tag:blogger.com,1999:blog-8152901575140311047.post8840648673611673245..comments2024-03-18T10:18:19.736-04:00Comments on Musings on Markets: The Crypto Currency Debate: Future of Money or Speculative Hype?Aswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger23125tag:blogger.com,1999:blog-8152901575140311047.post-54364981145904351542017-08-31T03:25:31.006-04:002017-08-31T03:25:31.006-04:00Thanks for this interesting information, I've ...Thanks for this interesting information, I've been reading and watching many videos about Crypto currencies and all I could find was topics about trading with it, I just was trying to guess if Bitcoin would help society (and get rid of banks) or was just a speculation product. I'm not good in economy (maybe it should be cause I don't share the principles of capitalist economy). My aim in economy is easy, invest my money in real economy that is producing thus a real service/product. I don't share that companies are to earn money, but to give service to society and as a consequence they can earn money. My investment are in renewable energy, ethical banking and I try as much as I can to work with cooperatives where we are the company and the customer at the same time.<br />So what could be done to convert bitcoin in a more ethical coin and not in a an asset? <br /><br />Avoid BTC accumulation: BTC users will have to pay for the total amount of their wallets a percentage or there's a limits of Bitcoin you can have in your wallet, or there's a expiry date of your BTCs. <br />Where are these BTC going? <br />One part to miners, other will go to some "public" wallets that could be from a Goverment, ngo, association, approved for each state, community, etc, that is they will pay taxes. The user could choose who to pay. In this way we don't solve the problem of illegal/immoral businesses, but at least they'll pay taxes. <br />Maybe it sounds very unrealistic, I know, and I don't know if technically it is possible, but if it is you're converting BTCs in what their purpose is, to be an exchange system that contributes to the benefit of the society.<br />What do you think about it?Valentíhttps://www.blogger.com/profile/15516241486808160353noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-39812067132561303882017-08-24T05:32:26.184-04:002017-08-24T05:32:26.184-04:00Two points.
Bitcoin is being used for internation...Two points.<br /><br />Bitcoin is being used for international payments, outplacing the Dollar in that respect. Send 5.000 to India, and it arrives at destiny in 15 seconds, validated in 15 minutes. Not to worry with volatitlity, less than 3 days of dollar. <br /><br />Look at the transactions for 10 minutes, every minute one million dollars passes through, forget Miscrosoft micropayments.<br /><br />BItcoin is inflation proof, for the first time in history we have true scarcity, better than gold. And with the US government owing 250 trillion, tresuries are not a safe haven.<br /><br />BItcoin is the reserve of value per excelance. It rises with inflation and world gdp growth. Say 4% year , just by sitting there.<br /><br />BItcoin is NOT rising in value. One Bitcoin is worth only One bitcoin. <br /><br />Other currencies are in a runnaway hiperinflation, scary<br /><br />Stephen Kanitz, UNiversity of Sao Paulo. Prof. Expert in runnaway inflation.:))<br /><br />Stephen Kanitzhttps://www.blogger.com/profile/11441710043371030796noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-53810213115992933552017-08-17T12:00:11.842-04:002017-08-17T12:00:11.842-04:00Panama Papers - released in Spring 2016. Maybe the...Panama Papers - released in Spring 2016. Maybe the rise is solely due to a flood of money into these currencies by money launderersAnonymoushttps://www.blogger.com/profile/07548775728328238949noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-2487014400608347852017-08-16T01:05:32.061-04:002017-08-16T01:05:32.061-04:00Dear Professor Damodaran,
