The history of people trying to design GPU or ASIC-resistant proof-of-work functions is long and mostly unsuccessful. I haven't looked into RandomX; it's possible they've succeeded here (or possible that with the alt-coin market mining profitability tanking after Ethereum moved to proof-of-stake, it just wasn't worth it).
RandomX is designed so that if you design a RandomX ASIC then you've designed a CPU. It writes and then executes random programs. To minimize the possible efficiency gains from matching the instruction set architecture, the same program is executed several thousand times, reducing the overhead of translating it to a different ISA.
There was a proposal on Ethereum that didn't succeed (progpow) since they were already in the late stage of transitionning to PoS. Ethereum did quite a good job at keeping asic advantage moderate (the speedup was 100% max - not orders of magnitude). RandomX is basically progpow that succeeded. You might be interested in Chia's Proof of Space and Time... and how it collapsed!
This was a super interesting read, and it highlights exactly the strength of cryptocurrencies. They turn game theory in their favor, so egoistic players (I don't mean this in an offensive tone) contribute to making it stronger and safer for everyone else.
They kinda do - I'll admit honestly that the final game I played in the cryptocurrency space I played solely to profit. (It was a minor, uh, **coin that didn't have a lot of redeeming value to start with). Though it turns out the incentives remained somewhat aligned: I ended up providing the developer with some security bug fixes to make sure someone couldn't mess with the cash cow. :)
(To be clear: We were just optimizing mining; in the process of looking for ways to mine it faster, I found some security bugs and fixed them. We weren't exploiting the bugs, that crosses a line for me.)
I never quite understand this stuff, maybe someone can help.
Are cryptocurrencies supposed to be a potential replacement for real life cash? This was my understanding of the motivation behind Bitcoin, at least.
If so, why does it make sense that people can "generate" cash by proving some amount of work done? This of course cannot be done with normal cash.
Is the main functionality of these cryptocurrencies supposed to be "people can send currency to each other", or "people generate currency -- a number -- and sell this currency for real life money"?
> Are cryptocurrencies supposed to be a potential replacement for real life cash?
They are supposed to be a medium of exchange. “Real life cash” is one of many forms of money; even for any particularly currency, like dollars, a very small fraction of use is “real life cash”. But, yes, in the most extreme visions, cryptocurrencies replace other currencies for all uses. More moderate visions, however, exist. So, as always when you use “supposed”, the answer is undefined without qualifying it as to by whom it is supposed.
> If so, why does it make sense that people can "generate" cash by proving some amount of work done?
Because there needs to be some mechanism to provide the currency supply, and also some incentive for people to provide the infrastructure on which the currency system relies. For fiat money systems the first is typical policy making in a central bank, and the second is government action to control competition in the banking space and to support banks, reinforcing the profitability of banks. Mining serves both of those functions in a cryptocurrency system (both reinforcing the profitability of transaction network participants and providing the mechanism by which currency supply is managed.)
> Is the main functionality of these cryptocurrencies supposed to be "people can send currency to each other", or "people generate currency -- a number -- and sell this currency for real life money"?
Participants in a currency system selling it for other currencies (FOREX) is a feature of every currency system in a world with more than one currency. Again, the degree to which each of those is “supposed” to be the main function depends on exactly whose supposition you are looking at it.
Before a new currency exists, it doesn't exist. Someone has to mint it. It has to be inflated into existence, in the monetary sense. How is this done?
For a state or central bank the answer is obvious: The state or bank itself prints it.
For a private actor the technical means is perhaps less obvious, but the actor behind the currency obviously gets to decide.
For a decentralized open source project, it is less clear. You could do it so every node in the system gets a piece of every newly printed unit of currency, but if it is free to run a node everyone could just run a billion nodes and take all the currency for themselves.
Bitcoin solved the problem with Proof of Work, which is elegant because both the double spend problem and the minting problem is solved together. Every node has to prove it has run a unit of useless computation and inflation is spread evenly across worker nodes. This led to a split between nodes and miners with the use of specialized hardware, but the basic premise still holds.
Crypocurrencies in general are very different. Ethereum, the second most popular, was created by a private actor and the that actor decided to print 72 M for themselves and promptly sold 80+% before the release of the software which gave rise to the term ICO which was very trendy for several years. After the initial release inflation continued according to the miner model.
One of the weird things about our world is that money is central to everything, but it’s hard to understand how it works. There’s a great deal of handwaving around how, for example, dollars are created, much of which is, in fact, not correct at all (most dollars are created not by the government, or even the Federal Reserve, but by private banks, via a mechanism which I will not pretend to fully understand).
