This reads a bit like the sort of things people say when breaking up so as not to upset the other person too much. You're a great person, but you're just more of an asset than a medium of exchange, and what I need in my life right now is a medium of exchange.
What future does an asset have if people don't actually buy stuff with it? That is not a purely rhetorical question; cryptocurrencies change things a lot. But this news is worrying.
> What future does an asset have if people don't actually buy stuff with it?
I look at it (maybe naively) like a solid gold bar. You're not going to walk in to a convenience store and pay with a bar of solid gold; you might flee the country with one though.
Beyond that, I totally agree with your read on the post. Linking the pull request[0] was especially backhanded. It feels like there's some underlying frustration there that was expounded upon using good references and kind words.
Reading your comment finally made it click to me why cryptocurrencies (specifically Bitcoin) are distinct from a gold bar or other non-currency stores of value. A gold bar is going to remain a gold bar forever, people's perception of its value will change even though the supply will remain mostly steady, but it will stay a gold bar no matter what.
Bitcoin may change in value based on perception, it's supply will remain constant after it has all been mined, but it's existence and integrity relies on a large network continuing to exist.
To put it differently, in 50 years a gold bar is a gold bar, but in 50 years a Bitcoin may have no value because everyone stopped mining and the blockchain was destroyed by 51% attacks.
You can't hard fork gold, either. You don't suddenly wind up with two copies of a gold bar because someone decided to Xerox your ledger to start a new one.
The scarcity of Bitcoins is entirely a cultural delusion.
And "BCH proper" has identical scarcity characteristics to BTC and it's not as if the creation of BCH negatively impacted the price of BTC - suddenly a new "scarce" token was created and everyone who was holding BTC before the fork is $1600 USD per coin richer today. The scarcity aspect is purely a social construct.
The distinction between "BTC" and "BCH" (and "BTCS" and "BCD" and so on ad infinitum) is cultural convention. There's no inherent technical merit (or alchemical nature) to one ledger over all other contenders, it's entirely a state of mind of its users.
Yes and no. Once the blockchain forks, the distinction between all those coins is very technical. Coins from one ledger cannot be spent on another ledger.
You're right though, cultural convention decides which blockchain is the "real" Bitcoin. Most people are using BTC at the moment, but Bitmain takes payment exclusively in BCH.
This might seem like a semantic quibble, but I think it's important. There will only ever be 21 million BTC, and only ever 21 million BCH. If Bitmain decided to charge 22 million BCH for their latest ASIC miner, nobody would ever be able to pay that bill regardless of how many forks there are.
For a blockchain fork to have any value whatsoever, people need to want to own it. Bitmain ASIC sales are driving demand for BCH. Every other Bitcoin fork is doing rather poorly.
Forks aren't diluting the value of BTC, because people know that BTC is the real asset. Everything else is like fool's gold.
There is no intrinsic property that makes it "the real asset", it is a completely arbitrary distinction based on social coordination not on any fundamental property of the ledger.
"the relative abundance of asteroidal ore gives asteroid mining the potential to provide nearly unlimited resources, which would essentially eliminate scarcity for those materials"
Apparently with the lack of a strong gravity like Earth's to sink down heavy metals, they are way more accessible in smaller bodies like asteroids (Ceres and Vesta maybe?)
To be fair, people could also stop thinking gold is worth much. Maybe a modern-day alchemist finally figures out the formula. I don't know. Probably far less likely than the Bitcoin scenarios though.
Consider aluminium. At one point it was more expensive than gold (due to mining+refining challenges). When those were overcome the cost plummeted to it's current "cheap" level.
Personally, I think a better comparison is to the diamond trade. Through a series of machinations (price fixing, artificial supply constraint, marketing) diamonds are deeply overvalued if you consider just the fundamentals of them - aka they're in a bubble. However, due to those same expertly administered steps they've maintained a high retail value for decades.
Yes, I had the same thought about aluminum. Another example is, in older parts of the Iliad, iron is considered a precious metal, while in other parts it is not.
Films also have criminal masterminds ask undercover police officers "Are you a cop?", followed by a tense musical score, and a close-up shot of the cop's face...
And a "Ha, ha, just kidding, of course you're not a cop."
Crime dramas and action films tend to have an incredibly poor understanding of money, crime, policing, and Newton's laws of physics.
Significant diamonds still hold their value when resold.
It's kind of like art. Spend $5k on some locals work and you might get $50 at a garage sale later on if you're lucky. Spend $5mil on a big name and you'll likely make it back, maybe profit, when you move it. The high and low end are basically different products that function differently in the market.
It's only shmucks overpaying for mediocre diamonds that lose out.
> To be fair, people could also stop thinking gold is worth much.
They've already noted that:
> people's perception of its value will change
But as they say, a gold bar will remain a gold bar, until and unless it is actively destroyed. Not so for bitcoins, which only remain so as long as they're actively maintained (not just individual coins but the mining networks which allows the creation of new transactions)
I’m not entirely convinced, although I’m partway there. When you “have” a Bitcoin, that means you have the private key to a wallet which the blockchain says has such-and-such amount in it. You can have that even if the miners all disappear. You can still use it to sign transactions, although they won’t get confirmed. You can even confirm them by mining a new block yourself with your transactions in it. (If all the miners are gone, the difficulty has hopefully dropped precipitously. And if not, you could always fork it to have a lower difficulty, since the only thing that stops forks currently is network consensus.)
This doesn’t sound super useful, but it sounds about as useful as a bar of gold in a world where nobody considers gold to be valuable.
> it sounds about as useful as a bar of gold in a world where nobody considers gold to be valuable
Nah, if civilization collapses then you'll still be able to use your bar of gold to bash in someone's skull and steal their canned beans (which, in the grim solar-flare induced darkness of 2020, will be worth their weight in bitcoins).