There is, perhaps, a gl...Dear Professor Damodaran,<br /><br />There is, perhaps, a glimmer of hope for cryptocurrencies to be used in the transactions. LAToken is in the pre-sale stage right now and it is marketed as an exchange, where portions of assets can be tokenised and sold there, thereby making both liquid and illiquid assets (such as art and real estate) tradable through unique LA tokens (e.g. "Property1" in NY will be traded as LATokenNY1, for example, and so forth). <br /><br />You can find more information in their whitepaper here:<br />https://cdn.latoken.com/common/files/whitepaper/latoken-whitepaper-en.pdf<br /><br />Regards,<br /><br />Timur MirzaevTimhttps://www.blogger.com/profile/16231184752945989649noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-42595441549520007252017-08-12T09:16:30.043-04:002017-08-12T09:16:30.043-04:00Great blog post. Cool to see my hobby being covere...Great blog post. Cool to see my hobby being covered by the mainstream financial blogosphere.<br /><br />I'm a bitcoin enthusiast and code open source projects related to bitcoin. Here's some of my thoughts on the issues you raise:<br /><br />1. Your point of bitcoin being about low-trust is spot on. If I had to summarize it in one sentence I would choose that it's a currency that tries to minimize the requirement for trust, and it does this via open source, cryptography and decentralization.<br /><br />2. Bitcoin isn't for making it easier for the western consumer to buy things online, this is easy enough already. For me personally, bitcoin is interesting because of the things it can do that other systems simply can't. For example bitcoin doesn't require ID to use and can therefore be used by anyone with an internet connection regardless of their local financial infrastructure. Paypal doesn't work in Iran, Russia, Moldova yet people in these countries might want to send and receive money through the internet. A list of these reasons that a transactor might want to use bitcoin could be found here: https://en.bitcoin.it/wiki/Bitcoin_as_a_medium_of_exchange<br /><br />3. The number of transactions can't be measured exactly. Your graph only shows transactions on the blockchain but bitcoin can have off-chain transactions too. A major is example is bitcoin debit cards, where the user sends a single blockchain transaction to the card which is denominated in bitcoin, and they can use it to spend money anywhere where the VISA network is. This is typically used by people who have an income in bitcoin (which would be one blockchain transaction per month). In the future there will be an update to bitcoin called Lightning Network which greatly improves the cost, privacy and speed of transactions by making them off-chain.<br /><br />4. Bitcoin's community has been in a mini civil war for the last two years over scalability, which is fundamentally about the properties of transactions. So it is a big issue in the space.<br /><br />5. There are places in bitcoin where traders don't hang out where fundamentals and software are more likely to be the topic of talk. For example see the #bitcoin IRC channel on freenode.Chris Belcherhttps://github.com/chris-belchernoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-38509047698832828062017-08-08T03:50:07.148-04:002017-08-08T03:50:07.148-04:00Hi Professor Damodaran, great post. I'm surpri...Hi Professor Damodaran, great post. I'm surprised that no one in the comments has mentioned IOTA. I believe it doesn't use blockchain but instead a process called Tangle. Plus it eliminates "miners" by requiring the user to process 2 transactions before his 1 transaction is processed.<br /><br />It was created with the IoT sector in mind and would see machines using the tokens to transact among themselves. Might want to check out their white paper.<br /><br />Best,<br />TigranAnonymoushttps://www.blogger.com/profile/09336066782082090524noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-68659671826103258352017-08-06T10:39:09.454-04:002017-08-06T10:39:09.454-04:00In response to Jon's question, ""why...In response to Jon's question, ""why not just create a database"...<br /><br />The key reason, I think, is that the blockchain is distributed and ownerless and, in essence, creates itself. In principle, a database could manage the same sort of information processes as the blockchain. But a database would be designed and owned by a central organization, requiring across-the-board "trust" in the organization and its principles. Visa or Paypal manage databases that do a lot of what the blockchain can do. <br /><br />If you're fine with Visa and Paypal (and fiat currencies) then the database idea is workable and no alternative is needed. But if -- as another commenter noted -- Bitcoin is motivated by the desire to "disrupt centrally appropriated power..." then the central database just won't do. <br /><br />Of course, much of the current motivation for Bitcoin is investor-driven rather than disruptor-driven, but still...Davidhttps://www.blogger.com/profile/17732322891474765065noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-59889721539282828912017-08-06T09:08:58.121-04:002017-08-06T09:08:58.121-04:00Aswath:
I have researched and read quite a bit ab...Aswath:<br /><br />I have researched and read quite a bit about Blockchain. I work in the financial sector (valuation and predictive modeling) and whenever I discuss blockchain and ask "why not just create a database" I cannot get a clear answer. <br /><br />For example the claim is blockchain makes it easier to audit by having everything available on the decentralized blockchain rather than scattered in multiple databases. This seems a bit odd, because 1) doing so would replicate documents and information multiple times, 2) because of the inefficiency involved in such replication, the blockchain often only just stores a hash of the document to allow verification & hence you still have to go to some database to look at the data, and 3) if you want to limit access to the document on the blockchain you would have it encrypted and still need to go to multiple sources to get the encryption keys. <br /><br />The real problem seems to be consistent easy to use protocols for the secure exchange of data and management of digital signatures. One just needs agreement on protocols and adaptation of systems to work with them--difficult whether you use blockchain or not.<br /><br />BTW---I have worked with many problems with errors and bad data, including a major financial restatement. None of the problems involved people altering data or contracts after entry into a document system or database; they all involved mistakes in entering the data or human judgments on interpretations of rules or appropriateness of valuation methods. None were addressable via blockchain.<br /><br />Blockchain seems to succeed just as a marketing technique; if you can claim your solution uses blockchain you get to the front of the line.<br />Jonhttps://www.blogger.com/profile/02452892938623254025noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-87201718672238438662017-08-06T08:56:13.443-04:002017-08-06T08:56:13.443-04:00Even if you get rid of proof-of-work, one still ha...Even if you get rid of proof-of-work, one still has the huge overhead from the decentralization--having to copy transactions across thousands of computers. Even without that overhead, the fact that 30% of the economy--the government sectors---use fiat currencies puts any cryptocurrency at a huge disadvantage because adopters will have the expense and risks of conversion between fiat and cryptocurrencies to pay taxes.<br /><br />The only time cryptocurrency could have an edge is in an economic collapse where a government's currency becomes completely unstable; however, by that time most people don't have anything of value to exchange for the cryptocurrency. Furthermore, a better store of value would be investment in productive and useful assets. <br />Jonhttps://www.blogger.com/profile/02452892938623254025noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-68596181604081823982017-08-06T01:22:14.359-04:002017-08-06T01:22:14.359-04:00Main motivator for indivually owning crypto positi...Main motivator for indivually owning crypto positions is the will to disrupt centrally appropriated power obtained through undemocratically formed monetary systems that its governors aren't prepared to democratically change. <br /><br />Crypto units as they exist now enable just redistribution of that power through independent mathematical decentralization with central authority playing a maximally diminished role in the process.<br /><br />It is all about <b>reinforcing the people</b> and <b>moving away from easily created abusive central governing, regulating and corporate bodies</b>.KillSwordhttps://www.blogger.com/profile/04800262239384636871noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-39914055876533306902017-08-05T16:25:00.252-04:002017-08-05T16:25:00.252-04:00David,
My comments about the digital intermediatio...David,<br />My comments about the digital intermediation process were about blockchain, not bitcoin. That is why I think blockchain may be the more enduring part of this revolution than bitcoin. And if bitcoin is a thingamajig, not a currency, you better start working out how I as investor in bitcoin make money on this thingamajig...