The Cryptocurrency Singularity
Software is eating the world.<p>Those who think a digital currency of some kind _won&#x27;t_ displace cash are going to be made fools.<p>About the article ... there are a lot of questions here.<p>I guess the main thrust of the article is that Bitcoin&#x27;s volatility is declining, and thus it is becoming more attractive for use as a tool for buying lunch (where lunch is a stand-in for common day-to-day transactions).  That hinges on the idea that Bitcoin wasn&#x27;t attractive for that purpose before, because its value was too volatile.<p>1)  The graph the article uses to demonstrate that Bitcoin is becoming less volatile seems to indicate, to me, that Bitcoin is just as volatile as it ever was.  If I&#x27;m reading the graph correctly, the average of volatility is the same, but the std deviation of volatility has been decreasing.  In other words, Bitcoin is just as volatile, but it&#x27;s more consistently volatile.  That&#x27;s ... a weird metric to measure.  Either I&#x27;m reading the graph incorrectly, or OP is.<p>2)  The OP says &quot;I wanted to keep them because Bitcoin has, since its inception, on average increased in value at about 150% per year&quot;.  So why bring up volatility?  Volatility isn&#x27;t relevant to whether Bitcoin goes up in value over time or not.  It&#x27;s clear that, as long as Bitcoin continues to be useful, it will continue to deflate long term.  So it&#x27;s clear that Bitcoin will always have this &quot;issue&quot;.<p>3)  But that presumes that deflation is an issue to begin with.  Is it?  I&#x27;m naive on the subject.  For the majority of human history we used deflationary currencies; precious metals.  The world didn&#x27;t stop turning then.  But then the question is, are inflationary currencies better?  Is our modern use of them an evolution, then?<p>On the one hand, we can think of it as horrible that the majority of people are storing their value in a currency that is decreasing in value over time.  Their work, their labor, earns them wealth that decreases over time.  That&#x27;s disturbing.<p>But maybe it _should_ be that way?  Having people store their wealth in inflationary stores of value implies that work is only valuable in the immediate time frame.  And that kind of makes sense.  A burger I flip today is valuable today, but not so much years from now, let alone decades from now.  Paying me a deflationary currency today for that burger flip is weird, then, because you&#x27;ve traded something that increases in value over time for something that decreases in value over time.<p>So you could argue that in today&#x27;s economy employers trade cash, something that decreases in value over time, for work that also decreases in value over time.  And ... doesn&#x27;t that make sense?<p>And yet, if given the opportunity and knowledge, wouldn&#x27;t everyone want to store their value in deflationary vehicles?  And if that&#x27;s the case, wouldn&#x27;t everyone, as the article implies, only _have_ deflationary vehicles to trade with ... so we&#x27;d just re-evolve to using deflationary currencies again.<p>Does the average person even _know_ that their currency is inflationary?  I doubt it.  Maybe the choice of deflationary&#x2F;inflationary doesn&#x27;t even matter.<p>I dunno, it&#x27;s just a complicated question.  I don&#x27;t think it&#x27;s clear cut that a deflationary currency is better or worse.<p>My point is, the deflationary property of Bitcoin doesn&#x27;t necessarily preclude its use as a daily driver.  Volatility sure might, but deflation I&#x27;m not so sure.<p>It&#x27;s probably irrelevant to the average person.  The average person will see value in replacing HSBC, who would normally freeze their bank account randomly and destroy their business.<p>4)  It&#x27;s important to mention that, at this point, we have reason to believe that Bitcoin and clones based on its model can never be used to buy lunch (and other such small transactions).  The cost of decentralization is too high, and we have no way to decrease those costs by the orders of magnitude needed to handle the transactional loads of things like buying lunch.  We are working to decrease them, and have recently succeeded in a modest improvement on the Bitcoin network, but orders of magnitude is ... out of reach without some massive innovation.<p>It&#x27;s more likely that on-top-of networks like Lightning Network and its evolutions built on top of Bitcoin will be the thing people interact with on a daily basis.<p>The average person will get their paycheck in Bitcoin, but do their daily transactions using IOU networks like Lightning that settle behind the scenes on a less frequent basis.  This allows the average person to use Bitcoin as their store of value, giving them by default the advantages that traditionally only a small fraction of the population have had, but still allowing cheap daily transactions for buying lunch.<p>That doesn&#x27;t change the meaning of the article.  But it&#x27;s important to mention how Bitcoin is evolving to fulfill the future the article proposes.<p>So ... maybe that&#x27;s the future.  Or maybe a side chain will evolve with inflationary properties and we just use that to buy lunch and get paid.  Maybe every country will have their own cryptocurrency, pseudo-centrally controlled, with atomic swaps for global trade.<p>But one thing I know for sure.  Software is eating the world.  You either choose to ride that wave, or you get eaten by it.