I think it's easier to unseat Bitcoin than Facebook. With a cyrpto currency, it seems like all you would have to do is make mining more profitable on your currency than on Bitcoins.
This could easily lead to a race to the bottom. Maybe adoption will be the determining factor? What could determine a successful adoption rate for a cryptocurrency: governments, citizens, corporations? Amazon accepting a specific cryptocurrency and thus making it useful for the general public?
It's the same problem as with FB. To get a mass exodus from BTC you need to have a mass exodus in advance in order to get value in the new currency. Everyone uses FB/BTC because everyone uses FB/BTC.
The advice that the usurper needs to be 10x better to win is applicable here, imo. It might even be 100x given the bigger stakes and greater risk aversion of the parties.
This is a large concern for me. If cryptocurrencies begin to attract more users and widespread adoption, what is preventing a new coin that corrects Bitcoin's inefficiencies from ultimately gaining more users and superseding it? I would love to know your guy's thoughts.
Nothing, and it's actually easy to make the argument that that was the intent, in the open source, freedom of choice, no centralization, heck the powers kind of environments Bitcoin became popular through.
Very true. I guess a better question would be, why is Bitcoin able to maintain its market share, popularity, and lead now? Will it be able to maintain it moving forward?
I think that you are right. I think that politics (in a broad term) will play a more important role than technology here. Right now the adoption of bitcoin is widespread, but still quite niche (technological people and investors).
I wonder what will drive adoption from the general public. And I wonder whether AGFAM will play any role in it.
But a quick search sent me to https://iota.org, and oh my gosh, that website is impossible to use. Uninterruptable animations and completely broken scrolling. Oh well.
EDIT to add: suddenly I'm reminded of "For the love of God, please tell me what your company does" from the other day (https://news.ycombinator.com/item?id=15170182). Probably the incomprehensible website means Iota is aimed at big businesses, not individuals.
Why would that necessarily be a problem? If it's a form of money, to be exchanged for goods and services, why does the specific currency matter? For most people it could be just like switching from Francs to Euros, say -- a little disruptive in the short term but overall no big deal.
If a competitor is able to fix some of Bitcoin's serious problems, it deserves to win. Though I can understand if you're worried about competitors that lack some of Bitcoin's key properties.
You need to bootstrap the infrastructure by convincing miners to join your cause. A well-heeled entity could just offer fiat money (which miners apparently still like), a less well-heeled entity could somehow differentiate at the mining level, e.g. by designing proof-of-work algorithms that would work on home GPUs or CPUs (and thus be accessible to billions of home PC users) which is what Litecoin and some others attempted to address.
The deflationary aspect of Bitcoin will probably get in the way at some point - hypothetically, if you owned BTC and USD today, why would you ever spend a BTC? Spending even costs you money (in transaction fees), while saving doesn't. It's the system that rewards hoarding.
This I can agree with after selling some code from bitcoins it can take hours before I get my coins. I'm not sure they can do anything about it at this point.
You'd probably see similar delays in banking if all banks had to record all their transactions in a central database. It's simply not a scalable system.
Bitcoin is not, in my opinion, a system for transactions. It's essentially a store of value - that's it. If you want quick transactions, you won't do it faster with decentralized than with centralized systems. Decentralized is slower by construction
I think future cryptocurrency will need to be very scalable, zero fees and instantaneous. At least capable of handling VISA traffic. Ideally something good enough for microtransactions, sending $0.001.
So far I've heard about IOTA and Lightning Network.
In Europe bank transfers are free. I often send $1 or $2 to roommate bank account for something from refrigerator. Also in shop I pay $2 with VISA card.
> Bitcoin has evolved into a financial-scale product, no longer something one would use to buy $0.50 of potatoes.
Well, before "evolving" so elegantly it was pitched as a replacement to credit/debit card systems (which would charge a whole lot less for a basic $10 transaction), and prior to that as a final answer to micropayments on the Web (I am guessing charging $0.001 to read an article is off the books now). And somewhere along the evolvement it was supposed to be a payment mechanism for calling other people's APIs and various Web services.
What's the next step in this evolution chain? Service for realtors where the transaction fee is 6% of the value of one's house?
This is absurd and hyperbolically incorrect; fees in Bitcoin are calculated per-byte of the transaction's size (and in BTC, no less!), so even if the cost of a transaction was that high, the price in USD would be misleading — with the underlying asset at ~$4500, of course the dollar value of the fee would appear high in a weaker currency.
Who wants to wait _any_ number of blocks for a payment to clear, anyways? Blockchains provide a trust anchor that serves well as a settlement system, but they aren't intrinsically payment networks in and of themselves — the ideal experience is of course an _instant_ payment, and waiting for confirmations just doesn't cut it.
This is why so much effort is going into building payment rapid networks on _top_ of Bitcoin, using "rapidly-adjusted micropayment channels" [0] and routing protocols to build things like Lightning [1].