You just sent me down a 3 minute rabbit hole / day dream about Wall-E, the last robot in the universe connected to the blockchain quietly and very easily mining coins from every type of crytocurrency created over the centuries since the early 2000's. Thanks!
If the miners are all gone, there's nothing to stop malicious parties from doing 51% attacks and making the entire thing not only valueless, but also completely unreliable.
At least when you give a person a gold bar, you know that they now have the gold bar.
> If all the miners are gone, the difficulty has hopefully dropped precipitously
AFAIK there is no mechanism for the difficulty of new blocks to fall. And if the only use is creating transactions between yourself and yourself, well you can also collect gravel.
> This doesn’t sound super useful, but it sounds about as useful as a bar of gold in a world where nobody considers gold to be valuable.
Even in a sub-industrial context and ignoring pretty much all of human history and assuming your gold has lost all of its extrinsic worth, your bar of gold could be molded or cast into plenty of useful things (light reflectors, heat shields, baubles, weights). Bitcoins, not so much.
The catch is that the difficulty adjustment only happens every ~2k blocks. If a mass exodus of mining capacity happens really quickly, it could leave the network stranded. But if they leave at a reasonable pace, it will ramp down. That’s why I said “hopefully” before.
I imagined that was talking about a certain level of fluctuation in the exchange rate of gold to dollars, not a radical change like happened to, say, aluminum (considered rare and precious at the time it was put on top of the Washington Monument; not so much today).
How do you think the story would end for gold, if it became unpopular and the exchanges closed? You can sell your gold bar, and you can sell your private key. I see them as the same and no, I don't own Bitcoins.
> You can sell your gold bar, and you can sell your private key. I see them as the same and no, I don't own Bitcoins.
If there's no support network for your bitcoins, their value is 0, exactly. Even if you assume people stop caring for shiny imputrescible metals, its intrinsic property (of being shiny and imputrescible) pretty much ensures there will always be some demand for gold, and thus it will keep a non-zero price. Possibly low, but not actually zero.
I would say, the intrinsic property of gold is insignificant. Other metals which are naturally more abundant and in a usable shape would have more value, in other words, probably you would get more money by selling your monitor stand than a gold bar, if gold were to lose its scarcity.
It matters because one is a physical object with static properties and the other is a digital abstraction with characteristics that can change arbitrarily based on network consensus. One is fundamentally a thing that can be looked at and held, the other isn't even a thing you can know you have without consulting a quorum of nodes about the status of the ledger (for all you know, you don't actually own any tokens because an attacker has stolen them)
But what does that matter in a world where people spend numbers on a bank account, never questioning if the money is actually there or not? I fear you are putting too much emphasis on physical things, as if the quality of being "able to be touched" somehow matters in the modern world.
But are you really hedging against the collpase of _everything_ so that we are at a completely primative level. Or do we mean collapse as in another collapse of the world economy?
If you mean the former, then yes, gold is a good hedge. But if you mean the latter, then I would argue Bitcoin beats gold 100x.
> But are you really hedging against the collpase of _everything_ so that we are at a completely primative level. Or do we mean collapse as in another collapse of the world economy?
The world economy has never collapsed, and if it did, it would be equivalent to the first option.
If you mean a short-term market downturn like the one that occurred with the ~2009 financial crisis, why would I even bother to hedge against that—and, if I did, why would I use an asset with high volatility to hedge against short-term market movement?
Just look at the gold price over the past 100 years, even the last 10-15 years have seen an modest increase. It will only go up & it is highly unlikely that it won't ever be perceived as the asset compared to other precious metals.
> Just look at the gold price over the past 100 years
Or 2,000 years:
"the researchers look at pay for a Roman legionary, in the era of Emperor Augustus (27 B.C.-14 A.D.), who was paid a salary equivalent to 2.31 ounces of gold. A centurion was paid a salary equivalent to 38.58 ounces of gold.
Compared to modern US Army salaries, a private is making 20% more than the legionary, and a captain is making 30% less than the centurion" [1].
A counterpoint can be found in silver, where unexpected Spanish silver production in the New World prompted inflation around the world [2][3].
TL; DR For historical reasons, gold is grandfathered into our collective consciousness.
One of the properties of gold is that it cant be destroyed by chemical reactions. Physical destruction would amount to powderizing and dispersing over an area too wide to re-mine.
If someone discovers a huge lode or if something crazy happened like the US Government divesting, it could cause a pretty wild swing, in the manner of Mansa Musa's pilgrimage.
Guess it's one of those things that seems impossible, until it isn't.
Asteroid mining would disrupt the market for many rare elements, but I think it could be less chaotic than people think. It's not going to be like the Gold Rush where a deposit was found and prospectors flocked to it. It'll be a massive undertaking, almost certainly with multiple nations working together to achieve. The time between the project becoming public and the resulting mined resources being delivered would give markets time to settle on a price.
That said, yes, asteroids mining could certainly affect the price of gold, but not necessarily destroy all its value. There's a price floor set by the industrial applications for it.
With BitCoin, there is no floor. If no one wants to buy your BitCoins, you can't do anything else with them. They are just data representing proof of work, but no outside value.
Plus, in a world where you can mine asteroids for gold, suddenly there's potential for growth not only on Earth, but in the solar system at large, and there have to be industrial uses of gold on Mars...
Asteroid mining won't be able to significantly affect prices of gold downwell, definitely not until we bootstrap a real industrial presence in space - with the way we do space today, mission costs would eat up any profit you could make on shipping raw material down.