The big flaw of Bitcoin, to my mind, is that it is an inherently deflationary currency. Deflation is one of those things that seems great on the surface: prices go down, not up, but when that happens it ends up creating an economic incentive to avoid spending since why buy something today if it will be cheaper tomorrow, and this ends up causing economic activity to slow down or stop entirely. A small amount of inflation, on the other hand creates an incentive to either spend money or invest it in something that will provide a better than inflation return, whether that’s putting it in a high-yield savings vehicle or making capital or financial investments. With deflation, you can just leave your funds in cash (where they will not provoke any economic growth) and get a return.
Yes, Bitcoin is a replacement for central banking currencies. Its the first few lines of the white paper.
This is how money works. If you use a medium of exchange and unit of account for goods and services then that medium must increase at the same rate as the increase in goods and services otherwise you get second and third order effects such as inflation, contraction, rising unemployment, etc., directly impacting its ability to act as a unit of account.
In Bitcoin you don't generate cash, you earn block rewards for acting as a consensus broker which otherwise would require a central banking settlement layer. This activity, tied directly to the transaction layer, acts to maintain the equilibrium between increases in goods and services and expansion of the money supply.
Wall Street got ahold of it and now Bitcoin is primarily acting as a Store of Value for the purpose of speculative investments. Driven primarily by the fear of missing out and market manipulation since Bitcoin is heavily centralized.
> In Bitcoin you don't generate cash, you earn block rewards for acting as a consensus broker which otherwise would require a central banking settlement layer. This activity, tied directly to the transaction layer, acts to maintain the equilibrium between increases in goods and services and expansion of the money supply.
Block rewards have no connection to transaction volume or economic activity, the protocol is designed such that bitcoin supply increases at a predictable (and diminishing) rate. Bitcoin is deflationary by design, which is one of the major issues that stopped it from becoming anything other than a speculative store of value.
> Wall Street got ahold of it and now Bitcoin is primarily acting as a Store of Value for the purpose of speculative investments
Insomuch as beanie babies are a store of value. Speculative assets only have value as long as there are more greater fools to buy in. When you've exhausted the supply of greater fools, there is no more reason to buy the speculative asset because its price won't go up, so it will fall to its intrinsic value, which is the worth of a normal stuffie for a beanie baby (roughly $5) or the worth of a number stored on other people's disks for a Bitcoin (roughly $0), which is the value ultimately stored. Wall Street is only involved in Bitcoin to facilitate trade between fools because we have collectively done a poor job of regulating this madness, allowing so many fools to eventually lose their money to a distributed Ponzi scheme and sanctioned countries.
1 Trillion of market cap can stay wrong longer than some random loud mouth on the internet can stay right about why everybody else is wrong. There is no 'intrinsic' value to most bits of information written on paper or disks, by some definition.
> If so, why does it make sense that people can "generate" cash by proving some amount of work done?
Think of it this way: If you pay with physical cash, there are people somewhere who do the work of digging ore out of the ground, smelting it, shaping it into coins, cutting and printing paper and so on. All these people do that, because they get paid in the same currency that they themselves have minted.
It turns out that nobody has yet found a way to create a digital decentralized currency that that works without incorporating a similar concept of incentivizing the creation of currency.
Which automatically makes in possibly centralized (you can never ever guarantee that not a single entity - or group of colluding entities - hold the majority stake and thus excert control).
There are mechanism in place to prevent attacks, that require more than 51% control of staked ETH. The team behind ETH probably stayed on PoW for a long time to build the market cap such as to make attacks unlikely by the sheer amount of capital required.
Isn't the point of Proof of Stakes that you hold some amount of coin to exert that control. If someone or some group get majority stake, doing anything nefarious would result in crashing the coin value, and thus nuke their own coin value?
Yes, but they can make it up with some other gain in value. For example if you're a US state agency tasked to destroy the Chinese economy, you might overall benefit from buying a ridiculous amount of Chinese money and then setting it on fire, if it means everyone else's Chinese money catches fire too.
You can't "generate cash" for doing some amount of random work. You are getting paid for securing the network and keeping it decentralized, and this payment is done in the native token of the network. It's an incentive mechanism, it's a reward for the people who provide the infrastructure for the network.
It's just a mechanism to incentivize mining. The alternative is that miners are paid only via fees, but that risks making it prohibitively expensive to transact. Minting new coins distributes the cost of mining over all holders by inflating the currency a little bit. Fees are still necessary to avoid spamming.
Cryptocurrencies allow market participants to communicate value to each other without having to trust other market participants or an institution. Mining verifies transactions and commits them to the public record, earning the miner a fee for their work.