And you're pumping IOTA in this same post? Unbelievable, these days.
probably a combination of bad fee estimation (which will be be fixed in 0.15), a general skew towards high fees (the median is $2), and a general acclimation to high fees due to blockchain spam in the last few months.
That argument never made any sense to me. What's the fundamental value of $1?
People assign value to all things based on how desirable they are (the demand). There are rare exceptions, like when a government ties their national currency to something like the dollar, but that immediately creates a black market, where it trades for its real value, and because of that, the government exchange only works one way (to buy or to sell). See Bolivar as a current example.
I think the comparison to gold does make more sense than to Fiat. Fiat has inherent value in that you can buy all kinds of goods with it. Crypto so far has hardly another use than to trade against Fiat, which atm. is similar to gold (which does have industrial applications but its price would also collapse if all the reserves got dumped). This may change in the future, albeit probably not with BTC given its tech stack and the strange philosophy of the core devs.
Do you realize Bitcoin is accepted in orders of magnitude more places (as in physical stores) than gold as a direct method of payment?
And then Bitcoin is accepted in tens (maybe hundreds) of thousands of online stores.
Also only something like 10% of gold is used industrially, the rest is regular hoarding.
And Bitcoin has other uses as well.
But even if you ignore all that, you still can't answer what the fundamental value of 1kg of gold is - it's value is determined by the supply/demand, and has a lower limit, which is it's mining cost, which also changes all the time due to depletion, fuel costs, technological advanvements, land costs, etc.
Yep. This has been my problem with it since the beginning. A dollar isn't just a dollar. It's a monetary unit that is intrinsically tied into the power and faith of hundreds of millions of people in the idea of a country.
If people stopped believing in America, the dollar would go. How little would have to fail for Bitcoin to have the same problem. I've heard that if the person who owns the large stake in Bitcoin were to transact even one of their coins, all hell would break loose. That doesn't spell stability to me. Neither does "forking" the currency.
>If people stopped believing in America, the dollar would go.
Interesting, considering that the purchasing power of the dollar has been long in decline. It holds its place against other currencies, but with dollars you can't buy as much stuff/assets today as you could yesterday.
I'd argue more, according to your definitions, the "fundamental value" of the dollar (which you conveniently didn't specify) relies on violence (as in, pay up of guys with guns will put you in prison). Whereas the fundamental value of Bitcoin is determined by the free market.
It's quite clear to me which one is a more moral system.
I'd argue more, according to your definitions, the "fundamental value" of the dollar (which you conveniently didn't specify) relies on violence (as in, pay up of guys with guns will put you in prison). Whereas the fundamental value of Bitcoin is determined by the free market.
It's quite clear to me which one is a more moral system.
It's not really clear to me how this word salad you've thrown out is supposed to be an actual argument.
The property rights to your belongings are also fundamentally reliant on the government's promise to use violence to enforce those rights. Concluding that it is therefore immoral is too simplistic. You have to take into account the full consequences of not enforcing those rights, and then determine whether society as a whole is better off or worse off.
Using your same argument, taxes are a peaceful price for civilization. I don't need armed tax collectors busting down my door to take my money because we live in civilized society.
The fundamental value of a national currency is not violence. It is civil society.
The dollar is tied to the American government and the American economy. It is not created for profit, but rather for stability. I see this as a sharp contrast to Bitcoin, which is created for profit (by miners) and only supported by speculation and the online drug trade. It is incredibly deflationary while the dollar is incredibly stable. While the dollar doesn't have a tangible 1:1 backing, it is backed by 330 million people (+many others who do business with the US) participating in the largest world economy.
I think fundamental is the wrong word. Dollars have a fundamental value. There only purpose is to transfer debts. You can argue that if the government(s) fell that the value is diminished or reduced to zero, but that doesn't remove that fact that it has fundamental value.
I think that the same argument could be held for digital currencies, they were created for a similar purpose and then would also have fundamental value. The value that digital currencies has is far more tenuous than fiat currencies or gold.
But don't get me started on the value of gold. Gold has the same issues as fiat, it's just more likely to be stable after the complete breakdown of society.
Double_a_92 is pointing out a distinction -- USD is pure legal tender, that is mandated by the US government to be accepted for payments of debts. Bitcoin is not.
In case you're honestly approaching this and misunderstanding, the value of the dollar lies in that the US gov't transacts taxes in dollars. It's not just "whoever" - if BTC had a reasonably equivalently vital transaction that it could be used for (OPEC switches to BTC, EU switches to BTC) then it would be a bit more apples to apples.
The fundamental value of the dollar is that it can be used to not go to prison for tax evasion. That is something that many people want to do. Bitcoin has no such anchor.
I can wipe my butt with a dollar bill. I can use that dollar bill to snort a line of cocaine. I can make a paper football out of it. I can use it to help roll a joint. I can fold it into a small coin purse to hold change and keep it from rattling in my pocket.
The dollar bill, being a physical object, has some utility, and thus some value.
Can you do any of those things mentioned above with a Bitcoin?
Bitcoin and other crypto require a well functioning internet infrastructure, otherwise it's just data on a hard-drive.