Gold as a metal has an inherent value though. If not only for jewelry, it also has important uses in electronics. The value associated with bitcoin seems purely sentimental.
Very little though. If the demand for gold were merely industrial it would not need to be mined in such quantities as it has throughout history. I would put jewelry in the 'sentimental' category as well.
Not only is Bitcoin purely sentimental, it represents has huge costs in the form of raw energy.
Bitcoin's only claim to value is that it is an artifact of an act of ritual sacrifice. One might imagine a precedent in some system of tokens issued by some ancient priesthood.
Gold has "real" demand though in jewelry. It's distributed and longstanding and it has utility. People wear it and use it in real life and value it and wish to keep it in order to look at it and possess it.
That's as tangible as anything else. Nobody would say that there's no demand for musical instruments, or baseballs, because they are optional parts of life that aren't food or shelter.
Gold has intrinsic value in part because people seem to intrinsically like it for what it actually is, not just it's utility in exchange. That's fundamentally different.
the modifier "intrinsic" doesn't add anything though. "people intrinsically like" --> "people like"; "gold is intrinsically valued" --> "gold is valued".
"intrinsic" seems to imply an innate persistence despite not being able to justify such innateness, just empirical persistence. It just implies things that are arguably not justifiable needlessly. gold has been persistently valuable. The universe doesn't give it an innate value.
'Intrinsic' here means that the property of the object remains even if people's preferences and culture change. Gold's utility for electronic applications is a fundamental property of the number of atoms in its nucleus, whereas there have been cultures that had it readily available yet didn't find it particularly desirable for jewelry.
That's nonsense. People's long term interest in electronics is far more unproven and fleeting at this point than their interest in gold.
Seeing as how cultures that considered gold a highly valued item developed independently in Europe and uncontacted pre-Columbian America, and the preference remains global today, there's clearly something durable about this concept.
gold has intrinsic physical properties, yes. that does not imply a particular intrinsic value to humans relative to other things humans could be exchanging things for.
you could say that the reasons for valuing gold probably aren't going to go away anytime soon as far as anyone can guess. though even then, the market value of gold has fluctuated by a factor of like 10 in recent history as the durable abstract reasons for wanting it have not apparently changed as much. did anything intrinsic about gold change from 1980-1981, when the price crashed 82%?
Electronics industry actually uses a lot of gold as in 100's of tons. It's use is mostly limited by price so expect increased demand as the price drops.
It's not clear how much demand for gold would increase at say 1/10th the price, but based on other commodities we would probably use more than 10x as much would would represent a solid price floor.
Bitcoin on the other hand has no price floor and can effectively go to zero. Though, in practice much like beanie baby's or other fads people are likely to hold on to good vs sell it for 1/1,000th the price hopping for a comeback. You would expect long term bitcoin sales below 1 cent per coin to be very rare until eventually the network collapses.
> Not only is Bitcoin purely sentimental, it represents has huge costs in the form of raw energy.
> Bitcoin's only claim to value is that it is an artifact of an act of ritual sacrifice. One might imagine a precedent in some system of tokens issued by some ancient priesthood.
I mean, in this respect the analogy to gold is not an awful fit.
Edit for less smug more content: sacrifice is an interesting lens through which to look at bitcoin. You could argue that burning "excess" compute power is the real point, not the tokens.
Charles Stross' Laundry novels, at least, posit a connection between number-crunching and the occult, though unfortunately the series predates Bitcoin, which would have been perfect fodder.
In the TV show "Sherlock," the titular main character's self-deprecating videos for the "Everyone" collective (spoof on Anonymous) are a sort of ritual sacrifice as a medium of payment.
So is gold. Most gold ends up in vaults (see [0]), where absolutely nothing is done with it. If we would price it for practical stuff (for it's thermal and electric properties), it would be worth much, much less.
Also, gold is not scarce by any means, just expensive to mine.
The difference is that cryptocurrency is ephemeral, and gold is not. One can create a new crypto-currency at any time. One cannot conjure up gold at any time. Crypto-currency can be wiped out with a hard drive crash or a lost password because it is a social contract. Gold cannot because it is physical. That still makes a difference.
1. You can't create new bitcoin at any time - not after all blocks are mined
2. Same as bitcoin, Gold needs to be mined. This is basically "conjuring" gold.
3. Wiped cryptocurrency can be returned.
4. Gold can be destroyed as well.
> You can't create new bitcoin at any time - not after all blocks are mined
Bitcoin Cash did exactly that. New value was conjured up out of nowhere - Bitcoin didn't drop, and every owner of a Bitcoin suddenly had $2-3k worth of Bitcoin Cash.
> Wiped cryptocurrency can be returned.
... What? Are you sitting on a SHA-256 exploit we don't know about?
Bitcoin Cash is not Bitcoin. It did not create new Bitcoin. It created another currency called Bitcoin Cash. Not sure what is so hard to understand from this.
Let me break it up to you again:
1. Bitcoin (In it's current form) has a limited supply. If nothing changes, there will be a time when new Bitcoin cannot be mined anymore.
2. Forking Bitcoin does not mean new Bitcoin is created. You are confusing value and supply. Forking creates an alternative currency (which can be called anything you want) that uses the former ledger of Bitcoin to distribute its initial wealth.
3. It is not a guarantee that addresses with lost secrets will be lost forever. Like you said, SHA256 exploits, or maybe quantum computing would be able to recover them.
When the fork occurred, Bitcoin's value didn't drop, and Bitcoin Cash's market cap was instantly in the billions. Everyone suddenly had more funny money, but we're somehow supposed to believe "Bitcoin isn't inflationary!" still holds.
It's going to get really exciting at tax time, when people declare bankruptcy, go into a nursing home and need to prove they don't have assets for Medicaid, etc.
