alleged 'illusion of bitcoin liquidity'? Citation requested. [LWN.net]

alleged 'illusion of bitcoin liquidity'? Citation requested.

Posted Jan 13, 2018 22:05 UTC (Sat) by anselm (subscriber, #2796)
In reply to: alleged 'illusion of bitcoin liquidity'? Citation requested. by nix
Parent article: Welcome to 2018

As I've noted repeatedly, all the market cap indicates is that bitcoin is being mined, and that people are piling into it and pushing its exchange rate with the dollar up. It does not indicate that any actual transactions are happening

Right. “Market capitalisation” makes sense if, for example, you're talking about a publically traded company, where it tells you how much money you would need to buy all the stock (IOW, what the company is “worth”). With crypto-“currencies”, this is obviously silly since you can't buy or sell Bitcoin-the-currency the way you could a company. Bitcoin's “market cap” doesn't reflect the money that has been put into it nor the money that you could reasonably get out of it – there may be 300 billion dollars in Bitcoin according to its “market cap”, but if anyone tried to sell Bitcoin to the value of even an appreciable fraction of that, the dollar price of Bitcoin would just crash. For crypto-“currencies”, “market cap” is a bogus measure that crypto-“currency” advocates like to sling around but it doesn't tell you anything interesting or worthwhile.

What you really need to look at to gauge interest in a crypto-“currency” is its trading volume, and for Bitcoin that is really slim, especially considering that these days most Bitcoin transactions are between Chinese day traders.

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alleged 'illusion of bitcoin liquidity'? Citation requested.

Posted Jan 14, 2018 7:27 UTC (Sun) by Garak (guest, #99377) [Link] (6 responses)

"What you really need to look at to gauge interest in a crypto-“currency” is its trading volume, and for Bitcoin that is really slim,"

I wouldn't personally characterize millions of transactions per month as 'really slim', but I can understand how others are dismissive. Again, this is just one cryptocurrency. There will be more in 2019 and beyond, by my prediction. The technologies will continue to improve. The politics will remain interesting to watch.

https://en.wikipedia.org/wiki/Bitcoin#/media/File:BTC_number_of_transactions_per_month.png

alleged 'illusion of bitcoin liquidity'? Citation requested.

Posted Jan 14, 2018 11:10 UTC (Sun) by farnz (subscriber, #17727) [Link] (2 responses)

To put that number into perspective, existing cash alternatives like credit and debit cards between them handle millions of transactions per hour. In the UK, there are around 3.7 billion card transactions per quarter, which is nearly 2 million transactions per day. Put another way, this means that every single person in the UK (adults and children between them) averages a card transaction every 2 days. One million transactions per month implies that Bitcoin as-is could only replace cards for 70,000 people (globally) or so at current rates of trading.

This would not be an issue if Bitcoin was set up such that transaction fees and time would fall if there were more users; however, that's not how Bitcoin works, and transaction delay and fees are already higher than card networks.

Where this does compare adequately is with shares - it's about the same trade rate as the average NASDAQ security. But then, that leads to the question; what, exactly, is Bitcoin, if it's supposed to be compared to shares in something, not to currency instruments?

alleged 'illusion of bitcoin liquidity'? Citation requested.

Posted Jan 15, 2018 9:56 UTC (Mon) by james (guest, #1325) [Link] (1 responses)

I think you mean nearly 2 million transactions per hour -- two million per day is way too low!

alleged 'illusion of bitcoin liquidity'? Citation requested.

Posted Jan 15, 2018 10:04 UTC (Mon) by farnz (subscriber, #17727) [Link]

I did, yes. Off-by-one when counting my time units. Thanks!

The rest of my maths looks OK - it's just that one that I broke when confirming units, so the point still stands that Bitcoin isn't set up to serve a town of 100,000, let alone a country.

alleged 'illusion of bitcoin liquidity'? Citation requested.

Posted Jan 14, 2018 11:35 UTC (Sun) by anselm (subscriber, #2796) [Link] (2 responses)

The interesting thing to note about that picture is how the number of transactions isn't going up the way it used to (which it presumably would if Bitcoin was really catching on). This is because Bitcoin is running up against its built-in transaction limit. Credit card networks can typically handle 10,000 times the transactions per unit of time that Bitcoin can, and unlike Bitcoin they can build out their capacity if they have to.

alleged 'illusion of bitcoin liquidity'? Citation requested.

Posted Jan 18, 2018 3:01 UTC (Thu) by Garak (guest, #99377) [Link] (1 responses)

but bitcoin isn't the only cryptocurrency. Hopefully wikipedia will have (or already has) stats on all the top cryptocurrencies. And I expect bitcoin and its competitors to continue working on and solving their scaling problems. To the point that the political challenge will come more into focus. (Nations pushing back against the competitors to their traditional currency)

alleged 'illusion of bitcoin liquidity'? Citation requested.

Posted Jan 18, 2018 9:24 UTC (Thu) by anselm (subscriber, #2796) [Link]

So far nations don't appear to have a lot to worry about, and until crypto-“currencies” become useful to let normal people buy legitimate stuff that is actually worth having, with less hassle than doing it with actual money, a credit card, or PayPal would require, that is unlikely to change.

The problem with Bitcoin is that the issues it is facing now are mostly built into the system by design and are difficult to fix because the fixes require not only technical solutions but also political buy-in from entities that are strongly invested in the status quo (remember that something conceptually quite simple like increasing the block size resulted in a blockchain fork that gives no indication of going away). This also impacts other crypto-“currencies” because many of them basically hang off Bitcoin in some way (if only that you can only buy them using Bitcoin).

Remember that the people who benefit most from a crypto-“currency” are the ones who get in on it early and can hoard a comparatively large share of the available “coins” while they are still easy to acquire. The fabled Satoshi Nakamoto, for example, apparently sits on more than 1 million Bitcoins, which would be a nice retirement package if you could actually convert it, or an appreciable fraction of it, to real money (which you can't). Similar considerations apply to most other “coins”, where the main idea behind an ICO is to get people to give you free money without your having to deal with pesky entities like the SEC.