Disconnect a country from the Internet (or filter the traffic) and you're forking the chain. Spend on both networks by buying other (unfiltered) crypto.
There are states (even large ISPs) that can do that.
Also, the first thing to go in case of global conflict is the global Internet. Countries will try to damage opponent's internet links to gain strategic advantage.
Crypto currencies will be useless in this case, losing all of their value.
There's always the concern of a bug in the protocol, a solution to the hash function or plain old human stupidity that can crash the currency.
I guess my point is: be careful, this is still very much experimental, don't invest everything you have in them.
The fork concern is real, but the double-spend on both forks is less so. It would require the double-spender to have access to both networks. Which isn't that hard to see.
But, it wouldn't take too many parties having access to both networks to prevent the fork in the first place. The miners who control such things are very highly incentivized to keep their operation on the main or largest fork.
The alternative for the miners would be doing work on a fork that has the distinct risk of being worthless as soon as the network issues resolve.
There are very distinct risks. But ones that have "real world" parallels. Think bars of gold becoming less valuable than antibiotics now worth pennies. Or Marlboros. In the shit-hits-the-fan scenario, values of everything goes crazy not just cryptocurrencies. $1000 smartphones without electricity or networks become paperweights.
> The fork concern is real, but the double-spend on both forks is less so. It would require the double-spender to have access to both networks. Which isn't that hard to see.
Not hard at all. Have a second uplink to the world wide net, e.g. via sat.
Which is my point: if an interconnect is possible, miners are going to have a very high incentive to use it as well. Not just double-spenders. And it wouldn't take many miners doing it to prevent the fork in the first place.
Thing is, as long as there is one honest person with a connection to both networks, they can easily serve as a relay between them, and keep both networks fully synchronized.
If an attacker is on both networks and trying to double-spend, it's extremely likely that someone honest is also on both networks who is successfully keeping the two networks fully synchronized. In this type of situation, you can make yourself safe just by waiting for 4-6 confirmations instead of the usual 0-2 confirmations.
> Bitcoin and other crypto require a well functioning internet infrastructure, otherwise it's just data on a hard-drive. Disconnect a country from the Internet (or filter the traffic) and you're forking the chain.
Having satellites broadcasting the blockchain is a good step to make the network resilient but it doesn't prevent governments messing with miners. A great disturbance would occur should china decide to unilaterally shutdown the miners on its territory for instance.
Furthermore unless I'm missing something these satellites broadcast the blockchain but don't relay new transactions. That means that if I'm stuck in some place without internet access I can use the satellite network to keep my copy of the blockchain up to date but I still can't make new transactions, effectively making it useless. I guess they could expand their services to allow for satellite transaction relay but that sounds very expensive.
> Disconnect a country from the Internet (or filter the traffic) and you're forking the chain.
Is this necessarily true? Forgive my ignorance but if we're talking Bitcoin, wouldn't the rest of the remaining miners around the world be able to account for this? And would the situation be meaningfully different in the country in question were China (or another of similar size/mining power)?
I think you're replying to the wrong comment but to try and answer your question if a region is completely isolated from the rest of the bitcoin network one of two things can happen:
- If the region doesn't have a significant hash power (the case in most places in the world really) then the block rate will effectively go to zero, meaning that bitcoin will effectively "pause" here and be unusable until fresh blocks can be retrieved from the outside and new transactions broadcasted to the external miners.
- If the region has enough hash power to mine new blocks regularly the region will fork its chain. If it has more than 50% of the global hash rate this new chain will be the "real" one and will take over as soon as it's reunited with the rest of the network (invalidating the "outside" blockchain and all its transactions since the fork). If it has less than 50% hashrate then the opposite happens, as soon as the longer outside chain is received it'll invalidate the fork.
In both these situations bitcoin is effectively unusable in the minority fork since you know for a fact that the chain will be erased as soon as the network is reunited.
Here Adam Back said:
"With a perpetual generator out back with a satellite dish, a Raspberry Pi by the generator, a local wi-fi hot spot, and the necessary software set up, you could be transacting globally with bitcoin."
Anyone can explain me why is the need for a local wifi hot spot here? And how much does it normally cost to setup a satellite dish?
I think you have a valid point, but, ultimately aren't all or most trades digital today?
Are countries exchanging actual loads of gold and/or cash around? If the answer is no, then isn't it all just data on a hard-drive?
In that case damaging internet links will have the same effect all around, though information can probably still go in/out in different ways with some effort. Is there some aspect of crypto currency that makes it different (honest question)?
The difference IMO is that gold has intrinsic value by virtue of being rare and shiny. I guess the idea is that even if civilization collapses and we return to the stone age gold will still be valuable. Since the use of gold as currency can be traced back at least to 600BCE[1] there's a good reason to believe that.
Bitcoins however doesn't really have a intrinsic "rest" value. Anybody can (and many do) spawn a new blockchain out of thin air. Ironically Bitcoin is entirely about trust at the core. The trust that the other participants in the bitcoin economy won't lose faith in the currency and dump it. That trust is the only thing that gives the coin value.