<br />Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-90122613893828927362017-08-05T15:20:18.751-04:002017-08-05T15:20:18.751-04:00Nicely done piece (I'm always on the lookout f...Nicely done piece (I'm always on the lookout for good explanations of bitcoin presented in Plain English!!!). But I take issue with one of your primary assumptions. You're well aware that bitcoin is a blockchain-based <i>system</i>. In fact, you describe it as a "digital intermediation process" that poses a threat to stock exchanges and other financial mechanisms. But you then evaluate it strictly as a currency, for which you (understandably) find it a bit wanting. However, a novel currency wouldn't threaten NYSE...only a novel system would. <br /><br />Bitcoin is not a currency, in my view. It is a currency + system thingamajig, a cryptocreature that is unlike anything economists or programmers or money managers have seen before. Standing it alongside gold or fiat currencies or other conventional entities -- and evaluating it based on conventional notions of currency -- might be missing the point. I don't know if Bitcoin will thrive or not, but if it does, it may very well succeed precisely because of its strange hybrid nature and its refusal to be pigeonholed as conventional currency. <br /><br />Anyway...just my two satoshis on the matter ;-)Davidhttps://www.blogger.com/profile/17732322891474765065noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-27715512863268787622017-08-04T07:19:10.299-04:002017-08-04T07:19:10.299-04:00Hi Professor! This is Michael Hasson from the clas...Hi Professor! This is Michael Hasson from the class of 2014.<br /><br />I think one thing many people miss is that cryptocurrency systems based on smart contracts like ethereum enable decentralized software networks which essentially monetarily incentivize open source development. Have a look at networks like golem and siacoin for clear examples. They blend the "cryptocurrency" world with "shared economy" and introduce the power of the crowd to create a decentralized version of essentially cloud computing resources. What happens with these networks is that they are open sourced, so the development is accelerated thanks to legions of developers and users pushing forward, while all parties are incentivized to see the success of the project assuming they hold the tokens. The tokenization essentially enables a new economic system, a hyper focused economy so to speak (the theory of competitive advantage on steroids). <br /><br />This is what makes the space so exciting to many<br />Best<br />Michaelmhass33https://www.blogger.com/profile/18395780973007160855noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-36265398691017933612017-08-04T04:53:06.537-04:002017-08-04T04:53:06.537-04:00Professor a nice piece. However I believe that one...Professor a nice piece. However I believe that one of the conditions for any currency to function as one is to have a store value. The same is mentioned in your blog. The volatility in the value of bitcoins would really prevent it from being a currency.Abhishek Sinhahttps://www.blogger.com/profile/05955755302598472670noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-22667846378353980662017-08-03T21:55:51.453-04:002017-08-03T21:55:51.453-04:00Cryptocurrencies--sadly--may be THE ultimate solut...Cryptocurrencies--sadly--may be THE ultimate solution to the money launderers. The goal of money launderers is to clean up their illegal wealth so that they can freely enjoy the monetary benefits. So in most cases of money laundering, they don't mind losing a portion of it (sometimes even a sizable portion of it). It's better to own a usable dollar than a dirty 100 dollars.<br /><br />Money laundering is a huge global issue but not many people actually paying much attention to the anti movements. In fact, many financial institutions/professionals are still doing their best to facilitate money laundering, for obvious reason. Criminals have been hiring the best minds to creatively turn their dirty money into usable dollars; while on the other hand, the FATF has been fighting hard to counter money laundering, by even hiring ex-criminals (a theft) to "catch the thieves".<br /><br />Therefore, if cryptocurrencies are to be more accepted by various merchants in the future, it's heaven to the illegal money -- untraceable, no interference by government and secured.<br /><br />According to UNODC, approx $800b to $2t are being laundered globally PER YEAR. Bitcoin and Ether are now valued at $67b. There is a huge market for them.