Normal cash is just printed out from thin air by those who have the power. In that sense (some) cryptocurrencies are better because at least the process is open.
To be fair the US gov costs a lot more than thin air too, like 25-30% GDP. Even if you streamline it to just barebones military + federal skull crackers of the sort that enforce tax and counterfeiting law necessary to keep the unbacked USD game going, it's probably at around 2% GDP of machinery needed to print that money out of thin air.
There are two parts of an answer to this, because your questions are somewhat divergent:
> why does it make sense that people can "generate" cash by proving some amount of work done? This of course cannot be done with normal cash.
People do generate money when they work, in a sense, because money doesn't have value. Money represents value. To really understand that you need to think about what money is and why it was invented in the first place.
Before the invention of money there was only direct exchange; I do/give something for/to you and you do/give something for/to me in return. But what if you want what I have but I don't want what you have? Or what if we want something from each other but are too far apart to make the exchange directly? Well, we find a third participant who can act as a kind of transfer agent. They could, for instance, have something I want that you don't want and also want something from you. They trade with you first so now you have something from them that you don't want that you can then trade to me for the thing you want, and everyone is happy. This extends to arbitrarily many, dozens or hundreds even, of intermediate steps.
Now it should be easy to recognize two things:
1) Everyone needing to store a bunch of stuff they don't actually want just so they can pass it on to the next person can become a huge burden for everyone. And how do you store labor anyway? You can't. You can only store goods.
2) Organizing dozens of intermediate links is an extremely difficult problem to solve just so you can get what I have.
The first one can be solved by exchanging IOU vouchers instead. The holder of the voucher becomes entitled to the thing that hasn't yet been given or done. Storing those vouchers is trivially easy compared to storing the things. And you can just as easily store vouchers for work that hasn't been done yet as you can for goods that haven't been given yet.
The second one can be solved by saying what if people put their vouchers into a central voucher bank instead of passing all their vouchers around to each other directly, and then the central voucher bank organizes all the intermediate steps for people without people needing to figure out who has the vouchers they need to complete the chain.
And then once you're there, why even use specific IOUs at all? Why not have all the vouchers be generic but you get different amounts of them instead of different kinds that you can then use freely for anything? And that's obviously what money is.
And from there a new thing should become obvious: The money itself doesn't have any intrinsic value. The labor/good behind it does. Money is just a way of representing the value of something you did/produced in a form that can be easily traded for other things. It's the medium of exchange, not the product. And when there are fewer vouchers in the system relative to what's being produced, each voucher becomes worth more (deflation), and vice versa (inflation). And then the government literally prints and destroys vouchers as needed to try to keep a balance. That is a thing that happens. And so what if there can be prolonged time delays between you doing your work and you receiving your vouchers under some systems? Time delays are not inherent, just practical for bookkeeping. And when long time delays are not practical for bookkeeping they become shorter.
> Are cryptocurrencies supposed to be a potential replacement for real life cash? This was my understanding of the motivation behind Bitcoin, at least.
Only as an unrealistic pretense in the current climate. The reality is that a currency needs to be both moderately inflationary and also very stable to be useful as a medium of exchange of goods/services. You never want it to be a better financial decision to hold onto currency forever instead of using it, and you also never want people to randomly wake up destitute. And regardless of whether bitcoin is technically inflationary in the near term, it is not practically inflationary, and it's definitely not stable.
I would say Bitcoin was a good attempt to create digital fiat money but it ultimately failed, mainly because it's deflationary. Monero succeeded a bit more but will eventually collapse because of storage limits and the impossibility of pruning, and it's banned in most countries because their intelligence agencies can't track it.
yes, Bitcoin was hijacked by the company, Blockstream and they injected the SegWit and RBF attacks to kill it as a currency, Bitcoin Cash still functions as Bitcoin however.
Monero is similar to Bitcoin Cash, a useful replacement for cash in most cases.
A transaction fee of what? To take a fee from a transaction there has to be a transaction to take a fee from, which needs some sort of "coin" that came from somewhere. Somebody has to create a money supply and distribute it somehow. When the network first comes into existence, nobody has any money, so where does it come into being from?
Mining is what generates the coins. And you need mining because otherwise you need some other issuing organism. Without decentralized mining you get a central issuer, and that's untrustworthy and possible to shut down.
It is subtle, but PoW mining itself doesn't generate coins. It isn't like someone is digging a hole in the ground and extracting gold.
PoW miners are rewarded for correctly validating transactions, with newly minted coins.
The whole proof of work thing is that you proved that you validated a transaction by expending energy, and the network pays you for that security service.
Miners then need to sell those coins on the open market in order to pay for their capex/opex, which creates the market.