Similarly, national currencies have a value because governments collect taxes and pay for things using those currencies so there's a considerable inertial force encouraging their usage.
That doesn't mean that failure is impossible but it smooths out a lot of minor fluctuations whereas, as you pointed out, if a Bitcoin competitor took off tomorrow there's no pressure not to adopt it instead other than the sunk costs which a small percentage of the general population has.
I don't think it is that simple. Bitcoin has 3 main advantages that can't be easily taken away from it that make things harder for competitors:
1 - Distribution (Metcalfe's law):
Metcalfe's law states that the value of a telecommunications network is proportional to the square of the number of connected users of the system (n2).
That's arguing that the past will be like the future when things are still really early. Statistically almost nobody owns or uses Bitcoin, especially when you subtract the Bitcoin proponents who do most of their transactions using something like a credit card which actually uses local currency via Visa or where Bitcoin is converted into real currency immediately by the recipient, and who thus would have very little switching converting to something else.
Ask how long either #1 or 2 would hold true if, say, a couple of large banks, Visa/Mastercard, Apple and/or Google, etc. launched a currency accessible to their existing customer bases. I'd give that a couple of days before Bitcoin would be a rounding error in the daily transaction volume.
The big long-term reason I expect that to happen is the deflation model baked into Bitcoin: every player which didn't acquire a substantial holding years ago has a huge incentive to find an alternative which doesn't mean they're putting effort into making someone else rich. Right now there's very little mainstream demand for Bitcoin but if that change it's hard to believe the finance people wouldn't be obsessed with ways to capture that revenue going to a third-party.
How many of them are active? How many hold non-trivial balances? Most importantly, how many sales would legal merchants lose if those users jumped ship or lost interest?
Again, my point is simply that there's little holding anyone who hasn't made a huge investment specifically in Bitcoin. If you have $10 equivalent sitting in an account and CitiCoin™ launches next week with attractive terms and mainstream merchant acceptance, are you going to think twice about bailing? Alternately, if law enforcement cracks down on the money laundering, etc. and prices drop, how many people will lose interest if it won't make them rich?
A key point here: of the comparatively few merchants who accept BTC, how many do their business primarily in Bitcoin and don't quickly convert to something else? That's the only group with a significant commitment to continued use; everyone else can switch on a whim.
That's the difference between a pure fiat currency like Bitcoin and something backed by a national government. Bitcoin has no inherent value beyond voluntary group consensus, which means that a panic, messy fork, or disinterest has no natural floor on how far it can fall. In contrast, USD are backed by one of the major world economies, hundreds of millions of people need them to pay taxes, and billions of dollars are paid to government employees, contracts, benefits, etc. Again, that's not immunity from problems but it's a huge inertial weight moderating swings.
The backing and even the existence of the United States is also simply a matter of group consensus. It is turtles all the way down, my friend. We're just debating whose delusions are bigger and better.
If you can carry gold to another country, nothing will stop you from bringing a USB flash with new, longer Bitcoin blockchain, which includes your transaction to send BTC to the receiver.
That's after you convince the rest of the operating nodes in that country that the blockchain version on your USB is indeed the greatest, and everyone should just migrate to that.
Conventional digital currencyish things (e.g. credit cards) have at least some tolerance to network partitions. Current blockchains fail rather catastrophically if partitions occur.
Bitcoin is global. If you want to be sure your transaction is on the longest chain you can just wait for more confirmations. You could even receive confirmations over satellite now.
> I guess my point is: be careful, this is still very much experimental, don't invest everything you have in them.
Also experimental: Central banking and fiat currency. The lifetime of these non-crypto backed coins isn't that great either. Also they tend to be devalued in times of war. Not sure I'd want to be holding onto paper money.
Diversifying a portion of your mattress money into digital money isn't the worst idea. It's a hedge against hyperinflation that can be transported digitally.
This is something I've been wondering about. Maybe someone with more bitcoin expertise could answer.
Is there more mining capacity inside China than outside China?
If so, and the Chinese government used their well-known firewall against Bitcoin for a matter of days to weeks, would Chinese miners have the longer chain? And thus the chain?
I guess what I'm wondering is if the government of China has the ability to DOS Bitcoin as a payment system outside China at will.
My guess is that the Chinese miners are often well-connected in the middle-levels of the Chinese government, the parts that actually implement such policies, and only a few less-connected miners would actually get blocked, thus increasing the profitability of the miners with government connections.
AFAIK mining doesn't actually require connectivity until you want to reveal the block. It's unlikely anyone else will discover it quickly, so you can just have someone walk across a border (or get on a flight) and plug it in to the global network from elsewhere.
Blocks are supposed to be found every 10 minutes (difficulty adjusts to maintain this average). Theoretically someone would find the next block 10 minutes after you found yours and they would broadcast it. Then the next block would be found on top of that one. So unless you could get your block broadcast in under 20 minutes your chain would end up as shorter than the other one and wouldn't be counted as the main chain and it would quickly die.
