"This points out a fundamental problem with programmable financial assets: there are so many degrees of freedom that it's difficult to compare asset prices and perform arbitrage. In fact, I would not be surprised if the developers purposefully made their contracts complex to discourage such comparisons. Additional complexity also makes it difficult for the investors to figure out what exactly they are buying. Why should someone who wants to exit a crowd-funding vehicle follow a weird software engineering pattern that is tantamount to buying a timelocked asset? What exactly happens to the reward tokens of The DAO through splits? Why is this stuff so needlessly complicated?"
This sounds all too much like Paycoin. Paycoin was a competitor to Bitcoin, but it was much more complicated. There was a claimed guarantee that the price of Paycoin would not fall below $20. (The current price of Paycoin is $0.01212923.) There was a connection to a Bitcoin mining operation, GAW miners. There was BanxShares, which was some kind of derivative based on Paycoin and backed by a porno site.[1] There were ZenCloud and PayBase. There was a Paycoin Foundation. There was supposedly a reserve in US dollars backing Paycoin.[2] There was a "Hybrid Flex Blockchain" to provide faster confirmations.
The result was a disaster.[3]
There's a long history of complicated Ponzi-like things. Sergei Mavrodi did it twice, once in the 1990s with "MMM" in Russia, [4], and again, after doing jail time, as Bitcoin-based "MMM Global" in the 2010s.[5] MMM was a combination lending network, pyramid scheme with a downline, and Ponzi. It collapsed both times, of course.
The Warren Buffet article you linked isn't relevant to your main point. The article is not about overly-complex finance. It's about overly-complex companies. If you're buying a security (e.g. A particular class of convertible debt of a company) then there are two things that you need to analyse: the issuer (the company), and the properties (rights, payoffs, optionality) in the security itself.
I believe that Buffet et al shy away from complicated companies (as they're too hard to understand) but look for securities that are mispriced, which are sometimes of the more complex variety, rather than just straight equity.
The differnce is that in TheDao the money is protected by a smart contract. It's auditable by anyone and securely locked - literally no single person or entity owns keys to the lock.
In case of Paycoin, and many other similar scenarios, you had to trust the company.
The fact that an article like this has to be written should say enough about these type of cryptocurrencies and the people who "invest" in them. If you don't understand the time value of money, the value of liquidity, or how bubbles work, you probably shouldn't be in charge of your own investments.
Anyone writing about arbitrage in the tone of "free money found!" can and should be discounted.
Arbitrage doesn't create value, so its profit is always taken out of someone else's hide. Always, always, always. If you think you've found it, you need to explain why the people you're fleecing haven't seen the same thing you have, and why they won't act to interrupt you as soon as you start the process.
The people seeing an easy profit for the DAO have failed at both of those tasks, apparently failing to understand that they would be engaging in illiquid currency speculation and moreover that they would be doing so publicly, open to price manipulation.
the more FUD (like your post) that comes out about ethereum, the stronger my urge to invest in learning Rust, in order to use Parity[0]. I've been downvoted every time I buck the trend, and I've experienced financial gains almost proportional to my downvotes. I'm still living off the profits I made after the last bitcoin debasement (check my post history to see when). Bought back in at $400/BTC, and _really_ enjoying the profits I'm currently looking at.
Yet, if you had invested in bitcoin 5 years ago you would have outperformed Berkshire Hathaway's lifetime performance. In my opinion if you are young, it makes sense to make these kind of bets, and it doesn't necessarily mean that you are misinformed. Cryptocurrencies are certainly onto something, and it's still not clear which one(s) is(are) going to win, so by buying them you are not only making an investment but also voting with your money. I do believe that the DAO will crash and burn, but the truth is that among the people that bought DAO tokens, I don't know anybody that invested a significant amount of their savings. Furthermore most of the people used the Ether they bought at 100th the current price when it first launched. Last but not least, as an economist, the DAO is a fascinating experiment, but I do hope that nobody loses their life savings because of it, which brings me back to your initial comment that raises a good point.
> Yet, if you had invested in bitcoin 5 years ago you would have outperformed Berkshire Hathaway's lifetime performance.
Berkshire Hathaway's net income last year alone was 24 billion USD. I don't think you would be able to generate this income no matter when you invested in Bitcoin, to say nothing of matching it in a single year.