The open question is that if you have a fixed supply of coins that eventually runs out, what will carry the miners?
It'll be increased fees or the network will switch to another solution.
Proof of work allows for what Keynes called "Bancor". BTC is succesful because unlike fiat central banks, the money supply isn't dictated by interest rates (and thus loans) but by the effort of participants. The price of BTC is almost irrelevant, BTC itself is a paradigm shift.
Regarding the fixed supply, it's only fixed because participants agree to the consensus algorithm that fixes it. Many cryptocurrencies have different tokenomics, such as ETH's rules under PoS. BTC miners could vote onchain for a hard fork to change the 21M cap - or another solution.
you guys can downvote this, but it's a useless waste of compute, detrimental to resource scarcity and energy constraints, not really solving problems in society.
Hackernews is completely oblivious to cryptocurrencies. There we major hacks in April involving values 100x bigger than whatever gets upvoted here, and still I saw 0 posts commenting about it.
Just as an example, aave lost 295 million last month due to a hack in another protocol, and nothing was posted here.
You would be surprised at how efficient cryptocurrency mining is compared to other ways of storing value. And most improvements happen to reduce the overall cost of securing value (PoS, PoST, etc)
You'll get nothing but up votes here on HN, a lot are still angry they missed the boat.
But solving the problem of how to transfer value trustlessly and anonymously, instantly anywhere in the world is one of the biggest breakthroughs since the Internet.
Amazing how in a few short years kids started growing up with Bitcoin and don't understand how it work or why it exists :(
It’s an interesting technical problem to solve. But after 15y still has no meaningful benefits for our societies. Other than gambling/speculation/illegal stuff. The transformative cryptocurrency shift didn’t happen
Some people think communication mechanisms shouldn't enforce policy. They don't want their phones automatically disconnecting if they talk to a friend about illegal or immoral things. They don't want their TVs shutting off if they watch stuff that's politically unacceptable. So it follows that they don't want their money throwing an exception if they try spending on an transaction too unsavory for Stripe or your bank.
Free speech is for all the stuff you personally detest and personally choose to avoid. In a free country you hold your nose and allow others to engage in it.
If money is speech, then having a kind of money that doesn't pass through policy gates is an essential component of a free society.
It was mainly the early wall street types that cashed in big. If it was used as suggested by satoshi, then you were using it as spending cash rather than an investment to sit on, in which case you shouldn't have made much money on it.
I can use my compute and energy how I like, whether that’s for AI or crypto or a Minecraft server. You don’t have a right to call one “wasteful” and one not
What exactly are you missing that i.e. PhoenixWallet or Electrum is providing? The only thing missing is merchant adoption - but bitcoin is far ahead monero in this field.
Monero has utterly failed in merchant adoption. If you go to something like cryptwerk, which is what getmonero themselves recommends as a vendor list, It has about 1/2 the vendors of even the roughly same market cap coin Litecoin.
Well that's because it's illegal in most countries, and the reason it's illegal are the same reasons it's a good currency. States can't tolerate competition.
Still a global blockchain though with the associated throughput limits. You can't buy cereal with monero because you do that too often.
If folks are interested in the old Monero PoW function (and, uh, the reason they changed it), I wrote up a thing about it a long time ago:
https://da-data.blogspot.com/2014/08/minting-money-with-mone...
The history of people trying to design GPU or ASIC-resistant proof-of-work functions is long and mostly unsuccessful. I haven't looked into RandomX; it's possible they've succeeded here (or possible that with the alt-coin market mining profitability tanking after Ethereum moved to proof-of-stake, it just wasn't worth it).
RandomX is designed so that if you design a RandomX ASIC then you've designed a CPU. It writes and then executes random programs. To minimize the possible efficiency gains from matching the instruction set architecture, the same program is executed several thousand times, reducing the overhead of translating it to a different ISA.
There was a proposal on Ethereum that didn't succeed (progpow) since they were already in the late stage of transitionning to PoS. Ethereum did quite a good job at keeping asic advantage moderate (the speedup was 100% max - not orders of magnitude). RandomX is basically progpow that succeeded. You might be interested in Chia's Proof of Space and Time... and how it collapsed!
This was a super interesting read, and it highlights exactly the strength of cryptocurrencies. They turn game theory in their favor, so egoistic players (I don't mean this in an offensive tone) contribute to making it stronger and safer for everyone else.
Thank you for sharing!