I'm wondering if it would benefit them to be cut off from the world, but not each other.
Lets say China creates a partition in the bitcoin network between inside China and outside China. My understanding is that when they remove the partition, the longest blockchain "wins". If there is more mining power inside China than outside, that gives them the power to deny everyone outside China the ability to do transactions for the duration of the partition.
The network could be divided other ways, but I believe China is the only one who has the ability and incentive to do it. Although maybe you're right that the miners are connected enough to prevent it (I'm sure it would create chaos that would hurt them in the end). Although I don't know if the firewall is administered at the provincial level or the national level? I think it is much less likely for them to have national level connections since I believe the Chinese political system is controlled by ~100 people.
The attack you're describing is analogous to 50%+1 attack.
The chain will fork, and after Bitcoin + Bitcoin Cash and Ethereum Classic + Ethereum it's reasonable to assume both versions will co-exist to some degree.
Yeah, I think that is the right way to think about it. I had always considered that in terms of mining power, not in term s of network control, but it is effectively the same incentives and consequences, just with different players.
I'll focus on one thing that's fitting and haven't been mentioned. It's about Opendime
( https://opendime.com/ ) which brands itself as a Bitcoin credit stick.
It's like a USB stick but it stores inside a Bitcoin private key that's not revealed to the user unless they visibly break a part of the stick. This basically allows you to "load" bitcoins on the stick and give to others while being relatively certain of the "transaction" while of course being offline.
I assume it's probably possible in theory that with an electronic microscope or something similar a skilled engineer will be able to read that private key, but I haven't read of any reports that it has happened yet, but it all depends on the value contained to make it worth the effort and even then we won't know.
This basically allows off-chain & off-internet transacting which is really cool and enables the use in some more cases.
Personally I know that Bitcoin is not perfect, it has strengths and weaknesses but it's good enough for a lot of use-cases at the moment and it will keep getting better. There are quite a lot of talented engineers & cryptographers actively working on Bitcoin and cryptocurrencies that will move things forward quite a lot. Unlike Gold, Bitcoin can be upgraded to do more thing and evolve, be it Bitcoin or some other cryptocurrency, unless we live on an age of having govs ban a technology it will find its place on our daily lives.
Fork wold decrease number of miners working on the main chain. Thus destroy some value, and bitcoin price may be more volatile in days of fork. But no more than that. I cannot imagine any exchange/buyer accepting transactions from anything but the longest chain, and existence of the longest chain cannot be kept secret in modern world.
> Bitcoin and other crypto require a well functioning internet infrastructure, otherwise it's just data on a hard-drive.
Amazingly, not really. Bitcoin is a currency that's built to be disaster-proof, including world-ending scenarios like nuclear war between superpowers. You really just need 3 things:
1. A computer that can validate the chain.
2. The longest chain. This can be given to you via usb stick if the Internet is down.
3. Some way to send and receive blocks and transactions as the network continues building the longest chain.
A lot of work has gone into being able to achieve number 3 without full internet infrastructure. The example of a satellite beaming blocks to the world has already been brought up (though this is receive only, not send-capable for most people). However, people have also written software that can transmit blocks over HAM radio. You can't download the full blockchain over HAM relay, but you can relay blocks and transactions in real time, because the whole network is bottlenecked to about 2 MB per 10 minutes.
If you have wifi routers, you can set up point-to-point relay and broadcast systems as well. A point-to-point system can get well over 100 miles per hop. If the Interent were to suddenly fail, it may take a few weeks to connect everything together, but you could get Bitcoin up and running long before you could get anything like email working again.
> There are states (even large ISPs) that can do that.
While there are states that can split you from the main Internet, all you need is one relay that the state can't control to keep the Bitcoin network connected. It's not like a website where people have to keep asking a central server for data - once one person has relayed a block into an isolated network, the whole isolated network has that block. You can't keep the network isolated unless it's perfectly isolated, and on the scale of a country you are of course going to have people listening to the satellite broadcasts, setting up wifi relay points, or maybe even doing something less sophisticated like usb-smuggling which means it effectively takes a few days to be certain that a transaction has been confirmed by the broader network.
----------
TL;DR: Bitcoin is far more resilient than you give it credit, and it can survive the Internet going down. As long as you still have an ad-hoc way to transmit blocks to major areas, you can keep everyone fully in consensus. The infrastructure requirements of Bitcoin are far less than that of email, sms, or traditional website based, centralized infrastructure.
"There are two main reasons to doubt bitcoin's viability as an investment....Another is more philosophical: Digital currencies have no fundamental value, so have no place in a portfolio."
There is no such thing as an objective theory of value. ALL value is subjective (meaning each person values the same thing differently). The more you learn about what money is, the more you realize that there are qualities of money that make it valuable/appealing to be used AS money (e.g. fungibility, low to no inflation, difficult to counterfeit, scarce, easy to verify authenticity). This is why things like sand and hair make for poor money, and this is why the free market essentially chose gold as money before governments co-opted, confiscated, and controlled it. Gold would most likely be the primary money today if people had been free to transact using gold as money [0].