> Like you said, SHA256 exploits, or maybe quantum computing would be able to recover them.
That's an insane defense of the point. Sure, if that stuff happens, you'll be able to retrieve lost coins. And non-lost coins. So will everyone else. Bitcoin's value would be instantly zero.
New value was not conjured up. A new crypto was created, but the value of it was proportional to its expected use and some other features. There are plenty of bitcoin forks, but you dont hear about the other ones as much because they flopped entirely.
This is why I hate the comparison of crypto to gold or any other "value asset'.
Houses are lived in. Stocks act as a cashflow for companies. Even if the world economy collapses you can still use a solid gold bar as a blunt instrument to kill an animal and eat it.
I guess their secondary use is offering them in support of a prospective acquisition (or dissolution) of Amazon, in exchange for which the acquirer or trustee would offer some other value at that time.
These events both seem very unlikely right now, but they provide a last-resort value for an ownership interest in Amazon.
(I don't mean to support other people in this thread who are criticizing cryptocurrencies for their lack of inherent value, but stocks do have a particular basis for their value that cryptocurrencies commonly don't.)
I agree, I was discussing the total market cap of all coin offerings in general as being around $500B which is just over half of the value of Apple.
I'd take ownership in Apple all day over any coin, as I suspect more people out there value the Apple Stock over the ever-increasingly tough to exchange Bitcoin.
Yeah but if the world economy collapses so completely that the main value of gold is as a weapon to hit people with, your shares of Amazon will probably be about as useful as your Bitcoin wallet.
Bitcoin token's (secondary) value is the right/ability to write a new row into a global eternal immutable append-only decentralised censorship-proof spreadsheet table (blockchain). It is valuable not only in economic context to create a border-less cash-like digital commodity. It could be used for proof of publication or proof of existence and in many other useful ways (smart contracts).
In other words, owning a non-dust amount of Satoshis gives you some useful property. Anything scarce and useful will have value and market will price it. Anything with a price and good properties to become means of exchange, unit of account or store of value could under some circumstances become a form of money.
Similar as with gold. You can use it in electro-industry. That's its secondary value for people who see value in electronic devices. If you were to explain why gold is valuable in electro-industry to a member of native african tribe, he would not see that value, because electricity and electronic devices is something not considered in his mind. You are in the same boat with Bitcoin here :-)
I don't have a horse in this race, but what about pyrite? It has most of the aesthetic properties of gold (which I think everyone agrees is where most of the value comes from), but almost none of the value. Pyrite is a real, physical thing that will not disappear tomorrow. However, it has almost no value.
I guess what I am trying to say is that there is a lot more that goes into value than utility. That's why I do not think that people always act rationally. Clearly there is something irrational about people's relationship with gold that makes it valuable. I don't see why crypto cannot have a similar irrational evaluation. Sure, it could go "poof" tomorrow, but I don't know if that will stop people from seeing it as valuable.
IIRC pyrite does not possess the important qualities of gold aside from sort of looking like it. For example, you can't make it into a chain like you can with gold. For jewelry you're limited mostly to using it as a rock.
> but what about pyrite? It has most of the aesthetic properties of gold
Not really. Pyrite has a vaguely similar color to gold and flakes of it can be easily be visually mistaken for gold in certain contexts, it doesn't generally closely resemble gold, even cosmetically.
> I'm bearish on cryptocurrencies because frankly the entire thing is hilarious but modern currencies aren't entirely dissimilar.
I think this thread started out with someone saying that crypto-currencies aren't very useful as currency, but as assets (like a gold bar) instead. And then it was argued that they're not very good as assets either.
Those 0/1s on hard drives are backed by trillions of dollars of debt and tax obligations people are obliged to trade labour and physical goods for though.
Being backed by demand from the entire economy of a stable polity is certainly better than being backed by sunk (energy) cost fallacy and speculator enthusiasm.
I believe you are incorrect and have the causality backwards. Gold has several characteristics that, when combined, make it an ideal material for ancient jewellery and whose properties remain to this day. It can be found in its elemental form and is easy to refine using primitive technology. It is extremely malleable and easy to shape for artistic purposes. It’s ductility makes it easy to draw through a die or pound into leaf so it can be made into chain links or leaf to be applied to another material. It resists tarnish and is non-reactive in the presence of most acids. It is rare compared to most other metals available to pre-industrial societies so it has scarcity value. All of these properties make it better than alternatives for jewellery and for thousands of years gold was valuable because it could be made into appealing jewellery while metals of equal rarity were not hoarded and made into jewellery.
Use of gold for jewellery and other status symbols appears to have occurred independently from its use as currency/bullion though (several centuries prior in the case of Eurasian cultures, entirely independently in the case of the Aztecs who used it as jewellery but found the Spanish desire for bullion rather baffling)
A bunch of dudes with spears in separate parts of the globe found some shiny rock that looked really cool. Then they probably started stabbing each other to fight for who gets to keep it. This phenomenon likely continued on for thousands of years, with gradually less spears involved.
But you're not the only person in the world, so I don't see how this is an accurate portrayal at all. To _you_ it's a value store. To electronics companies it's a consumable used in manufacturing. Same to a jeweler, and to a jewelry consumer it's desired.
Crypto has exactly zero real world utility or inherent value. You, Joe Schmoe, do not by yourself and your own desires dictate what does and does not have inherent value.
Abstract mediums of exchange/wealth storage usually decrease in real world utility the more abstracted they become. But they are also more "advanced" so to speak, or useful for modern purposes.
Maybe that's not put very well. Look at it like this.
