> Providing better financial services at lower costs.
How can anything than runs a blockchain offer a service at a lower cost? It can't. The only competitive advantage that crypto has over the financial sector is that crypto is by and large operating with disregard for financial regulations. Let's see how long it's gonna last.
Regulation has worked pretty well so far to ensure the 99% don't get screwed over by the hedge fund managers at JP Morgan and Goldman Sachs, and that a big stick is wielded when rules are broken.
/s
Cryptocurrency, namely bitcoin, has lasted 13 years and only looks to be getting stronger and more widely adopted.
Bitcoin's theory, based on its white paper, is that Blockchain offers to remove the middleman, or at least decentralise the middleman. Maybe it won't lower the cost, but it will hopefully spread those costs over a larger group of participants.
It very much can, because these protocols can do the same things the traditional equivalents can (trading, lending, etc.) fully-automated with smart contracts.
When you don't have to pay a ton of salaries to push paper around, you can make things extremely efficient. And like OP said, a lot of the prices for financial services are artificially high due to lack of competition as it is.
> “A lot of the prices for financial services are artificially high due to lack of competition as it is.”
But this is completely independent of any cryptocurrency solutions.
Look at retail stock trading. We now have zero-fee trading, but it’s not because some wonderful blockchain thing happened — new competitors like Robinhood made it the standard across the industry. It wasn’t a technological problem.
Some high-cost services in the USA that seem like technological problems are actually due to insufficient regulation. For example, wire transfers can cost $25 here, whereas they’re free and instant in Europe+UK. This is not because Europe has a magic blockchain — it’s simply the result of EU-level regulation that forced banks to interoperate. (Apparently the Fed is finally doing something similar now, decades late.)
The problems that exist can be solved by markets and regulation. The technology layer of cryptocurrencies is a useless substrate and primarily serves to reenact financial scams from the 20th century.
It is hard to look at the state of today's financial services and say everything is optimal: even in the EU, most of the regulation you mention (free wire transfers, low-fee credit cards) was a reaction to egregious inefficiencies that a more dynamic and competitive industry would have squashed by itself, without the need for a years-long process of regulation and legislation.
There is absolutely a place for disruptive technical experiments like cryptocurrency in a small part of the system, and to have good regulation of the rest of the financial system. It seems to me that the current balance is doing exactly that. Why are people dogmatically assured that technical advances in payments can only be driven by governments, when technical advances in virtually every other IT-adjacent industry have not worked like this?
> "There is absolutely a place for disruptive technical experiments like cryptocurrency in a small part of the system, and to have good regulation of the rest of the financial system. It seems to me that the current balance is doing exactly that."
Sure, I agree in principle. But the crypto science experiment is out of hand. It's providing negligible actual value to the system while consuming more energy than a mid-size European nation. This is an egregious failure.
If Bitcoin and Ethereum mining were shut down today, nobody would lose access to any necessary financial service, and we (mankind) would be at least 1% closer to the fossil fuel reduction goals we absolutely must meet. Seems like a no-brainer in the current state of emergency. There are many other things we need to do, but it's distressing that we're not even able to stop this novel waste that didn't exist ten years ago.
I agree with you that proof of work is a disaster. The problem is that mining is probably the last part of modern cryptocurrency network that will go away following a full-on regulatory onslaught.
What will instead crash first are the newer and less-resilient networks that don't use proof of work: proof-of-authority systems like Cosmos/Polygon, centralized systems like Binance Smart Chain, all the scalable rollup servers. Ongoing transitions like Ethereum's move to proof of stake might also be disrupted. Even if a regulatory approach was ultimately successful in shutting down proof-of-work mining, I think it would take years. Those years could be better spent by devising and encouraging more efficient consensus technologies, like the ones already being launched today.
Nobody suggests that technical advances should be driven by governments. Technical advances are spurred by the prospect of extraordinary profits in competitive markets, and competition is only fair when the same rules apply to every market participant. So regulations need to apply to everyone. Are you arguing that we should give an unfair advantage to some participants over others or to some inefficient technology? Just because you personally have invested in it? This is the very definition of corruption.
The counter-argument is that DeFi allows for different, better regulation. The blockchain isn't going to take public money to bail itself out and give itself fat bonuses off the backs of the public, unlike some participants who, let's not forget, did so perfectly legally.
There needs to be some way for the public at large to show preference for regulatory regimes. Voting isn't as effective as it used to be; which smart contracts I interact with seems like a decent alternative.
> "DeFi allows for different, better regulation. The blockchain isn't going to take public money to bail itself out and give itself fat bonuses"
The stakeholders who control the blockchain will give themselves every crypto holder's money if their interests are threatened in any way. Has everyone forgotten about the 2016 Ethereum DAO scandal?
Are you referring to the time someone stole a bunch of money without violating the terms of a smart contract and most of a community moved to a fork where the theft was reversed?
If so, I remember it quite vividly - not sure how it supports your claim though. Ethereum classic is still around, and a decent number of purists still use it. I don't share their convictions, but I'm glad they have the option.