They kinda do - I'll admit honestly that the final game I played in the cryptocurrency space I played solely to profit. (It was a minor, uh, **coin that didn't have a lot of redeeming value to start with). Though it turns out the incentives remained somewhat aligned: I ended up providing the developer with some security bug fixes to make sure someone couldn't mess with the cash cow. :)
(To be clear: We were just optimizing mining; in the process of looking for ways to mine it faster, I found some security bugs and fixed them. We weren't exploiting the bugs, that crosses a line for me.)
Can someone explain to me why RandomX miners don't just generate programs without branching? I'm a bit confused on why that's not possible
Because it's designed to be hard to execute on anything that is not a CPU.
I never quite understand this stuff, maybe someone can help.
Are cryptocurrencies supposed to be a potential replacement for real life cash? This was my understanding of the motivation behind Bitcoin, at least.
If so, why does it make sense that people can "generate" cash by proving some amount of work done? This of course cannot be done with normal cash.
Is the main functionality of these cryptocurrencies supposed to be "people can send currency to each other", or "people generate currency -- a number -- and sell this currency for real life money"?
> Are cryptocurrencies supposed to be a potential replacement for real life cash?
They are supposed to be a medium of exchange. “Real life cash” is one of many forms of money; even for any particularly currency, like dollars, a very small fraction of use is “real life cash”. But, yes, in the most extreme visions, cryptocurrencies replace other currencies for all uses. More moderate visions, however, exist. So, as always when you use “supposed”, the answer is undefined without qualifying it as to by whom it is supposed.
> If so, why does it make sense that people can "generate" cash by proving some amount of work done?
Because there needs to be some mechanism to provide the currency supply, and also some incentive for people to provide the infrastructure on which the currency system relies. For fiat money systems the first is typical policy making in a central bank, and the second is government action to control competition in the banking space and to support banks, reinforcing the profitability of banks. Mining serves both of those functions in a cryptocurrency system (both reinforcing the profitability of transaction network participants and providing the mechanism by which currency supply is managed.)
> Is the main functionality of these cryptocurrencies supposed to be "people can send currency to each other", or "people generate currency -- a number -- and sell this currency for real life money"?
Participants in a currency system selling it for other currencies (FOREX) is a feature of every currency system in a world with more than one currency. Again, the degree to which each of those is “supposed” to be the main function depends on exactly whose supposition you are looking at it.
Before a new currency exists, it doesn't exist. Someone has to mint it. It has to be inflated into existence, in the monetary sense. How is this done?
For a state or central bank the answer is obvious: The state or bank itself prints it.
For a private actor the technical means is perhaps less obvious, but the actor behind the currency obviously gets to decide.
For a decentralized open source project, it is less clear. You could do it so every node in the system gets a piece of every newly printed unit of currency, but if it is free to run a node everyone could just run a billion nodes and take all the currency for themselves.
Bitcoin solved the problem with Proof of Work, which is elegant because both the double spend problem and the minting problem is solved together. Every node has to prove it has run a unit of useless computation and inflation is spread evenly across worker nodes. This led to a split between nodes and miners with the use of specialized hardware, but the basic premise still holds.
Crypocurrencies in general are very different. Ethereum, the second most popular, was created by a private actor and the that actor decided to print 72 M for themselves and promptly sold 80+% before the release of the software which gave rise to the term ICO which was very trendy for several years. After the initial release inflation continued according to the miner model.
One of the weird things about our world is that money is central to everything, but it’s hard to understand how it works. There’s a great deal of handwaving around how, for example, dollars are created, much of which is, in fact, not correct at all (most dollars are created not by the government, or even the Federal Reserve, but by private banks, via a mechanism which I will not pretend to fully understand).
The big flaw of Bitcoin, to my mind, is that it is an inherently deflationary currency. Deflation is one of those things that seems great on the surface: prices go down, not up, but when that happens it ends up creating an economic incentive to avoid spending since why buy something today if it will be cheaper tomorrow, and this ends up causing economic activity to slow down or stop entirely. A small amount of inflation, on the other hand creates an incentive to either spend money or invest it in something that will provide a better than inflation return, whether that’s putting it in a high-yield savings vehicle or making capital or financial investments. With deflation, you can just leave your funds in cash (where they will not provoke any economic growth) and get a return.
Yes, Bitcoin is a replacement for central banking currencies. Its the first few lines of the white paper.
This is how money works. If you use a medium of exchange and unit of account for goods and services then that medium must increase at the same rate as the increase in goods and services otherwise you get second and third order effects such as inflation, contraction, rising unemployment, etc., directly impacting its ability to act as a unit of account.
In Bitcoin you don't generate cash, you earn block rewards for acting as a consensus broker which otherwise would require a central banking settlement layer. This activity, tied directly to the transaction layer, acts to maintain the equilibrium between increases in goods and services and expansion of the money supply.