Primitive civilizations (some of which still exist today) may store their wealth in something like cattle. Often exactly cattle in fact. Obvious real world utility. But cumbersome to trade, can't grow the economy fast, lots of drawbacks and it limit how complex the culture can become.
As civilization gets more complex it moves on to other mediums. Next might be useful metals (tin, bronze, iron). Less immediate use than cattle, slightly more abstracted. Then maybe precious metals or stones, less practical use then the previous stage, even more abstracted. But easier to move around, trade, store and calculate with. Then currency, even more abstracted and even less practical use. Then digital currency in the form IOUs and ledger balances which is essentially what we have now. 0 practical use. Essential for any modern economy.
Point being, "real world use" has nothing to do with value as a currency, a store of wealth or an economic unit in this time and place. The worth is abstracted functionality. And it's entirely possible, in fact even likely in my opinion that blockchains are an evolution along these lines, a next step in abstracting units of trade and ledgers of wealth.
Gold is a greater-fool asset, just like Bitcoin. We buy it hoping a greater fool will pay us more for it later.
Most of the value is what we ascribe to it. Close on 80% is used in jewelry. It doesn't actually make you money, there's no universal law that makes it more valuable over time. It's just stuff we like, same as art or classic cars or Bitcoin. We've just liked it for longer than those things, so we trust it more. but that isn't guaranteed.
You can use non-greater fool assets to make money. A stock is a piece of a business that earned you money over time. A truck can be used to make money. Gold can be fashioned into more-valuable stuff but the real assets are the craftsmanship and tools. Gold is the commodity.
> We buy it hoping a greater fool will pay us more for it later.
Well not exactly, the largest consumer of gold are Indians and they buy gold jewellery to show affluence. Most of the jewellery is passed down generations.
Even less of an investment then. As an investment it's a greater fool one. If you buy it for non-investment purposes then the investment definition doesn't apply. Same as art or classic cars. If you buy it to resell, that's when it applies. If you buy it as an input into a business process then it doesn't, but that's not the common case.
Some things are valuable because of their inherent utility. Soliris (which has the distinction of being one of the world's most expensive drugs) is valuable because it has obvious utility: it treats medical conditions and saves lives. Even if it has inherent value for things like electronics or tooth fillings (it has inherent value for jewelry too, but a large part of why we use it in jewelry is because of its high price), gold is mainly seen as valuable because everyone seems to agree that it's valuable. Even if I live in a culture that doesn't particularly value gold, I know that it has a high market value and I can trade it for things that I do value.
Still, is extremely valuable and has been extremely valuable for hundreds of years. It's got the added benefit of being something that people can show off to display their wealth. Even if it's arbitrary why we value gold in the first place (I think aliens looking at our society would find our gold obsession strange), it's probably not going anywhere as a store of wealth. If I buy gold today, unless Armageddon happens, it's very very likely that it will still be highly valuable in 10 years times.
Bitcoin might be valuable in ten years, but like many manias in the past (for example, tulips in 1637 Holland), its value will probably fade at some point unless it has some inherent usefulness as a medium of trade for other useful goods. Gold might eventually lose it's value as well, but it's been artificially inflated for millennia so I'm not betting on it collapsing anytime soon.
Whatever inherent value gold has is far below it's current price though. If gold wasn't seen as an asset and was purely valued based on it's utility like iron and copper, it'll be priced far below the current price.
The price of gold isn't really related to it's use in electronics however.
> The value associated with bitcoin seems purely sentimental.
Scarcity is a factor. Admittedly not all things that are scarce are valuable but it's a necessary precondition.
There are other examples of items that lack inherent utility but have value and they too are often used to store wealth: art, antiques etc. spring to mind.
If everyone decided tomorrow that Ming Vases were rubbish they would cease to be valuable. That's surely as "sentimental" as Bitcoin - value based on scarcity and consensus.
For completeness, it should also be pointed out that, in the future, the supply of usable (for growing food) dirt maybe be outstripped by demand, making it become more valuable than gold.
Actually, if the price started trending that way, I imagine other factors would have a bigger effect on the economy before it reached that stage.
Jewelry doesn't have inherent value. Guns, cars, food and shelter has inherent value. Gold has been a luxury good long before it had any practical applications.
I do think the value in all these currencies is that it will change the value Banks in general bring to society.
If we see a widely traded and daily useful crypto-currency in use for general goods and services, we'll see a deleveraging of the banking system.
Right now how often do you exchange a real Dollar or Nickel for goods or services. Chances are your token of exchange is your credit or debit card, with a balance maintained by a bank.
Would be very interesting to imagine the world we will live in if the banks are no longer keeping the ledger for society.
> If we see a widely traded and daily useful crypto-currency in use for general goods and services, we'll see a deleveraging of the banking system
Based on what? Cryptocurrency markets went from zero to doing practically every financial fraud, scam and deception in the book in a matter of months. Excessive leverage? See Tether. Ponzi scheme? See Bitconnect. Backroom dealing to help the well connected? See Ethereum.
Banks don't lever up, lie about the value of their holdings and borrow short to buy long because they're evil and destructive. They do it because there are massive monetary incentives to do those things. Those same incentives are present in cryptocurrencies. The only difference is the regulators haven't tuned in yet.
> banks are no longer keeping the ledger for society
Banking laws would be updated to regulate Coinbase, Bitfinex, et cetera.
Cryptocurrencies have prompted central trusted parties which have done everything we don't like banks doing times ten. If cryptocurrencies take over, which is a big if, we'll probably see the same people forming similar institutions with similar behaviors and similar regulators. This isn't because of some unseen conspiracy. It's because banks do the banks things they do because they're incentivized to do them. Those same incentives apply to cryptocurrency exchanges, wallet services, payment processors, et cetera.