Governments stopped the use of gold as money because they can use fiat currencies to fund the operation of the government (by increasing the supply of fiat and buying their own debt with it), reducing the purchasing power of their own currency and acting as a tax on savers.
Bitcoin is a serious threat to that because unlike gold, it is orders of magnitude more difficult for governments to confiscate and control.
The article does a surprisingly good job of addressing this issue as well:
> What, though, is the value of a digital currency?
> It's a fair question, but one that could equally be leveled at gold. Since Richard Nixon ended the fixed $35 an ounce convertibility of gold in 1971, its value has risen at times (the 1970s, the 2000s) and fallen at others. The best argument to justify investing in gold these days is not that it's an eternal "store of value" but that its very weirdness makes it special: According to modern portfolio theory, you should buy the shiny stuff not for its superior investment returns, but because it doesn't correlate much to other asset classes such as stocks, bonds and commodities.
One can argue about the validity of the "gold is equally worthless" argument, but I was just impressed that the article didn't shy away from these hard questions.
Agreed - for an article in MSM, I was surprised it wasn't completely terrible!
But I'm tired of the BS line that "gold has no value" continues to be repeated as nauseam. If people value it, then it has value. If people don't, then it doesn't. End of story. Things don't have value because some Minister of Value makes a proclamation about what has value and what doesn't (USSR tried that, didn't work!)
that's not quite the case. There is such a thing as objective value. Stocks have objective value because they pay dividends. Real estate in warm climates has objective value because it's pleasant to be in a warm place in winter. BMW costs more than a honda civic because it is objectively a better driving experience. Etc. Etc. So, no, it's not true that there is no objective value
Each one of your cases can be debunked. Stocks only have value when SEC deems that it can have value. There are people who would love to live in a cold climate for whom land in a warm climate has no value. BMW costs more than Honda because people are willing to pay that much for it, which is how BMW sets the price.
All of your cases are about subjective value. Take out the buyer with personal interests on the other side of the transaction and see if it has any value.
A good test is to take what you think has value and move 10000 years into the future or the past and consider if everyone you encounter will value it. Do you think it will have value? If not, then no, it doesn't have any 'objective' value.
ehhhh, no. Stocks do not only have value when SEC deems that it can have value. That is completely incorrect. SEC simply regulates equity issuance, it doesn't set the price of each stock. BMW costs more than honda because it is objectively a better car. By objectively identifiable metrics. Yes, it's true there are some people who love cold climates. But in the US people are moving from cold climates to warmer climates, on average - so real estate in warmer climates is growing in value faster. So, no, you are completely wrong.
No it doesn't, but SEC has the power to allow the stock to get traded in the first place. So the value is subject to SEC's presence. If there is no SEC, there is no 'stock' for you to get dividends from.
> BMW costs more than honda because it is objectively a better car. By objectively identifiable metrics.
You discount the people do don't give care about the objective metrics. There's a lot of personal preference involved when one chooses a car to buy (apart from buying power).
>But in the US people are moving from cold climates to warmer climates, on average
Last time I checked, US has of 4% of the world's population. I'd wager more than 4% of the world would love to move to a colder climate.
>So, no, you are completely wrong.
I don't think any of the facts I've stated are. If you're talking about my opinion that there is only subjective value, well, that's subjective too :)
Not correct. The price of the stock times shares outstanding is its value. Where does this value come from? Why are Apple and google doing so well? It's not, by your logic, because they are great companies - that would be an objective metric, no? Existence of the SEC doesn't make stock values subjective. Any argument here that starts with "some people" - is irrelevant. Everything we are discussing is about on average, statistically. On average, a beachfront condo in Miami will cost more than an equivalent condo in Iowa. Why? Because it's on the beach and people, on average, value that more than being somewhere in Iowa
Price is what people pay, value is what they get, and it's completely subjective.
The only reason people pay more for a BMW than a Honda is because they perceive they're getting more value with a BMW than with a Honda. There is no such thing as an "objectively better driving experience" -- all value is derived from perception, and perception is individual.
eehhhh. No. People prefer faster cars on average over slower cars. that's an objective metric - one car is slower than the other. They don't just perceive it. If they simply perceived it, you could launch an advertising campaign and convince them that they should pay more for the Honda. But they won't.
The maximum speed or acceleration abilities of a car are objective metrics, but how much people actually value those things is subjective.
Value is subjective, each person values the same objective metrics differently (e.g. soccer moms generally don't value sports cars as much as single guys, if they did then we'd see a bunch of soccer moms driving their kids around in sports).
yes, but a faster car with all other features being equal gives you objectively more features. There is a reason BMW costs more than a Honda civic. Right? Or else, if there is no reason whatsoever, Honda should be able to advertise in a clever manner and sell that Honda civic for the same price as a BMW 7 series or a Tesla. I mean if it's all subjective, right? But we can all agree that no matter what a Honda civic will cost less than a tesla. Yes?
