digital currency and payment network that was created by Satoshi Nakamoto, who released the first version in January 2009, and which since then has undergone many changes. The bitcoin network is a peer-to-peer payment network that operates on a cryptographic protocol. Users send and receive bitcoins, the units of currency, by broadcasting digitally signed messages to the network using bitcoin cryptocurrency wallet software. Transactions are recorded into a distributed, replicated public database known as the blockchain, with consensus achieved by a proof-of-work system called mining .
The blockchain protocol mandates that all bitcoin transfers must be recorded and processed by a validating node or mining pool ,
Bitcoin is a new kind of money. It’s called virtual money because you can’t hold it in your hand, and it’s not so much about the money as it is about trust.
Bitcoin isn’t just something different. It could be a completely different sort of thing: something that no one has ever seen before. Cryptocurrencies are like sandboxes, where the rules of the game change every time. There’s no certainty that the things you build in a cryptocurrency are going to be useful in the future, or even that they’re going to be valuable at all. You could just as easily end up with gibberish instead of gold.
Cryptocurrencies are also extremely volatile. The world’s richest man lost almost as much money in bitcoin last year as he did in his entire lifetime before then, and he had already made most of his money from other investments. If you look at Bitcoin over the past year, it looks like a roller-coaster ride: up and down and up again, with no real pattern to go on.
Cryptocurrencies have no centralized authority either; they don’t belong to anyone in particular, and every user can take part in making decisions about how the system should work. That’s very exciting for technologists who love
On the evening of Wednesday, September 5, 2013, I wrote a blog post about Bitcoin. The article was about how Bitcoin is worth exactly as much as everyone else thinks it is, but that it has the potential to become a better currency than government-backed ones. Some people disagreed with me. Most people didn’t read the entire article; they just read the headline, and maybe the first couple of paragraphs where I described how Bitcoin works and how it differs from previous attempts at digital money.
This is what happens when you make a stupid mistake in your blog post: You get several hundred thousand page views in one day, and most of them are people who don’t know what you wrote about. They come to Google to find out what you said.
Such feedback tells us we were right but not enough people cared.