If you want to make this argument, then guns, shelter, food etc have no inherent value, if you don't value survival. Gold, and jewelry, have been appreciated for millennia as pretty objects. Pretty objects improve life quality - and so, if you care about life, you can say that gold has some inherent value.
Finally, you could also reduce it to the fact that possession and distribution of pretty objects can increase your likelihood of reproduction. From an evolutionary standpoint, access to reproduction is an inherently valuable thing.
Its usefulness as a metal/ornament is not why it's priced as it is. That's due to rarity, authenticity, and acceptance as a value store. And that's just another way of saying it's good for debt accounting. Bitcoin, seashells, obsidian, and gold share(d) those properties. The price is what people are willing to pay for N units in the literal or de facto “ledger”.
The question is, if gold did not have properties that made it useful as an ornament and symbol of high status (and therefore high mate value), would it have ever become accepted as a store of value?
golds inherent value is worth like 10 percent of the value people put in it for speculation purposes. If gold was only used for electronics it’d be worth a lot less. in fact, there are things far rarer than gold and actually used more but worth a lot less.
That's the case now, but that was certainly not the case in the late 19th century when gold fever struck. The only use back then was jewelry and the fact that is was rare.
The difference between Bitcoin and gold isn't in how either stores value. It's in maintenance costs.
For gold to retain value, you need to maintain human civilization, so that gold can be used in trade. For Bitcoin, you have to maintain it too, plus you need to keep paying an unbounded, ever-increasing, absurdly high price in energy use. This is IMO why cryptocurrencies are a serious problem, and also why they're unsustainable in the long run.
You're only talking about proof-of-work cryptocurrencies, and bitcoin especially. You should research more on currencies that use a less power intensive PoW algorithm, or a different algorithm altogether that might not use anything more than the energy of one computer.
I agree with the gold comparison.
Gold is priced far higher than it's industrial usefulness because it's seen as an value holding asset.
The properties that make gold a good value holding asset is:
1. It's rare and supply is limited (holds value in low physical volume)
2. It doesn't decay or rust
3. It's easy to split into smaller pieces or combine into a larger one.
Bitcoin is good at all three plus added benefit of easy, fast, cheap global transaction (compared to gold at least).
I'll grant you (2) and (3), but (1) seems more debatable. Even though the overall number of Bitcoins is fixed (By fiat ;-), cryptocurrencies are multiplying like rabbits. Each Bitcoin fork alone creates 21 million potential new coins. New elements, in contrast, are added rarely, and stable new elements seem rather unlikely at this point.
My reading of this post is that Stripe has no particular love for Bitcoin, but wants to avoid the ire of the Bitcoin fans on the internet, and so it's coated in "Bitcoin is great, we were the first people to adopt it, we can't criticize it at all" etc. etc.
Stripe cofounder here. I think you're reading too much into it. We do think Bitcoin is cool. We're just trying to be as plainspoken and clear as possible about why we're doing what we're doing.
I found the blogpost to be genuine, as far as corporate statements goes.
In my opinion, the intimations of a "bad breakup" and of festering resentment, are grounded more in the cryptocurrency-community's insecurities than anything specific to Stripe.
Do you see yourself picking up another cryptocurrency in the future? One that isn't just an asset to be held but was accepted as a form of payment on a larger scale?
The original post mentions Lightning, OmiseGO, Ethereum, Stellar, Bitcoin Cash, Litecoin, and "Bitcoin itself" as future possibilities that they might be interested in implementing support for.
Bitcoin is definitely acting more like an asset than a medium of exchange, and yeah, I don't see why it would hold any value if it's treated like an asset. But as soon as people realize that then it should go back to being a medium of exchange and then it'll hold value again as an asset?
Either way, just because Bitcoin isn't functioning correctly doesn't mean that all cryptocurrencies are not. But I guess at the moment it seems like everyone would rather hoard cryptocurrencies than actually use them for their intended purpose.
One side effect is that stores of value tend to have smaller and more expensive infrastructures than media of exchange.
People are hoarding, so there are fewer transactions. Miners still need to pay the bills somehow, so transaction fees are likely to increase.
With fewer transactions the price discovery mechanisms, i.e. exchanges, are now somewhat illusory due to thin trading volume (not like BTC exchanges were the paragon of transparency before). Unlike NYSE or Nasdaq, which support trading lithium or platinum ETFs but also make money from other sources (just in case precious metals themselves don't bring in much revenue today), Bitcoin exchanges are heavily concentrated on Bitcoin, and even the ones that support expansive lists of cryptocurrencies generally peg it to BTC, not USD.
So now that exchanges are not such a swell business, this will lead to a wave of consolidation, reduced price discovery and higher fees/commissions to transact.
your assertions about fees is exactly backwards. if there are fewer transactions, the fees go down. each block has a finite number of transactions it can include, so to get yours included you attach a fee. therefore, increased demand increases the fees and visa-versa.
> Please unpack this statement. Which part of the Bitcoin system is functioning incorrectly?
The payment system part. One of the main reasons why Satoshi created Bitcoin in the first place. As someone who got into Bitcoin in early 2011 (but left when things got crazy around 2014), it's utterly laughable to me that Bitcoin now can't even be used as a payment system. And that the fees per transaction are roughly the same as international wire transfer fees.
The Bitcoin dev team well and good shot itself in the foot by refusing the raise the block size limit. The only good thing to come out of Bitcoin recently is the Bitcoin Cash fork, who showed that the sky doesn't fall when you raise the limit to a reasonable size, and that this does take care of the current scaling and fees issues (Bitcoin Cash transfers are both reasonably quick and affordable, like Bitcoin of old).