Some people - yes. Some people prefer all sorts of things. Some people may prefer jumping off a bridge. That's irrelevant. On average, people will prefer an objectively better thing to an objectively worse thing and pay more for it
Look, cars that have specific features cost more than cars that don't have those features. That's objective. Stocks of companies that are very profitable, like google are more expensive than stocks of companies that are not. That's objective. Right ?
Correct, but it's people's perception of value that ultimately drives the current stock price.
Take Amazon as an example, in 2016 its net income was $2.4 billion, yet it currently trades at a total market capitalization (the value of all outstanding shares) of $471 billion (or approximately 196x its net income) [0]
Compare that to Ford Motor Company, in 2016 its net income was $4.6 billion, yet it currently trades at a total market capitalization of $45 billion (or approximately 10x its net income) [1]
So Ford was actually MORE profitable than Amazon in 2017, but it's market capitalization is only 10% of Amazon.
So what's driving the differences? People's perception of value. People perceive that Amazon will be more profitable than Ford Motor Company in the future, even though objectively Ford is more profitable than Amazon right now.
they perceive it because Amazon is growing faster than Ford, which is an objective metric. Not because they simply completely subjectively decided that amazon is more promising - there are quantifiable OBJECTIVE metrics that this is the case
You're saying Amazon is growing faster than Ford, but they're not growing faster in terms of profitability (even if people perceive that Amazon will be more profitable in the future). Yes Amazon revenue is growing faster than Ford revenue, but is that the metric that matters most?
Maybe, maybe not, it's subjective, only individuals can decide for themselves.
you are confusing uncertain and subjective. Yes, it's uncertain what will happen in the future, but Amazon is more of a growth company than Ford and that is not subjective.
I'll give you the benefit of the doubt that you're not just trolling and you're actually trying to understand whether value is objective or subjective. Assuming you are, read the following link and let me know if you still think value is objective, and if so what parts specifically do you disagree with:
So if value is purely subjective, then surely some people would be willing to pay 100k for a Honda vs Tesla? Why doesn't Honda try to sell cars for 100k? Why isn't a cup of coffee at Starbucks 20 bucks ? If it's pure subjectivity, then surely that would work
Well, all prices are still determined by the intersection of supply and demand.
I'm not saying that the objective features are IRRELEVANT to a consumer's purchase decision, obviously they're not, but ultimately each person values what they're buying differently than the next person.
I'll run with your coffee example:
Let's say someone currently values a cup of Starbucks at $6 / cup and Starbucks is selling it for $4 / cup. If Starbucks raises their prices above $6 / cup (to $20 like you say), that person would no longer purchase Starbucks coffee unless their values change. But there's a good chance that SOME people (a small minority no doubt, but probably not zero people) currently value Starbucks at more than $20 / cup, those people would continue to buy coffee from Starbucks unless their values change.
As prices for Starbucks coffee increase and exceed the amount that individuals value it, those people will begin to explore alternatives on the market to determine if there is another comparable good that meets their needs at a price less than they value it.
"but ultimately each person values what they're buying differently than the next person"
that is true, but irrelevant. On average, overall value is highly correlated to objective metrics. so, this is why this conversation started. Price, including price of bitcoin, is not simply some subjective thing - it must be tied to some objective indicators. For example, price of coffee at Starbucks cannot be too far above what it costs to make coffee at home. It will be higher, since you are paying for convenience. But there is only so much that makes sense to pay for convenience and people won't pay more than that.
"There is such a thing as objective value. Stocks have objective value because they pay dividends. Real estate in warm climates has objective value because it's pleasant to be in a warm place in winter. BMW costs more than a honda civic because it is objectively a better driving experience."
You were claiming that value is determined by the objective features/metrics, now you're saying that "overall value is highly correlated to objective metrics" -- which one is it?
First you say it's objective, now you're saying it's just highly correlated? Those aren't the same things -- if objective metrics were all that mattered, value would be 100% tied to the objective metrics/features, but it's not.
If objective metrics were all that mattered, you could ALWAYS create something bigger, faster, or stronger and have it sell for more than the next best item on the market -- but that's not how it works. There are NUMEROUS example of products which were "objectively" better but failed because people did not perceive their value to be high enough worth purchasing.
You were claiming that value is determined by the objective features/metrics, now you're saying that "overall value is highly correlated to objective metrics" -- which one is it?
it's both. You observe this high correlation, because objective metrics determine value. They do not account for 100% of it 100% of the time, only on average.
I keep using the term "on average", I think you keep missing its significance.
Yes, but price that people are willing to pay is highly correlated to the value they get. And they tend to pay more for things that have some objectively better properties. Which is why tesla model s can sell for more than Honda Civic.
>Bitcoin is a serious threat to that because unlike gold, it is orders of magnitude more difficult for governments to confiscate and control.
Nonsense. Nothing stops China from seizing all of the largest bitcoin mining operations tomorrow, and building some additional miners to conduct a 51% attack. They would then effectively control the network. Bitcoin is actually easier to control than fiat currency or gold because it requires network access.