”… stole a bunch of money without violating the terms of a smart contract”
— so, didn’t steal the money? Or are you admitting a smart contract isn’t any kind of contract at all?
Glad “the community” stepped up to prevent smart contracts from being credible. Though I’m not sure why this community is a preferable regulator to the ones we have for actual money. Since cryptoinvestments are also bound by real-world law, you now have two regulators: the real one and the “community” that transfers cryptomoney to itself when it wants.
They used the contract in a way no one who wrote or entered into it intended. When a contract isn't serving the people bound to it there's typically the option to rewrite it when all parties agree.
The only party that disagreed was the Eth classic community, and they still have a coin and codebase with contracts credible by your unusually high standards. The only thing they lost was investor sentiment. If those standards prove to be advantageous for a group to operate under, they'll gain ground over time. That's the beauty of crypto - people can decide the protocols and community they prefer in real time, and vote with their money accordingly.
We are talking about regulation. Regulation is a set of rules concerning capital requirements, consumer protection, etc. that apply to all market participants. Even if such a set of rules could be implemented as a "smart contract" (a computer program), a smart contract only has authority over the specific assets it controls. It's powerless to enforce a regulatory regime. So, to say that a regulatory regime can be replaced with smart contracts is basically a crackpot idea.
Seriously, you need to think about this more carefully.
You're basically arguing that everybody should make their own rules, and disregard everybody else's rules, which is kind of antithetical to the whole concept of civilisation...
I'm arguing that people should have a say in the rules they live under. That's kind of fundamental to the whole concept of democracy.
A regional entity can't really have full control over its monetary system unless it's a 'nobody goes in or out' fortress like North Korea. In which case, it's of course difficult to have a democracy in anything but name! So to talk about the rules of local politics as if they can contain the monetary system through which they trade with others doesn't seem to me like the product of careful thought either. The US was sort of in that position because it was the global hegemon, but that should hardly be thought of as the historical norm.
As far as I can tell market regulations can either
1 - apply to all market participants
2 - apply to some market participants but not others
3 - have no regulations at all
I say that regulations should apply to conventional finance and crypto, because anything else would be giving an unfair advantage to some market participants, so I'm arguing for 1.
The crypto bros are saying that they don't want financial regulations to apply to them, because they don't want to, but they still want regulations to apply to conventional finance, so they are arguing for 2.
What is your position exactly? Because sometimes it seems that you want 3, but it's hard to tell from your confused rhetoric.
A gradual transition from human actors as middlemen (who need regulation because they have self-interest) to disinterested algorithms which are self-regulating.
So a self-driving car should not be bound by the traffic code because it has no self-interest but human drivers should be bound by it? Why should having or not having self-interest make any difference as to whether the rules apply to you?
If all self-driving cars are hardcoded to never break the speed limit there's no reason to have radar traps. Self driving cars already have codes that they follow, which the public can oversee the same way they oversee traffic codes now.
For that matter if self-driving cars became able to respond faster than a human, there'd be no need for the old speed limits at all. A car would probably know its hardware much better than a human and know what it's individual fastest safe speed would be. Universal speed limits would only be necessary while there are human and AI drivers on the same roads. Which is why, as I said, a phased change-over would be best.
Because 1) the question was not "if it's safer", 2) "safer" doesn't mean "safe", and 3) safety isn't the only concern. For example, a self-driving car could be programmed to drive aggressively, not stopping at red lights, not giving way, etc. and this would be unfair to other road users, even if it was completely safe. Everybody who has a degree of intellegence understands this. You simply lack the intellectual stature to have this conversation, sorry.
> these protocols can do the same things the traditional equivalents can (trading, lending, etc.) fully-automated with smart contracts.
This very much remains to be seen. Much of the complexity of finance (and the value being provided) arises from the need to quantify risks of many different kinds.
Not nearly all of that information is available on-chain, and for many scenarios I can't imagine it ever will be.
A "smart contract" is nothing new, it's simply a computer program, and computer programs are already widely used in the financial sector. So that cannot be it.
A smart contract is much more than "simply a computer program". It's a computer program which is intimately linked to a distributed ledger such that the output of the program directly determines who is allowed to make use of the assets. The "distributed" part is important since it means that you're not dependent on particular party to enforce the contract—the entire distributed system does that.
Yes, we already know that. The point is everything that can be automated with a smart contract can also be automated with a computer program in conventional finance. Therefore "smart contracts" do not provide a competitive advantage, contrary to what the other poster suggested.
There's a lot of overhead in the traditional finance system which leads to gatekeeping by those interested parties. I'd rather pay some crypto fees "to the system" than pay fees that ultimately end up in the pockets of overcompensated executives at a middle-man rent-seeking org.
How can anything than runs a blockchain offer a service at a lower cost? It can't. The only competitive advantage that crypto has over the financial sector is that crypto is by and large operating with disregard for financial regulations. Let's see how long it's gonna last.