I get that you are talking about the return on investment as a percentage of stake, but the scale we are talking about, as well as the difference in risk profile, means you are very nearly comparing apples and oranges. I can point out any number of various schemes which have gotten people rich over the years - that doesn't make them sound investments.
>Yet, if you had invested in bitcoin 5 years ago you would have outperformed Berkshire Hathaway's lifetime performance.
Same thing if you had invested in the winning lottery numbers. Just because something paid off once doesn't mean it will continue to pay off. Especially when you are talking about bubbles/ponzi-schemes.
I agree that these can be interesting experiments. I first played around with Bitcoin 5+ years ago when I could mine 50 Bitcoin every couple days on a cheap laptop. And like you I also have also have a background in economics. My conclusion at the time is the same as it is today. Most of these cryptocurrencies were a bunch of software developers thinking they knew more about economics that economists. That is where my comment comes into play. The issues discussed in this article are stuff you would learn about in any intro econ class. The fact that an apparently large percentage of people are "investing" in these currencies without knowing these concepts leads me to believe that they are a rather uninformed lot (uninformed is not necessarily the same as misinformed). That is the easiest sign that this is a bubble, people that know very little about it parking their money there and calling it "investing".
Regarding the returns, I will refer you to our old friend Keynes. "Markets can remain irrational a lot longer than you and I can remain solvent." Cryptocurrencies and related technologies have potential, but I have seen little evidence to suggest that current prices aren't completely irrational.
"Yes" is a surprisingly good answer. While in many (most?) countries Bitcoin is regarded as digital currency, there are a few countries (like Australia) where the tax authorities treat Bitcoin as an investment, ie "an asset for capital gains tax (CGT) purposes".
The dollar doesn't necessarily have inflation in comparison to my national currency... and it may be the most readily available investment opportunity that helps you avoid poor national economic policies.
Yes, this. Hence its worldwide popularity. The dollar is the #1 u.s. export by an order of magnitude; because it is a terrible investment for u.s. persons and a marvelous investment for non-u.s. persons.
They're literally saying that because bitcoin had a bubble and "outperformed", any of the new younger cryptocurrencies "are onto something" and could go big at any moment.
It's a system of independent probabilities, hence gambler's fallacy.
I was thinking about getting into bitcoin mining when it was still plausible to do it by yourself. Kicking myself now, but really it was a weird longshot thing at the time.
But then in CA we wouldn't have a way to pay for education... because by the same reasoning the state planners shouldn't be allowed to play the lottery either.
That's a pretty condecending opinion to take while Bitcoin reaches its multi year high and Eth and DAO are at all time highs. Maybe it's people who don't understand disruption and technology who shouldn't be in charge of their investments? Not really though since no one should concern themselves with anyone else's investments...
All time highs are kind of a sign of a bubble, and say nothing about the liquidity of any investments or the time value of the return you can expect from them.
IG Index has bitcoin as an instrument. The spreads are terrible though so I wouldn't recommend it. If it was easier to short DAO tokens I'd think about it.
By all means don't invest then. It's pretty presumptuous to think people who see things differently need to be "educated" though (as the OP is attempting to do).
I imagine the few people sitting quietly with >1k btc understand quite well the problem of liquidity, that it's impossible for them to sell of such large quantities without crashing the market and taking huge losses, their only choice if they want to cash out is to slowly trickle it out without disrupting the market.
For everybody else, whose potential trading volume is very small relative to the total btc supply pool, btc is just like any other security.
Liquidity is a problem, but not at the 1k BTC scale. 24 hour volume was 300k BTC yesterday, so moving 1k BTC over a day shouldn't cause a market crash.
Even moving a small amount of counts can affect the market, because there is no real anonymity: people watch the large wallet balances and large known holders for signs of coins moving to e.g. an exchange.
Truth that conflicts with the HN hivemind is regularly greyed. Best to see what the top voted comments in cryptocurrency-related posts say, then do the exact opposite.
The guaranteed 1 ETH payout only lasts until TheDAO funds its first project, after which the payout is only the investor's percentage of TheDAO tokens times TheDAO's remaining ETH. So the potential for a "natural ponzi" won't be around for long.
There are a fair number of people who've decided to hold ETH long-term regardless of short-term price action, and for those people, a risk-free way to increase ETH holdings is more attractive. But in this case it's not entirely risk-free, since people have described various attacks on TheDAO, including at least one that could prevent people from extracting the ETH. The attacks can be prevented with code updates, but not until people vote to adopt the updates.