<br /><br />Again, money launderers don't care about volatility, they want validity and usability. <br /><br />That's why I hate the invention of crytocurrencies, it incentivizes illegal and immoral activities.Fungnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-35683968324186839002017-08-03T14:18:05.681-04:002017-08-03T14:18:05.681-04:00Maybe you can read about Vitalik Buterin, proof of...Maybe you can read about Vitalik Buterin, proof of stake and Raiden to make an informed call. Anonymoushttps://www.blogger.com/profile/18090243228030651646noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-62163407259772077862017-08-02T22:44:00.006-04:002017-08-02T22:44:00.006-04:00Your argument applies to every currency then. How ...Your argument applies to every currency then. How are you sure that those 25,000 USD will have the exact same purchasing power tomorrow? BTC is just extremely volatile compared to others and that may be the reason you don't want to sell your car for it.Anonymoushttps://www.blogger.com/profile/11572363941667175830noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-42963407741207056972017-08-02T16:39:32.705-04:002017-08-02T16:39:32.705-04:00> I would suggest that the winning crypto curre...<br /><br />> I would suggest that the winning crypto currency or currencies will share the following characteristics;<br /><br />Professor, have you looked into Ripple (XRP)? Its current use case is largely in international cross-currency payments. It fits this bill:<br /><br />> Transaction, not trading, talk: From creators and proponents of the currency, you will hear less talk about how much money you would make by buying and selling the currency and more on its efficacy in transactions.<br />> Transaction, not trading, features: The design of the crypto currency will focus on creating features that make it attractive as a currency (for transactions), not as investments. Kevin Lnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-63964768155002317262017-08-02T14:56:20.079-04:002017-08-02T14:56:20.079-04:00Jay brings up a great point. I think a fourth axis...Jay brings up a great point. I think a fourth axis of success will be the HV(250) or 1 year volatility of the currency pair with fiat currencies (say BTC/USD or BTC/EUR) should be under 8%. Sureshnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-39728789864749342912017-08-02T13:08:17.592-04:002017-08-02T13:08:17.592-04:00I think there is another issue holding back the ac...I think there is another issue holding back the acceptance of Bitcoin (and other cryptos) as a currency: Essentially nobody has BTC-denominated liabilities. For any fiat currency, essentially everybody has fiat-denominated liabilities -- when their tax bill comes due, if nothing else. <br /><br />Without BTC liabilities, there's no strong driver of mass crypto-currency adoption in the near-term. I think that until we see a strong crypto credit market develop (even if that credit is just "I owe my landlord 1 BTC at the end of the month"), crypto currencies will remain a speculative instrument rather than a currency.<br /><br />This can also be read as a more bullish case for ETH as a currency, in that a small number of people do have ETH-denominated liabilities, since it costs ETH to run smart contracts on the ETH blockchain.<br /><br />Thomashttps://www.blogger.com/profile/07581607263422875506noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-78935751242594612452017-08-02T09:50:08.436-04:002017-08-02T09:50:08.436-04:00Jay, I believe he addresses that in the price vola...Jay, I believe he addresses that in the price volatility paragraph. Short answer is, you are correct. The "value" of the bit coins would change and that is a factor to why it is not a legitimate currency today. Thomas Wordenhttps://www.blogger.com/profile/15411152629166191541noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-7827581986041606272017-08-02T09:29:37.696-04:002017-08-02T09:29:37.696-04:00Very informative and concise explanation of crypto...Very informative and concise explanation of cryptocurrencies. As far as I can tell, the main beneficiaries of cryptocurrency transactions are those who are trying to avoid the law. Maybe that is not a bad thing if you live overseas in a tyrannical dictatorship, but here in America, why would I want to get my money intertwined in a snake pit of people trying to avoid the law (including those trying to avoid taxes). That doesn't sound very safe at all. I'll stick to my US dollars, thanks. Dajo9https://www.blogger.com/profile/06951721841447196001noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-21177070019248996582017-08-02T04:37:03.212-04:002017-08-02T04:37:03.212-04:00Great post simplifying what bitcoin is and does, P...Great post simplifying what bitcoin is and does, Professor. Just a simple question: Say I'm a car dealer, and think if I was to accept 10 bitcoins for a particular car, would the value of those 10 bitcoins change with the change in price on the exchange? They may be worth ~25000 dollars today, but if there's no certainty as to what it's worth tomorrow, why in the world would this be a legitimate currency? <br />Thank You!Jay Mehtanoreply@blogger.com