But isn't increasing the block size limit still just a temporary fix? Wouldn't Bitcoin Cash also be rendered useless as a payment system if it was handling a similar volume of transactions as bitcoin?
Arguably not. Based on testing, they're able to handle up to 25 tx/sec without any problems now, compared to Bitcoin struggling with only 5 to 10 tx/sec. And they have only a 8MB block limit currently, but are only using a small fraction of that on most blocks. And they have plenty of room to expand, given that a 10 terabyte hard drive is only a few hundred dollars now.
I'm still incredulous that Bitcoin has resisted changing to block size limit for so long, given that it was only a security measured Satoshi implemented a year into Bitcoin's life, not only kind of fundamental design feature. I rarely use Internet acronyms, but, smh....
Isn't 25 tx/sec extremely low for something aiming to be a global payment system? I am not bashing BCH...they tried -- it just seems like something not based off of BTC might be the answer.
Again, that's with only an 8MB block size. They're now doing research into 1 GB block size limits. Think about it, with 10 terabyte hard drive at $300, it's completely feasible to have 1GM blocks.
No. I'm not a BCH fan but it would be able to handle more transactions. It would still hit an upper bound, but it is higher than BTC, but lower than BTC lightning network. (It has some drawbacks too by not being on-chain).
I have also been in Bitcoin since early 2011. I once thought as you did until I realized that the most important part of Bitcoin is censorship resistance. It's not about storing your latte payment on the immutable ledger forever.
> Bitcoin now can't even be used as a payment system
What about the part where the blocks are full of tons of payments?
The fork drama proved the most important part of Bitcoin: it's immutability even in the face of great pressure to change.
If the Bitcoin Cash blocks get full, then we'll see how things go. Until then, there is no comparison.
"The incentive can also be funded with transaction fees. If the output value of a transaction is
less than its input value, the difference is a transaction fee that is added to the incentive value of
the block containing the transaction. Once a predetermined number of coins have entered
circulation, the incentive can transition entirely to transaction fees and be completely inflation
free."
It's the design, folks. Read the paper and think about what it's saying.
Satoshi was acutely aware that 1MB blocks could only encode a couple thousand transactions. So what do you think "the incentive can transition entirely to transaction fees" means in practice?
Of legacy electronics payment systems and their need to be mediator, Satoshi says this:
> The cost of mediation increases transaction costs, limiting the
minimum practical transaction size and cutting off the possibility for small casual transactions
If enabling small casual transactions was one of the goals, then they've failed terribly on that point.
BS. Bitcoin had small casual transactions up until recently. It was one of its main selling points.
Again, people don't like Satoshi's endgame vision. This is working as designed. Bitcoin was designed to evolve into this. It was not intended to stay static; it's in the whitepaper.
Break out of the groupthink. It's worth realizing when everyone around you is being irrational.
Satoshi expected Bitcoin to scale to Visa-levels of 100 million transactions per day. He expected the cost of a transaction to be less than Visa forever, not just while nobody was using it.
Try to find a quote and paste it. It's a useful exercise, because it forces you to constrain your thinking. Either from the whitepaper or from http://satoshi.nakamotoinstitute.org/
I don't think Satoshi said this, but I'll be happy to admit to being wrong.
In fact, here is Satoshi's clear and complete vision from the very beginning:
Total circulation will be 21,000,000 coins. It'll be distributed
to network nodes when they make blocks, with the amount cut in half
every 4 years.
first 4 years: 10,500,000 coins
next 4 years: 5,250,000 coins
next 4 years: 2,625,000 coins
next 4 years: 1,312,500 coins
etc...
When that runs out, the system can support transaction fees if
needed. It's based on open market competition, and there will
probably always be nodes willing to process transactions for free.
> A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.
Is your argument that Stripe is acting as a financial institution or that their exit as a middle man is inches us closer to a peer-to-peer system?
> What future does an asset have if people don't actually buy stuff with it?
Lots of assets have value without people buying things with them. Gold, houses, stocks, etc.
The more interesting question is how long Bitcoin will remain top dog merely as a store of value if other cryptocurrencies solve this on-chain / off-chain scaling problem better / faster. There's definitely some amount of value in the name alone, and some more in the security of the mining, but neither of those are unassailable.
> Lots of assets have value without people buying things with them. Gold, houses, stocks, etc.
That value is predicated on the notion that they're worth something to the holder apart from their market price.
Gold can be used for jewelry and electronics manufacturing. In that sense it is a natural resource.
Stocks are shares in a company that runs a business or multiple businesses that could be profitable. Companies have financial obligations to their shareholders.
People live in houses.
Bitcoin's only function is to be exchanged. If no one is willing to give you anything for your bitcoin, it is completely worthless-- maybe even less than worthless when you factor transaction costs. The idea that it is a "store of value" is still predicated on bitcoin being a viable and accepted medium of exchange.
This is different from a house, which you can still use even if no one will buy it.
This is different from gold, as it is very hard to imagine a scenario where absolutely no one would buy your gold for at least for manufacturing.
This is different from stocks, where the financial obligations to you can only be cleared by legal proceedings such as Chapter 7 bankruptcy.
Bitcoin absolutely can still be exchanged, and (in many cases) far more easily and cheaper than gold. It can also be stored and secured much cheaper, and even large amounts can be easily taken across borders. That is real value, even if transaction fees are high, and even if you don't directly buy things with it.
Yes, gold is a very special case. Gold also has a very, very long history of being used as a global currency, which lends far more confidence in it than is probably warranted.
Bitcoin has not even 10 years of history as a currency, and most of that time the system was propped up by an inflation mechanism that will soon cease to exist (and is already mostly ineffective), and the rest has been fueled by speculative mania. Compared to gold, it is utterly unproven for the role.