The author is confusing a ponzi scheme with a bubble. A ponzi scheme implies deception (get a fantastic interest rate which is clandestinely being supplied by your own invested funds).
Since The DAO is completely open in the way it works, that would be impossible by itself.
The author actually talking about the creation of a bubble. However, usually, bubbles are created in things where the potential profit is unclear. Otherwise it's hard to justify. Who would buy The DAO at a greater price then its book value in ether, if they simply expect to extract the same amount of ether out of it after 48 days?
So, such a move by The DAO will probably not create a bubble or "a ponzi" or whatever. It simply is an investment choice with likely no far reaching implications, as far as I can tell.
That's not a ponzi scheme, that's how investments in general work especially with startups and VC, the defining part of a ponzi scheme is that later investors funds are used to pay the returns of earlier investors.
Isn't this exactly what Enron did? Use some sleight of hand to hide the fact that you're using company assets to speculate on the performance of company assets?
Obviously doing that turned out very poorly for Enron.
"Turn into" requires starting in some other state. I haven't seen a strong argument for that, and the inductive priors on this issue are profoundly prejudicial.
I can't see how people are so gullible that they exchange their bitcoin. My bitcoin are held safely offline and they'll never be exchanged to alts nor fiat.
> Why would you care what anyone does with their money?
Really?
Two fairly obvious reasons I can think of in ten seconds: sympathy for other people, and the desire to not see the entire sector tarred as a giant scam. I suspect there are other valid reasons.
Also, if these "experts" are wrong and crypto currencies continue to do well then they've actually harmed people instead of helped. Are they willing to take that responsibility?
Because in the real world, distribution of capital has a little thing called "opportunity costs".
A bunch of people are allocating large amounts of capital to shams when they could have been making productive use of it, this both gives rewards, social power, and encourages scammers/fraudsters, but also forgoes investment in otherwise productive activities that could benefit us all.
In addition, there are very real concerns about government involvement, as well as the social consequences when mom/pop/sister/brother/anyone we care about loses their money to such...
Personal attacks are not allowed on Hacker News. Accusing someone of being a shill or astroturfer is a personal attack, unless you have evidence, and merely holding a different view than they do is not evidence. Please don't do this again.
Likely a personal attack, since people who level this charge are typically projecting shillness into the comments they dislike, not extracting it out of them.
That really is an interesting issue. I've been noting a few more posts here on hacker news recently getting flagged for "personal attacks" that I, personally, would have interpreted as someone calling out nonsense, and that not calling them out was more offensive.
Regardless of whether he does or does not sound like a shill ... how do we extend this to things like:
- Pointing out Nimby's in SF housing markets?
- Calling someone a salesperson/marketer/advertiser (which I view as offensive...but is often highly-accurate/true)
- Pointing out the self-interest in boosters talking up tech/bitcoing/etc
Indeed, in many of these recent observances of "personal attacks", what I view as actually happening is silently assenting to the worldview of an original poster/article and protecting that worldview. Contrary opinions or valuations or interpretations of events are taken as "personal attacks", which can be really quite repugnant when, sometimes, the more morally questionable/civilised position is in fact that of protecting the right to point out that which probably should be attacked in any reasonable discussion/society in the first place: (say, saying Theranos looks like a bunch of scammers/grifters, various startups and SF culture looks eerily like the past practiecs of get-rich-quick-schemes and boosterism)...
If you want to, it's actually pretty easy to respond substantively to the wrongness in another comment without calling names or attacking the commenter personally. Besides being easy, it makes your response more credible. So I don't think there's a tradeoff here—just bad habits that we all need to grow out of.
What civility does demand is a willingness to forego the pleasures of venting and lashing out at what (and who) one dislikes. That can be hard to do when something we read sets off a pre-existing opinion or emotion. But doing it has a vast effect on discussion quality, so it's necessary.
> Indeed, in many of these recent observances of "personal attacks", what I view as actually happening is silently assenting to the worldview of an original poster/article and protecting that worldview.
It's hard to respond to a generality like that but I'm pretty sure that we're not assenting to or protecting specific worldviews when we ask people to be civil on this site. It's tempting to see the moderation that way because the cases you dislike are the ones you'll tend to notice more. But getting moderation right requires asking everyone to hold to the same standard regardless of what we personally happen to agree with. We're not perfect at that but we do try hard, and hopefully improve with practice.
> good (read: likely to not cause people to lose money) advice
That's not what good advice is.