Wall Street got ahold of it and now Bitcoin is primarily acting as a Store of Value for the purpose of speculative investments. Driven primarily by the fear of missing out and market manipulation since Bitcoin is heavily centralized.
> In Bitcoin you don't generate cash, you earn block rewards for acting as a consensus broker which otherwise would require a central banking settlement layer. This activity, tied directly to the transaction layer, acts to maintain the equilibrium between increases in goods and services and expansion of the money supply.
Block rewards have no connection to transaction volume or economic activity, the protocol is designed such that bitcoin supply increases at a predictable (and diminishing) rate. Bitcoin is deflationary by design, which is one of the major issues that stopped it from becoming anything other than a speculative store of value.
> Wall Street got ahold of it and now Bitcoin is primarily acting as a Store of Value for the purpose of speculative investments
Insomuch as beanie babies are a store of value. Speculative assets only have value as long as there are more greater fools to buy in. When you've exhausted the supply of greater fools, there is no more reason to buy the speculative asset because its price won't go up, so it will fall to its intrinsic value, which is the worth of a normal stuffie for a beanie baby (roughly $5) or the worth of a number stored on other people's disks for a Bitcoin (roughly $0), which is the value ultimately stored. Wall Street is only involved in Bitcoin to facilitate trade between fools because we have collectively done a poor job of regulating this madness, allowing so many fools to eventually lose their money to a distributed Ponzi scheme and sanctioned countries.
Roughly the same argument could be applied to gold, and yet it has been used as a value store for ages.
Can't say I like crypto, but I think better arguments can be made against it.
1 Trillion of market cap can stay wrong longer than some random loud mouth on the internet can stay right about why everybody else is wrong. There is no 'intrinsic' value to most bits of information written on paper or disks, by some definition.
> If so, why does it make sense that people can "generate" cash by proving some amount of work done?
Think of it this way: If you pay with physical cash, there are people somewhere who do the work of digging ore out of the ground, smelting it, shaping it into coins, cutting and printing paper and so on. All these people do that, because they get paid in the same currency that they themselves have minted.
It turns out that nobody has yet found a way to create a digital decentralized currency that that works without incorporating a similar concept of incentivizing the creation of currency.
ETH is trying right now with proof of ownership.
Which automatically makes in possibly centralized (you can never ever guarantee that not a single entity - or group of colluding entities - hold the majority stake and thus excert control).
There are mechanism in place to prevent attacks, that require more than 51% control of staked ETH. The team behind ETH probably stayed on PoW for a long time to build the market cap such as to make attacks unlikely by the sheer amount of capital required.
Isn't the point of Proof of Stakes that you hold some amount of coin to exert that control. If someone or some group get majority stake, doing anything nefarious would result in crashing the coin value, and thus nuke their own coin value?
Yes, but thinking this is a safeguard presumes the exchange value of the coin must outweigh any other concerns the actor has.
Yes, but they can make it up with some other gain in value. For example if you're a US state agency tasked to destroy the Chinese economy, you might overall benefit from buying a ridiculous amount of Chinese money and then setting it on fire, if it means everyone else's Chinese money catches fire too.
You can't "generate cash" for doing some amount of random work. You are getting paid for securing the network and keeping it decentralized, and this payment is done in the native token of the network. It's an incentive mechanism, it's a reward for the people who provide the infrastructure for the network.
It's just a mechanism to incentivize mining. The alternative is that miners are paid only via fees, but that risks making it prohibitively expensive to transact. Minting new coins distributes the cost of mining over all holders by inflating the currency a little bit. Fees are still necessary to avoid spamming.
They're meant to replace the bank.
Cryptocurrencies allow market participants to communicate value to each other without having to trust other market participants or an institution. Mining verifies transactions and commits them to the public record, earning the miner a fee for their work.
> This of course cannot be done with normal cash.
Normal cash is just printed out from thin air by those who have the power. In that sense (some) cryptocurrencies are better because at least the process is open.
Is it not printed out of thin air by those that have compute power ?
Running computer power costs a lot more than thin air.
To be fair the US gov costs a lot more than thin air too, like 25-30% GDP. Even if you streamline it to just barebones military + federal skull crackers of the sort that enforce tax and counterfeiting law necessary to keep the unbacked USD game going, it's probably at around 2% GDP of machinery needed to print that money out of thin air.
Fiat money is proof of stake, except the failure mode is economic collapse or military collapse.
Broken Money by Lyn Alden is a good book on the topic
Lyn Alden is great. Andreas Antonopoulos is also a great educator.
