All you really need to know about crypto is that it's a version of the Bigger Fool scam, in that you have to use exchanges to get real actual dollars in and out of the system, and there aren't enough dollars in the system to cash out all the crypto. So...
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@oliphant this assumes that only exchanges are doing the mining.
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@Parke You can mine a zillion $InfinityBux or whatever, but you still need someone willing to pay you actual dollars for them. You still need a way to get dollars out of the system, even if you never put dollars in (although with mining, you certainly did spend actual dollars).
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@oliphant this is true in the case of this hypothetical cryptocurrency. But it's much easier to find people to trade "real" money for something like Bitcoin or any of the other ASIC hardware miners.
You could actually use the exchange to sell to them.
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@Parke That's fine, but that's what I'm getting at here. If you want to buy or sell bitcoin, you'll need to do it through some kind of exchange. That exchange can only give you money for the thing you're selling, if it has that money on hand. Ostensibly, though there's some shenanigans there already.
In order for that exchange to have money to give you in exchange for bitcoin, there have to also be people buying bitcoin through the exchange, giving the exchange real dollars it can then use to pay out real dollars to those cashing out--while taking their transaction fee cut.
So what happens when there's more people selling bitcoin than buying it? What happens when a whale with several billion dollars in bitcoin wants to get several billion dollars and cash out most of their bitcoin?
The exchange must now have several billion dollars on hand to fund such a transaction.
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@oliphant which is no different than our own currency. Which is a primary critique. If a billionaire cashes out, it crashes the economy for working people.
If a Bitcoin whale cashes out, it crashes the Bitcoin economy and, to a lesser extent, our economy because of the ETFs now.
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@Parke How does a billionaire "cash out" in our economy? Do you mean on the stock market?
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Oliphantom Menacereplied to Oliphantom Menace last edited by
(since the person I was going to reply to deleted their comments, I'll just rephrase here)
You can pay your rent with "our money", but you can't pay your rent with Bitcoin, thus it's not real currency you can use to survive. You need to convert it to real dollars--even if it is fiat currency, it's the only currency that the world actually uses as currency.
And like you said, there's only so many dollars in circulation, and only so much of it going to the exchanges.
Meanwhile, the price of Ethereum or Bitcoin or anything else can rise to the point where, if the entire crypto market cashed out, there wouldn't be enough real dollars on earth to cover it--much less the small fraction of that in the exchanges.
But if I want to take 12 million out of an FDIC bank account, that's backed by the federal government. It doesn't matter if the bank can't technically cover it (though they technically should if I have that much money there) but even if they can't, I can eventually withdraw it, because the federal reserve exists. I don't have to wait for other players to enter the economy at all.
That's a completely different situation than an exchange. With a Bitcoin exchange, they'll run adds for crypto encouraging more people to buy bitcoin.... because they need to make money, they need real dollars coming in so they can cash people out, because at the end of the day having $12 million in bitcoin is nice, but what's even nicer (and actually spendable as currency) is $12 million in dollars.
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Oliphantom Menacereplied to Oliphantom Menace last edited by
It does become a nice storehouse of value you can siphon from whenever bigger fools join the system, and it's a tax-free haven for wealth until you cash out, so that's basically why it sits there and doesn't all get cashed out. You can theoretically trade and buy and sell things in ethereum/bitcoin and have theoetically millions, even if in real life the tax hit of pulling out all of those millions isn't something you're prepared for, much less the ability of the exchange to deliver you said millions, considering the slow, slow, slow transaction speed of blockchain itself (and gas fees on the ethereum network), that you don't lose millions from the start to the end of the transaction.
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Oliphantom Menacereplied to Oliphantom Menace last edited by
Crypto is pseudo-anonymous up until the point you cash in or out with an exchange, and instantly you now have a central authority on your financial transactions involving crypto, that is required to report certain things to the IRS (or similar agency in your country) for tax purposes.
And your bank account, is that, um, anonymous?
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Oliphantom Menacereplied to Oliphantom Menace last edited by
Movie crypto reference:
"Can't you see where all his money is?"
"Can't. He hides it all in crypto."
throwing a table "Dammit! We HAD him!"
Real world crypto reference:
"Can't you see where all his money is?"
"Sure. He tries to hide it all in crypto, but as you know, crypto is a public blockchain and all transactions are public."
"But all the wallets are anonymous."
"Sure, but the money being cashed out comes from exchanges, and those have real world money involved. They also have crypto accounts to which transactions in crypto can be made. And we do know those accounts."
"I....see.... so what you're saying is that since we've already got access to his financial records and have subpoenaed that data from the exchange...."
"We can correlate that with the money going into and out of his bank account."
"To the penny."
"To the penny."
they both exchange high fives, scene end