If I offer you 7:1 odds on $100,000 to guess a die roll, the only question running through your mind is "can I afford to lose $100,000 without impacting my lifestyle" or "do I know any rich people that would stake me for this". If the answer is yes, it's a far better bet than any mutual fund or bond or savings account or whatever you would consider a sound investment, even though you lose $100,000 the vast majority of the time.
Similarly for dropping an appropriately small amount of money (relative to your net worth) in cryptos. The odds are low that they'll take over any significant fraction of commerce but the rewards would be enormous.
The DAO can also turn into a AI intelligence that decides we're boring and unsophisticated. The logical conclusion is to raise prices on us and then seize our funds when they stop us for traffic violations through hyperspace.
There really is a ocean of ink being spilled by old school "experts" attacking The DAO and crypto currencies in general. It's difficult to understand their intense motivation to stop people from experimenting until you realize that crypto currencies disrupt their ability to gatekeep monetary decisions and make their current roles unnecessary.
As someone tangentially interested in the space, I've bought on every wave of negative press and have done quite well. Sure it's high risk but if you don't invest your life savings, it can be great fun, financially rewarding and technical interesting.
Hardcore naysayers have a vested interest in depressing these experiments and their commentary should be viewed as such.
Is it really difficult to understand the motivation? Because the obvious one makes perfect sense: they are aware of the huge number of historical examples of pyramid and ponzi schemes that look exactly like a lot of behaviour on display around the DAO. People naturally fall for these, humans love them, so the only protection is for good actors to go on the offensive.
I also find the DAO interesting and am watching the experiment, but I'm pretty pessimistic given how even obviously predatory schemes get embraced by the community and attempts to out them get responses similar to yours ("Excuse me, but since there is no possible way anything is wrong with anything DAO related you are either misinformed or part of an anti-DAO conspiracy").
- Have enough faith in humanity to regard the possibility of collective democratic power having influence on currencies as a feature
- Are kinda noticing that life isn't actually quite a tragedy currently in most western democracies and therefore see no need for revolutionary change.
- Consider risk an essential factor in every investment, and fear it may be too high for the class of investors attracted to cryptocurrencies
- Have been convinced by actually quite serious flaws in this DAO thing, not from ideology, but game theory
- Are irritated by crypto currency advocates who go for conspiracy theories instead of arguing on the merits.
- Are wary of crypto advocates who argue with political arguments but clearly have a financial interest in the currency's rise.
For those with Faith, you've got your wise democratic currencies. But some people buy gold, presumably with those same democracies in mind ... are you against them doing that too?
As for the DAO, yeah I imagine it's got bugs. Hopefully less, and more transparently, than our existing contracts. But even if it fails horribly, other smart-contracts will stand on their own.
Do the market a favor and short the DAO (and fund an attack on it, if you can). That'll establish a demand for security and make you a pretty penny if you're right.
Even if you are right though, what would it mean? If Kickstarter got hacked or phished would that disprove all p2p funding sites forever?
This sounds all too much like Paycoin. Paycoin was a competitor to Bitcoin, but it was much more complicated. There was a claimed guarantee that the price of Paycoin would not fall below $20. (The current price of Paycoin is $0.01212923.) There was a connection to a Bitcoin mining operation, GAW miners. There was BanxShares, which was some kind of derivative based on Paycoin and backed by a porno site.[1] There were ZenCloud and PayBase. There was a Paycoin Foundation. There was supposedly a reserve in US dollars backing Paycoin.[2] There was a "Hybrid Flex Blockchain" to provide faster confirmations.
The result was a disaster.[3]
There's a long history of complicated Ponzi-like things. Sergei Mavrodi did it twice, once in the 1990s with "MMM" in Russia, [4], and again, after doing jail time, as Bitcoin-based "MMM Global" in the 2010s.[5] MMM was a combination lending network, pyramid scheme with a downline, and Ponzi. It collapsed both times, of course.
Warren Buffett on overly complex finance: [6]
[1] https://bitcointalk.org/index.php?topic=813191.0 [2] http://web.archive.org/web/20150214110136/https://paycoin.co... [3] https://bitcoinmagazine.com/articles/death-paycoin-employee-... [4] https://en.wikipedia.org/wiki/MMM_%28Ponzi_scheme_company%29 [5] http://www.fin24.com/Money/Investments/alleged-sa-ponzi-sche... [6] http://www.buffettsecrets.com/understanding-the-company.htm