There are two parts of an answer to this, because your questions are somewhat divergent:
> why does it make sense that people can "generate" cash by proving some amount of work done? This of course cannot be done with normal cash.
People do generate money when they work, in a sense, because money doesn't have value. Money represents value. To really understand that you need to think about what money is and why it was invented in the first place.
Before the invention of money there was only direct exchange; I do/give something for/to you and you do/give something for/to me in return. But what if you want what I have but I don't want what you have? Or what if we want something from each other but are too far apart to make the exchange directly? Well, we find a third participant who can act as a kind of transfer agent. They could, for instance, have something I want that you don't want and also want something from you. They trade with you first so now you have something from them that you don't want that you can then trade to me for the thing you want, and everyone is happy. This extends to arbitrarily many, dozens or hundreds even, of intermediate steps.
Now it should be easy to recognize two things:
1) Everyone needing to store a bunch of stuff they don't actually want just so they can pass it on to the next person can become a huge burden for everyone. And how do you store labor anyway? You can't. You can only store goods.
2) Organizing dozens of intermediate links is an extremely difficult problem to solve just so you can get what I have.
The first one can be solved by exchanging IOU vouchers instead. The holder of the voucher becomes entitled to the thing that hasn't yet been given or done. Storing those vouchers is trivially easy compared to storing the things. And you can just as easily store vouchers for work that hasn't been done yet as you can for goods that haven't been given yet.
The second one can be solved by saying what if people put their vouchers into a central voucher bank instead of passing all their vouchers around to each other directly, and then the central voucher bank organizes all the intermediate steps for people without people needing to figure out who has the vouchers they need to complete the chain.
And then once you're there, why even use specific IOUs at all? Why not have all the vouchers be generic but you get different amounts of them instead of different kinds that you can then use freely for anything? And that's obviously what money is.
And from there a new thing should become obvious: The money itself doesn't have any intrinsic value. The labor/good behind it does. Money is just a way of representing the value of something you did/produced in a form that can be easily traded for other things. It's the medium of exchange, not the product. And when there are fewer vouchers in the system relative to what's being produced, each voucher becomes worth more (deflation), and vice versa (inflation). And then the government literally prints and destroys vouchers as needed to try to keep a balance. That is a thing that happens. And so what if there can be prolonged time delays between you doing your work and you receiving your vouchers under some systems? Time delays are not inherent, just practical for bookkeeping. And when long time delays are not practical for bookkeeping they become shorter.
> Are cryptocurrencies supposed to be a potential replacement for real life cash? This was my understanding of the motivation behind Bitcoin, at least.
Only as an unrealistic pretense in the current climate. The reality is that a currency needs to be both moderately inflationary and also very stable to be useful as a medium of exchange of goods/services. You never want it to be a better financial decision to hold onto currency forever instead of using it, and you also never want people to randomly wake up destitute. And regardless of whether bitcoin is technically inflationary in the near term, it is not practically inflationary, and it's definitely not stable.
I would say Bitcoin was a good attempt to create digital fiat money but it ultimately failed, mainly because it's deflationary. Monero succeeded a bit more but will eventually collapse because of storage limits and the impossibility of pruning, and it's banned in most countries because their intelligence agencies can't track it.
yes, Bitcoin was hijacked by the company, Blockstream and they injected the SegWit and RBF attacks to kill it as a currency, Bitcoin Cash still functions as Bitcoin however.
Monero is similar to Bitcoin Cash, a useful replacement for cash in most cases.
Bitcoin Cash's value begs to differ.
> If so, why does it make sense that people can "generate" cash by proving some amount of work done?
Because you need an incentive for 'miners' to participate in transaction processing.
Main functionality is transactions which are not controlled by any single entity (like the government).
Most of it is speculation unfortunately, which gives it a bad name, drowning out real usecases.
So now I'm wondering, why wouldn't they just charge a transaction fee in Monero?
Why mine at all?
If you want to scale up to Mastercard levels.
A transaction fee of what? To take a fee from a transaction there has to be a transaction to take a fee from, which needs some sort of "coin" that came from somewhere. Somebody has to create a money supply and distribute it somehow. When the network first comes into existence, nobody has any money, so where does it come into being from?
Mining is what generates the coins. And you need mining because otherwise you need some other issuing organism. Without decentralized mining you get a central issuer, and that's untrustworthy and possible to shut down.
It is subtle, but PoW mining itself doesn't generate coins. It isn't like someone is digging a hole in the ground and extracting gold.
PoW miners are rewarded for correctly validating transactions, with newly minted coins.
The whole proof of work thing is that you proved that you validated a transaction by expending energy, and the network pays you for that security service.