This is a common misconception, the Bitcoin network would not be harmed by governments seizing control of Bitcoin mining operations, there are many options in such of an event. All seizing mining would do is prove how resilient Bitcoin is to government efforts and further decentralize the currency. Also, implicit in your statement is the belief that miners control the network, which is not true. They're an important part of the ecosystem, but they don't control the network (if they did, the blocksize would've increased a long time ago and there probably never would've been a fork).
>This is a common misconception, the Bitcoin network would not be harmed by governments seizing control of Bitcoin mining operations, there are many options in such of an event
You'll have to give us some sources for that I'm afraid, it's not at all obvious from my point of view.
Should China merely shutdown the miners the disruption shouldn't be too massive and only temporary while the difficulty adjusts to the new hash rate. But if they actually decide to use the miners "offensively" they could make a 51% attack and double spend bitcoins. Such an attack would greatly reduce confidence in bitcoin and would probably tank its value pretty hard. That sounds pretty harmful to me.
I agree with you that there's no such thing as objective value. But my feeling is that there is still something important that differentiates "real" currencies (fiat or not) from bitcoin/gold/etc. Namely, there is a government backing the "real" currencies.
Dollars are "guaranteed" to have value because they are "legal tender," ie you can pay your taxes and buy things with them. As long as the US government has power, that will continue to be the case.
I can definitely see btc being a viable currency in situations where a government's power is limited but, for stable countries, it seems more like a commodity, and that's definitely (at least it seems to me) how people are treating it.
Have to pick a bone here: dollars do not have value because they are "legal tender" -- see Zimbabwe hyperinflation [0]. Zimbabweans stopped valuing their national currency years before Zimbabwe recognized any other currencies as legal tender.
Dollars (and all fiat for that matter) have value because once upon a time paper money was tied to a specific weight of gold / silver stored in a bank vault. Over the past 100-ish years that link was slowly eroded until the point where there was no backing whatsoever. Inertia is the only thing keeping fiat currencies going, and it's not going to last forever now that alternatives (like cryptocurrency) exist and governments can't shut them down (like they did with the Liberty Dollar [1]).
After a couple more financial crises in the West and bank bailouts I suspect ALL governments will have limited power in this domain, people aren't going to let their savings be inflated into oblivion for the rest of eternity.
The point that I meant to get across was that dollars have value as long as the government has power. You're right that it doesn't matter what the government says. Rather what matters is whether or not the government can back up what it says.
If you don't pay your taxes, you will be jailed. How do you pay your taxes? Well that's up the government, and they went with dollars.
I don't agree with your explanation of why dollars have value. You seem to have a bone to pick with every fiat currency, which I think is very silly.
Not sure why I'm getting downvotes on this, but you're right that I have an issue with every fiat currency, they're antithetical to a free society. No fiat currencies would exist in a world without coercion, people would not voluntarily use a currency which is debased every year by design.
Bitcoin appears to be turning into a relatively standard commodity arbitrage market (in the real world sense of arbitrage not the academic sense). The article is right to compare to gold in this sense.
People seem to get caught up on the word "value" and then rush to defend Bitcoin's use cases and unique technology as making it valuable. I don't think it's a diss when people say Bitcoin has no fundamental value. A thing having use cases or unique properties is not what "value" means in an exchange market sense. "Fundamental value" is also known as "intrinsic value" and is based on the BUILT IN return potential of an asset. So stocks and bonds have an intrinsic value because they generate a return, based on dividends or interests rates they pay.
A thing is only worth what someone will give you for it. So EVERY value needs to be in terms of something else.
An ounce of Gold, 1 bitcoin, 1 US dollar, have NO intrinsic value because you can hold them forever and they will never pay you a dividend or make a coupon payment on their own. Gold has a few practical uses in jewelry and industry but that's not why it's important. Bitcoin and the dollar have ZERO "value" beyond being a place to store something else's value. Well back in the day a dollar in the bank might earn you a small interest rate but hello 21st century. Bitcoin doesn't even offer an interest rate. Gold is not a good long term investment. But Gold is good to have in case of emergency. I imagine bitcoin will be similar. Bitcoin and gold COST you money to own them. The people who make money off gold are the miners and then forever after the banks and security companies who store physical gold for you at great expense. Bitcoin should be similar in this sense as Bitcoin can create a spread income over the energy costs and the transaction fees it generates every 10 minutes.
My guess is since 90% of the bitcoins that will ever be mined will be mined within the next 2-3 years. And there will be lost coins. So maybe 15 million coins will be around long term and that number will slowly shrink. The fees will start to be more important.
I don't think Bitcoin is a Ponzi scheme. Bitcoin has a ton of great uses and tech features. And most importantly it has signaling properties. While Bitcoin is unlikely to be the main digital currency people on a daily basis as the 1 MB limit does appear to cause issues. It would be very bad for all digital currencies if bitcoin went away.
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