I got caught up badly at work for the last two weeks and couldn't reply.
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Originally Posted by Nissan1180 Before I read up, I used to think like everyone else- that this is a bubble that's waiting to pop. This is a waste of time, money and electricity. This is a scam. After reading up, I realized that I was grossly mistaken. |
Fortunately, you were not at all mistaken.
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Originally Posted by Nissan1180 A lot of people compared this rise in value (I'm not saying price-value is the right term) to the Tulip mania in 17th century Europe. The problem is that the Tulip story is false. It was created by religious zealots to restrain the free markets. It was a propaganda. |
It need to not be true. Tulip mania is a very useful parable. All the holy books of the world are full of such parables, which obviously didn't happen, but often teach a moral/practical lesson.
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Originally Posted by Nissan1180 Secondly, the original intention of creating a cryptocurrency was to bypass the banks. |
Bypassing banks is practically a white collar crime these days.
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Originally Posted by Nissan1180 The creators of Bitcoin solved the challenges that made duplication impossible. That's what makes it so powerful- it is distributed across half a million computers and not one can control it. Yes, each token is is just a piece of code. |
They solved a technological problem of transactional veracity using blockchains. They didn't solve any economics/finance problem. Quantitative easing is a not a problem to solve, it is a tool which is often misused. Like a knife, it can be used for good and bad. But doing away with all sharp objects (like knife) to save lives, will create a big problem in the kitchen.
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Originally Posted by Nissan1180 I'm not sure if I got your question correctly. Are you talking about value in terms of jobs and societal benefits vs. wealth concentration in the hands of a few individuals? If that's the question, I don't know. |
This is usually the case for people like us who studied economics via MBA route. Business schools avoid (intentionally I suppose) focusing on the developmental side of economics. It hurts the business if business students develop scruples. But People who studied economics via humanities generally have better handle on this. If wealth generation is not matched by production in any given economy (local/national/global), it leads to massive income inequality and inflation.
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Originally Posted by Nissan1180 That's because no one till today has estimated the wealth generation vs. value creation quotient (if such a term exists- I'm not sure it does) for any company, and expecting that benchmark to be applied to a new set of currencies is perhaps a bit too much. |
Companies don't. Such calculations are usually done at state/national level, by economists who are are from the humanities background. That is why governments are never run like business. At least, they shouldn't be. The current US administration is an exception.
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Originally Posted by Nissan1180 You may say that people use gold to store their savings. Well, many of them are using Bitcoin to do that. |
The role of any wealth storage instrument is to nullify the effect of inflation. When it does more than that, it is a bubble in the making.
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Originally Posted by Nissan1180 Economics is not a subject that I can claim to be an expert in. All I can say is that I've read a bit about it in my undergraduate years and during my MBA. |
Economics is a social science. Studying economics via business schools route gives a very mathematical understanding of economics. It completely leaves out the human side of this social science. It took me over a decade to realize this, and start changing my thinking.
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Originally Posted by Nissan1180 Based on the little knowledge that I have, it seems a bit presumptuous to claim that people who're behind bitcoins did not know what they were doing. Something that grows so fast (and becomes mainstream so quickly) must have something going for it, and I guess the Wall Street investors won't be bothered to look at it if it were a fraud. |
I have closely watched four bubbles in my adult life, the 1992 Indian stock market bubble, the dot-com bubble of 1999, sub-prime bubble of 2007-8, and now the crypto bubble. Is it presumptuous for a guy who has been burnt a few times to think fire is dangerous? Why did the hallowed wall street investors bother to look at dot-com bubble (I lived 50miles from Wall street, working in a dot-com company then) despite it being a fraud? I knew it was a bubble although I hadn't started my MBA then. But greed overcomes all knowledge and caution. Even the most knowledgeable wall street investor succumbs to greed when the bubble is growing. They just think they will get out before it bursts.
Most successful investors are not expert economists or financial geniuses. Instead, they operate using instinct/SOP/model that usually works for them. Sometimes, they succumb to greed, overextend, and lose their shirt. Sorry, I have been around the block too many times to assign any clairvoyance to investors, just because they are good at making money.