Miners then need to sell those coins on the open market in order to pay for their capex/opex, which creates the market.
The open question is that if you have a fixed supply of coins that eventually runs out, what will carry the miners?
It'll be increased fees or the network will switch to another solution.
Agreed with your explanation.
I would add a different way to make sense of it.
Proof of work allows for what Keynes called "Bancor". BTC is succesful because unlike fiat central banks, the money supply isn't dictated by interest rates (and thus loans) but by the effort of participants. The price of BTC is almost irrelevant, BTC itself is a paradigm shift.
Regarding the fixed supply, it's only fixed because participants agree to the consensus algorithm that fixes it. Many cryptocurrencies have different tokenomics, such as ETH's rules under PoS. BTC miners could vote onchain for a hard fork to change the 21M cap - or another solution.
Full disclosure, I was a bitcoin, and 5MW litecoin miner, and 150,000 GPU ETH miner, so I was pretty deeply involved in it for many years.
Correct on the rest, but I just want to say that I was intentionally avoiding discussing specific tokens or the politics due to HN's stance on crypto.
you guys can downvote this, but it's a useless waste of compute, detrimental to resource scarcity and energy constraints, not really solving problems in society.
Hackernews is completely oblivious to cryptocurrencies. There we major hacks in April involving values 100x bigger than whatever gets upvoted here, and still I saw 0 posts commenting about it.
Just as an example, aave lost 295 million last month due to a hack in another protocol, and nothing was posted here.
You would be surprised at how efficient cryptocurrency mining is compared to other ways of storing value. And most improvements happen to reduce the overall cost of securing value (PoS, PoST, etc)
You'll get nothing but up votes here on HN, a lot are still angry they missed the boat.
But solving the problem of how to transfer value trustlessly and anonymously, instantly anywhere in the world is one of the biggest breakthroughs since the Internet.
Amazing how in a few short years kids started growing up with Bitcoin and don't understand how it work or why it exists :(
It’s an interesting technical problem to solve. But after 15y still has no meaningful benefits for our societies. Other than gambling/speculation/illegal stuff. The transformative cryptocurrency shift didn’t happen
When the USA collapses it could become the new global reserve currency (it won't but it could)
Point is, it's a currency you can use right now independently from the increasingly unstable-looking US dollar.
We are very far from 2140, the year the last bitcoin will be mined. 15 years is nothing, this is a very long term paradigm shift.
Some people think communication mechanisms shouldn't enforce policy. They don't want their phones automatically disconnecting if they talk to a friend about illegal or immoral things. They don't want their TVs shutting off if they watch stuff that's politically unacceptable. So it follows that they don't want their money throwing an exception if they try spending on an transaction too unsavory for Stripe or your bank.
Free speech is for all the stuff you personally detest and personally choose to avoid. In a free country you hold your nose and allow others to engage in it.
If money is speech, then having a kind of money that doesn't pass through policy gates is an essential component of a free society.
If it's actually a transformative technology, there's no boat to miss.
But it's still mostly about the speculation, it seems.
It was mainly the early wall street types that cashed in big. If it was used as suggested by satoshi, then you were using it as spending cash rather than an investment to sit on, in which case you shouldn't have made much money on it.
Don't forget about the pineapple fund : https://en.wikipedia.org/wiki/Pineapple_Fund
Also wall street never considered it seriously until a few years ago.
is privacy of financial transactions not a valuable problem to be solved in your opinions?
This talking point is so silly
I can use my compute and energy how I like, whether that’s for AI or crypto or a Minecraft server. You don’t have a right to call one “wasteful” and one not
I don't have free speech?
It's great for buying drugs though! (Which is funnily the only actually legitimate usecase)
It's solving a lot of people's problems, they just aren't your problems.
Absolutely true, no one needs monero when you can have bitcoin (and lightning for private instant bitcoin payments).
Lightning Network, ready in 18 months for the last 5 years! Lol.
What exactly are you missing that i.e. PhoenixWallet or Electrum is providing? The only thing missing is merchant adoption - but bitcoin is far ahead monero in this field.
Monero has utterly failed in merchant adoption. If you go to something like cryptwerk, which is what getmonero themselves recommends as a vendor list, It has about 1/2 the vendors of even the roughly same market cap coin Litecoin.
Well that's because it's illegal in most countries, and the reason it's illegal are the same reasons it's a good currency. States can't tolerate competition.
Still a global blockchain though with the associated throughput limits. You can't buy cereal with monero because you do that too often.
I have used LN quite a lot for the last 3-4 years or so. Seems to work good enough for quite many use cases.
It's very usable. It's just not the PoS some expected.