There is no reason to think that Bitcoin is in any real position to replace gold in its role as a "store of value."
Yes, but nearly anything can function as a store of value by that standard. While it's true Bitcoin has name recognition and that is an advantage, it's not exactly a big advantage.
And what is jewelry’s worth? What is fine arts worth? What is fiat currency worth? The world is chock full of goods with no inherent value. None. Fine art is worth a lot BECAUSE it is worth a lot.
Kim kardashian is famous for being famous. It’s clear the world is not utilitarian.
Jewelry and artwork are used for adornment and to signal status.
Artwork is also used to decorate or define your living space or working space. It can manipulate your emotional state, serve as a conversation piece at parties, or signal some other trait about you. Artwork is also used to express ideas. Is really high-end collectable artwork from famous dead artists priced far higher than its utility should warrant? Most likely this is because they're used as a store of value. The reasons why artwork became a convenient store of value are probably interesting and might be worth comparing on a detailed level with bitcoin-- but the simple fact that fine art exists as a store of value does not mean that just any arbitrary exchangeable item is likely to fill a similar role.
Kim Kardashian's story is a lot more nuanced than you give it credit for. Many famous socialites quickly fade back into relative obscurity. Kardashian (in full club get-up, anyway) was strikingly beautiful, had a bold but impeccable sense of style, and a willingness to repeatedly expose her personal life to the public. She proved to have a better-than-average ability to entertain audiences on her reality TV show, even if that ability wouldn't fit into any traditional definition of an entertainer.
Fiat currency has no value beyond its utility as a medium of exchange (or store of value). But then, my whole point is to distinguish currency from other types of assets.
Besides that, there's a certain shifting of the goalposts going on when people who used to talk about Bitcoin replacing all the world's currencies instead start talking about the rising value of Bitcoin.
While the parent's statement is wrong; it essentially makes the correct point. Gold has value as it is a store of wealth and maybe a case could be made that Bitcoin is that; though it is tougher now. Gold is used as a medium of exchange and the underpinnings historically for currency as some currency is literally minted out of it or was backed by it.
However, other assets have value because they are useful. Per your examples a house is shelter and a stock is a virtual representation of the physical assets and receivables of a corporation which I should add has extreme market liquidity. Other assets like vehicles provide transportation and heavy machinery make products. I like Bitcoin and it may become/stay an asset class like gold; very illiquid and a store of wealth, but if that fails to materialize or continue after this speculation Bitcoin will be a lot more the AltaVista/Yahoo/Dogpile to Google search than the Gold to Cash analogy.
...and even collectibles have some appreciable aesthetic qualities and enthusiast interest which exists independently of and generally strictly prior to speculators getting involved.
Cryptos have this in the form of gas (Ethereum and NEO for now).
With the cryptocurrency NEO, because it's algorithm is Proof-of-Stake, merely holding some amount of NEO means you can sign transactions, and signing transactions earns you GAS, which has value.
Indeed, I'd go further and say that almost all assets are not used to buy stuff. That's what makes cash special, it's (one of?) the only asset you can freely spend.
Why is everybody all suddenly so excited about gold? Maybe btc is modestly better gold. So? Who tells typical people to invest in gold other than foxnews and infowars? I own precisely zero dollars worth of gold. Why should I buy btc?
Transactions are not always buying goods. If I transfer 1btc to somebody and then send me $10,000 there will be a transaction. But btc was not used as a currency to purchase a good here.
Because there are trillions of dollars in gold and only billions in bitcoin. If bitcoin just replaced gold as a store of value it would explode many-fold.
> What future does an asset have if people don't actually buy stuff with it?
People don't buy stuff with gold, but it's been a viable store of value for a long time.
That being said, the burden of proof to show that Bitcoin is going to be a viable store of value is simply enormous. Further, gold has a number of characteristics that make it fairly unique; nobody is running around saying "gold is great, but have you considered tantalum?". If you want to put a bunch of precious metal in a vault, gold is clearly a good default choice. Whereas Bitcoin is anything but unique now, and is not an obvious default choice.
> What future does an asset have if people don't actually buy stuff with it?
Not sure what you're getting at here? There are loads of assets that people don't buy stuff with e.g. gold, stocks, bonds, property, etc. Aside from cash I'd guess that the norm is for assets to be converted to cash before anything.
You can buy Bitcoin worth 50k USD in one country, cross the border and sell it in another, with no documents required . This is useful for a subset of people .
Not sure exactly what you mean by no documents required. You need to find some way to get money to the seller when you are in country A and the buyer needs to the same for you in country B.
There is no reason that same pair of transactions could not have occurred with British bonds.
I mean one of the main cryptocurrencies attraction points - it's unregulated and you can move money cross borders freely. And guys from localbitcoin don't ask many questions. There are other ways also, I suspect.
They aren't unregulated. All the laws apply to them. They just are new enough so that governments haven't gotten up to speed in enforcing the laws with respect to them yet. But there's no reason whatsoever to believe that they won't eventually come up to speed or that somehow their nature will render those enforcement efforts impossible.
I think they're being careful not to signal a negative sentiment towards crypto, because they're still bullish on crypto being the future of payment infra. Just bearish of BTC.
Ok, so the Fork will have the same/similar technology behind it, and will be distributed to the same people at the beginning. But, it's not like it's being supplanted. Bitcoin will still be Bitcoin.
I suppose the real world example would be to send an amount of copper to people with gold, it wouldn't change the value of the gold much. Bitcoin has many issues, but I don't see this as one.
What future does an asset have if people don't actually buy stuff with it? That is not a purely rhetorical question; cryptocurrencies change things a lot. But this news is worrying.